Business as a Foreigner in Czechia – Trade Licence or a Company?

When a foreigner is considering starting a business in the Czech Republic and is not yet an entrepreneur, they most often choose between a trade license and a limited liability company. How does running a business with a trade license (formerly a trade permit) differ from starting your own company? Read on to learn about the advantages and disadvantages of both options.

Trade License (ŽL) for Foreigners

You will no longer receive a traditional paper trade license. Instead, you will receive an electronic extract from the Trade Register issued by the Trade Licensing Office.

A trade is defined as the provision of services, the sale of products, and other activities carried out independently, in one’s own name and under one’s own responsibility, for the purpose of making a profit. A business license can therefore be useful for a foreign national both when tutoring a foreign language and when engaging in other regular profit-making activities.

Conditions for Obtaining a Trade License for Foreigners in the Czech Republic

With one exception, foreigners must meet the same requirements for establishing a trade as anyone else in the Czech Republic:

• be at least 18 years of age,
• demonstrate good character by providing a criminal record check,
• meet professional qualification requirements for trades other than unregulated trades,
• submit proof of legal residence in the Czech Republic (visa, decision, or residence permit)—this applies only to foreign nationals from countries outside the European Economic Area, such as Ukraine.

As a foreign national, you need the following documents to start a business in the Czech Republic:

• an ID card or passport,
• a criminal record extract from the country where you have permanent residence (the document must be less than 90 days old, and you must provide it only if you have permanent residence outside the Czech Republic; a criminal record from a country outside the EU or in a language other than Czech, Slovak, or English must be officially translated into Czech),
• proof of residence (for non-EEA foreign nationals),
• consent from the property owner to establish the business’s registered office,
• proof of professional qualifications for trades other than unregulated trades (or designation of a responsible representative),
• proof of payment of the administrative fee in the amount of EUR 40.

The process of registering a trade for foreigners (you will receive an IČO and DIČ for foreigners) is then relatively simple; all you need to do is fill out the standard registration form at any Trade Licensing Office or Czech POINT.

Other necessary steps include registering with a health insurance company and the Social Security Administration (you’ll find more details about registering with health insurance and the Social Security Administration in a separate article).

Benefits of a Trade License

Starting a sole proprietorship is administratively straightforward, inexpensive, and the fastest way to launch a business. Foreign nationals from European Economic Area (EEA) countries do not need to provide proof of a residence permit, as they are free to move and conduct business throughout the country. The subsequent administrative procedures are also straightforward, especially when using the flat-rate tax for self-employed individuals, as this covers all social security and health insurance contributions, including income tax.

Disadvantages of a Trade License

The disadvantages of running a business with a trade license stem from its very nature and mainly concern liability with one’s own assets. Every self-employed person is liable for business debts with all of their assets, so any problems at work can easily become a matter of survival.

Another drawback is that foreigners residing outside the EEA must obtain a residence permit—such as a visa, a decision granting residence, or a residence card—to establish a trade. If they do not have one, they must visit multiple government offices and submit a number of documents.

Starting a Business as a Foreign National

The second most common way for foreigners to do business in the Czech Republic is to start their own company, typically a limited liability company (LLC). Following a series of legislative amendments, this method of doing business is now cheaper and easier than before, which is why an increasing number of foreigners are opting to establish a new company. This is especially true in situations where this business model offers sufficient benefits—such as protection of the entrepreneur’s assets or tax optimization—to make it worthwhile to invest more time and money into establishing the company and its subsequent operation.

Requirements for a Foreign National to Establish a Czech s.r.o.

There is very little difference between a foreigner and a Czech citizen establishing a s.r.o. in the Czech Republic. You can read the details regarding the process of establishing a limited liability company by a foreigner in a separate article on doing business as a foreigner in the Czech Republic. Delays may occur when obtaining a criminal record check from non-EU countries or when opening a bank account, which you’ll need to deposit registered capital exceeding 20,000 CZK.

Advantages of an s.r.o.

One of the key advantages of an s.r.o. over a sole proprietorship is the protection of the entrepreneur’s assets, since in the case of an s.r.o., the entrepreneur is liable only with the company’s assets, not their entire personal fortune. However, since 2014, this has only applied if the loss did not result from actions by a statutory body that would be contrary to the duty of care of a prudent manager.

A limited liability company is often perceived as more trustworthy; it offers advanced tax optimization options and a number of other advantages over a sole proprietorship.

A foreign national acting as a managing director or shareholder when establishing an s.r.o. is not required to submit proof of a residence permit in the Czech Republic, even if they come from a country outside the EEA. A trade license for an s.r.o. is issued directly to the company, not to a shareholder or managing director. An exception applies when an s.r.o. conducts a trade through a responsible representative in the case of regulated, skilled trade, or licensed trades—if the responsible representative is a foreign national, the above-mentioned conditions for obtaining a trade license apply to them.

Disadvantages of an s.r.o.

Establishing a limited liability company is more time-consuming. It is also more expensive than starting a sole proprietorship, as additional fees to government agencies and a visit to a notary public incur costs. The company must also maintain accounting records, hold annual general meetings, and publish its financial statements.

Summary: Sole Proprietorship vs. Incorporating a Company.
Which is better for foreigners?

A foreigner has two basic options for doing business in the Czech Republic.

We’ll handle the paperwork and government procedures for you

Would you appreciate help from specialists in starting a business in the Czech Republic? Don’t hesitate to contact us—our team of experts will help you determine which option is most advantageous for your situation. We’ll also assist you in obtaining a trade license for foreigners or in establishing a company.