Business as a Foreigner in Czechia – Trade Licence or a Company?
A foreigner can start a business in the Czech Republic in several ways and, in this article, we will look at the two most common ones: a trade licence and a limited liability company. How does a business with a trade licence (formerly a trade certificate) differ from setting up your own company? What advantages and disadvantages do both options offer?
When a foreigner considers starting a business in the Czech Republic and they are not yet an entrepreneur, he or she most often decides between a trade licence and setting up his or her own company. For foreigners who are already doing business in another country and are planning to expand into the Czech Republic, we have prepared a summary article on the o differences between a spin-off company and the establishment of a new company.
Trade Licence for Foreigners
First of all, let's say that you will no longer be able to get your hands on a trade certificate as such. Instead, you will receive an extract from the Trade Register issued by the Trade Licensing Office.
The definition of a trade implies that it is the provision of services, sale of products, and other activities carried out independently, in one's own name and responsibility, and for profit. Thus, a trade licence may be useful for a foreigner both in the case of foreign language tutoring and for carrying out other systematically gainful activities.
Conditions for Obtaining a Trade Licence for Foreigners in the Czech Republic
With one exception, a foreigner must meet the same conditions for setting up a trade as anyone else. They must:
- be over 18 years of age,
- provide proof of good character via a criminal record,
- meet the professional competence for a trade other than the liberal trade,
- present proof of legal residence in the Czech Republic (visa, decision regarding a residence permit, or the residence permit itself) – this applies only to foreigners from countries outside the European Economic Area, e.g., from Ukraine.
When setting up a business, a foreigner needs the following documents:
- a criminal record extract from your country of birth (less than 90 days old, translated, and certified),
- proof of residence (for non-EEA nationals),
- consent to the place of business (unless the foreigner is the owner of the premises),
- proof of professional competence in non-free trades (or designation of a responsible representative),
- proof of payment of the administrative fee of CZK 1,000.
The process of setting up a trade is relatively simple, just fill in a registration form at any trade licensing office or Czech Point. The tax office, health insurance office, and social security administration are the next necessary stops. If you are interested in the details, you can find more information on our page about setting up a trade, where you can also contact us and take advantage of our expert assistance.
Advantages of Having a Trade Licence
Setting up a trade is administratively easy, inexpensive, and the fastest way to start a business. Foreigners from countries in the European Economic Area do not need to provide proof of residence, as they can move freely and do business throughout the territory. The subsequent administration is also easy, especially when using the flat-rate tax for self-employed persons, which covers all social and health insurance contributions, including income tax.
Disadvantages of Having a Trade Licence
The disadvantages of running a business with a trade licence arise from its very nature and relate to the liability of one's own assets. In this case, the sole trader is liable with all their assets, so any problems in the business can easily spill over into existential ones.
Another disadvantage is the fact that foreigners residing outside the EEA need to obtain proof of residence, e.g., a visa, a decision regarding a residence permit, or the residence permit itself, to set up a business. If they don't have one, they have to visit several offices and submit a number of documents.
Establishing a Company as a Foreigner
The second most common option for foreigners to do business in the Czech Republic is to establish their own company, typically a limited liability company. After a number of amendments, this method is cheaper and easier than before, which is why more and more foreigners are resorting to setting up a new company. These are mainly cases where this method brings sufficient advantages in the form of protection of the entrepreneur's assets or tax optimisation to make it worthwhile to invest more time and money in the establishment of the company and its subsequent operation.
Conditions for Establishing a Czech LLC as a Foreigner
There are minimal differences between establishing an LLC as a foreigner or as a Czech citizen. Delays may occur in the case of extracting a criminal record from non-EU countries or when establishing a bank account, which is required when depositing a share capital of more than CZK 20,000. Details on the establishment of a limited liability company by a foreigner are described in the article on the business of a foreign person in the Czech Republic.
We recommend foreigners to use the services of experts, whose help will assist them in establishing a company faster and often cheaper than by themselves.
Advantages of an LLC
The typical advantages of an LLC over a sole proprietorship include the protection of the entrepreneur's assets, because, in the case of an LLC, the entrepreneur is liable only for the assets of the company, not for their entire assets. Since 2014, however, this has only been the case if the damage was not caused by an act of the statutory body that would be contrary to the care of a proper manager.
A limited liability company is often perceived as more trustworthy, offering advanced tax optimisation options, and a number of other advantages over a sole proprietorship.
A foreigner in the role of a managing director or a shareholder does not have to submit documents of residence in the Czech Republic when establishing an LLC, even if he/she comes from a non-EEA country. The trade license is issued directly to the company, not to the shareholder or managing director. An exception to this rule is the operation of an LLC through a responsible representative in the case of bound, trades, and licensed trades; if the responsible representative is a foreigner, the above conditions for obtaining a trade licence apply to him/her.
Disadvantages of LLCs
Setting up a limited liability company is a more time-consuming process. It is also more expensive, as additional fees to the authorities and a visit to a notary apply. The company must also keep accounts, hold annual general meetings, and publish financial statements.
Summary: Sole Proprietorship Versus Incorporation.
Which Is Better for Foreigners?
A foreigner has a choice of two basic ways of doing business in the Czech Republic. Setting up a trade is quick and cheap, but it also carries risk should financial problems arise because the trader is liable with all their assets. Even so, this method is very popular, and over 100,000 foreigners run businesses in the Czech Republic.
The second option is to establish a limited liability company, which is administratively and financially more demanding, but reduces the risk of doing business, as the managing director is liable only for the company's assets. In addition, it brings the possibility of tax optimisation and higher credibility in the eyes of customers and suppliers.
Would you appreciate help from specialists to start a business in the Czech Republic? Do not hesitate to contact us, our team of experts will help you compare which option will be more advantageous in your case. At the same time, we will lend a helping hand in the actual registration of a trade or in the establishment of a company.