Establishment of registered branch by foreign entity

16.01.2016 Tips and advice

Doing business through a registered branch formerly an organizational unit according to the Commercial Code) is one of the ways in which foreign entities can do business in the Czech Republic without having to incorporate a new company. The establishment of a registered branch, its management, and dissolution are less administratively demanding than the establishment, management, and dissolution of a classical company (e.g. limited liability companies, joint stock companies, etc.).

The main advantages of a registered branch compared to a classical company are the following:

  • not a separate legal entity, but part of a foreign entity, and therefore transactions between the foreign entity and the registered branch are purely informal;
  • the decision on the establishment of the registered branch does not have to be in the form of a notarial deed, thus saving on fees;
  • when establishing a registered branch it is not necessary to create registered capital;
  • the sole mandatory body of the registered branch is the branch manager, on whom the law does not impose such strict requirements as on members of the statutory body of a classical company;
  • management of the registered branch is not subject to special rules, meaning that general meetings, etc. do not have to be held; and
  • dissolution of the registered branch is not accompanied by liquidation, which is time-consuming and costly.

The key person in the registered branch (organizational unit) is the branch manager, who manages the branch and usually also holds the position of responsible representative, and therefore also answers to the foreign entity for the proper operation of the business and adherence to the trade licensing regulations. In selecting the branch manager, therefore, the foreign entity should proceed with due diligence, as it is the person who will be responsible for its business activities in the Czech Republic. A registered branch can have only one manager, who must be a natural person. The manager of the registered branch must be registered in the Commercial Register.

The advantage is that the branch manager is already directly entitled under the law (without having to be granted power of attorney for the specific legal act) to act for the foreign entity in all matters relating to the registered branch in the Czech Republic, including representation of the foreign entity in judicial, administrative, tax and other proceedings.

In this context, it should be emphasized that the registered branch is not a legal entity (since it does not have legal personality); it is merely an organizational unit of a foreign entity located in a state other than that of the place of residence or seat of a foreign entity. This means that in dealing with business partners, authorities, courts or other entities in the Czech Republic the branch manager must denote all contracts and other business documents as the foreign entity and not as the branch itself, as only the foreign entity is eligible to acquire rights for itself by its own legal actions and commit to obligations (perform legal acts). In other words, it is only and solely the foreign entity that can own property, employ staff, enter into contracts, participate in relevant proceedings, etc.

Example of correctly denoted representative: Business intelligence, s. r. o., identification no.: 123456, registered office: Bratislava, Kríková 4, Postal Code 821 07, registered in the Commercial Register maintained by the Regional Court Bratislava I, Section Sro, Insert 00007/B [note: identification of the foreign entity] via Business intelligence, s. r. o., odštěpný závod (registered branch), identification no.: 741852, registered office: Prague, Dlouhá 730/35, Postal Code 110 00, registered in the Commercial Register maintained by the Municipal Court in Prague, Section Ax, Insert 987 [note: identification of the registered branch], represented by the branch manager Jan Novák.

If a foreign entity provides an item to the registered branch, such as property, employees, etc., it does so purely informally, and it is precisely for this reason that the branch is not legally separated from the foreign entity (such transactions take place within one entity, therefore it is not necessary to conclude a purchase contract).

Except for the branch manager, the registered branch has no bodies, but the foreign entity may allocate core employees to the branch or hire new employees for this purpose.

The foreign entity operates in the Czech Republic through the registered branch under the same conditions and to the same extent as a domestic entity, i.e. among other things, this means that the registered branch is required to maintain separate accounting according to the regulations of the Czech Republic, to pay taxes in the Czech Republic, etc.

All foreign entities who are domiciled or have seat in a foreign country may establish a registered branch in the Czech Republic. For a foreign entity to start doing business through the registered branch in the Czech Republic, it is necessary to:

  • decide on the establishment of the registered branch;
  • obtain a trade licence or other authorization to perform business activities in the Czech Republic; and
  • file for registration of the registered branch in the Commercial Register, supported by relevant documents.

Documents to be submitted to the registration court for registration of the registered branch in the Commercial Register are:

  • the decision of the foreign entity establishing the registered branch;
  • extract from the commercial register of the foreign entity or equivalent;
  • memorandum of association under which the foreign entity was founded, and its amendments and full text;
  • the consent of the property owner to the placement of the seat of the registered branch;
  • trade licence or other authorization of the registered branch to conduct the business;
  • affidavit and consent to registration of the manager of the registered branch in the Commercial Register;
  • Czech criminal record for the manager of the registered branch;
  • criminal record for the manager of the registered branch from the state of which he or she is a national, if the manager of the registered branch is other than a Czech citizen; and
  • power of attorney for representation.

Our services include:

  • preparation of all documents required for registration of the registered branch in the Commercial Register;
  • arranging consent of the property owner to placement of the registered branch;
  • arranging a trade licence or other authorization for the registered branch to conduct the business in the Czech Republic;
  • arranging of Czech criminal records for the manager of the registered branch;
  • arranging registration of the registered branch in the Commercial Register;
  • payment of notarial, administrative, judicial or other fees;
  • accounting for the registered branch; and
  • other activities upon individual agreement.

The deadline for registration of the registered branch in the Commercial Register after submission of the application and delivery of the necessary documents is only 10 business days

Please let us know before you start arranging the above documents and we will be happy to help you. Each state has its own specific requirements and therefore it is not possible to list everything that will be needed in advance.

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