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The German-Czech Chamber of Commerce
Cesko-nemecká obchodní a prumyslová komora
Václavskè nám. 40
110 00 Praha 1
Czech Republic
Tel.: +420 -224 221 200
Fax: +420- 224 222 200
Mail: info@dtihk.cz
Internet: http://www.dtihk.cz

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*1.1 Stock Corporation. Most stock corporations existing today in the Czech Republic were established during the privatization process. Some kinds of businesses (particularly banks, insurance companies, and other financial institutions, including investment companies, security brokers, etc.) must be established as either a point stock company or as a branch.

*2 For almost all business activities in the Czech Republic, the Trade Licensing Act requires trade licenses to be issued (with the exception of certain professions and service activities) prior to registration of a company or branch with the Commercial Register. Special permits or licenses are required only for certain activities, e.g. banking, insurance, financial services, gambling and lotteries, etc.

*3 An individual can participate as a sole shareholder at most in three limited liability companies. A limited liability company cannot be founded by a sole shareholder or have a sole shareholder which is already a limited liability company with a sole shareholder.

*3.1 Before the company's entry in the Commercial Register, shareholders are required to pay in at least 30% of each cash contribution and at least CZK 100,000 (approx. EUR 3,150) of the total nominal capital including contributions in kind. The remainder must be paid within five years after registration of the company. The initial contribution to capital of each shareholder must be at least CZK 20,000 (approx. EUR 630) and can be made in full as contribution in kind. The value is determined by one or two experts in the same way as described for a stock corporation. In the case of single-shareholder ("one-man") companies, the entire nominal capital must be paid in prior to the entry of the company in the Commercial Register. A limited liability company is also required to form a reserve fund from profits in an amount equal to at least 10% of the nominal capital.

*3.2 The stated capital (share capital) of a stock corporation must amount in the case of a public offering, at least CZK 20 million. At least 30% must be paid in by the date of entry in the Commercial Register. The remainder must be raised within one year; otherwise, interest on arrears is charged at a rate of 20% p.a. in accordance with the Czech Commercial Code. In addition to the stated capital (share capital), a reserve fund must also be created from the first realized profit in an amount which equals at least 20% of the profit but need not exceed 10% of the stated capital (share capital). In the years thereafter, at least 5% of profits must be allocated to the reserve fund until it has reached the legally required amount of 20% of the stated capital (share capital).

*4 The limited liability company does not come into existence until it is entered in the Commercial Register. The application for entry must be filed within 90 days from the date of formation. The application must be accompanied by the following documents:

• trade license
• proof of residence
• shareholders' agreement
• bank statement as proof of payment of the share capital, extract from police records for the manager(s)

• SRO:The profit of a limited liability company is taxed at a rate of 24%. After allocation to the legal reserves, the remaining net profit can be distributed (unless loss carry-forwards exist). The distributed profits of a limited liability company are subject to a 15% tax at source (final tax – for physical persons and companies) with the exception of qualified minority holdings.
  
  
• Branch: Under the Income Tax Act the basis of assessment for a branch (business establishment) is not allowed to be lower than that of a taxable person engaged in the same business activity with a registered office in the Czech Republic. The branch must be entered in the Commercial Register but instead of attaining full legal personality, remains part of the main enterprise. The amount of the basis of assessment or the tax is determined in a personal meeting with the competent tax office based on the type and extent of business conducted by the company – if this line of business is out of the ordinary – and is specified in a tax assessment notice issued by the tax authority.

• income for the non self-employed (Section 6): employment relationship, service relationship, work as partners, managing directors, cooperative members for the company, remuneration of the members of the boards of companies, non-cash remunerations (car, company-owned apartment, etc.),
• income from self-employment (Section 7),
• income from capital assets (Section 8),
• income from rent (Section 9),
• other income (Section 10).

Note: determined by the exchange course of Czech National Bank to the 1st of March, 2007

Minimum tax

As from 2004 the following natural persons are obliged to pay a minimum tax under the obligation to pay income tax:

• persons carrying on a trade or business
• independent professionals
• farmers and forestry experts

• 15%for non-deductible interest paid to shareholders in a company if the loans exceed a multiple of the equity (see above),
• 1%for income from rentals where the right to purchase the rented assetwas agreed upon (finance lease).

• 15% for income from dividends and equity investments,
• 15% for income from savings books and savings accounts of natural persons,
• 20% for income from money won in (prize) contests and sports events,
• 15% for income from interest on credit balances of physical persons(private accounts), from life insurance annuities and from marginal income up to CZK 5,000 (approx. EUR 160) per employer and month,
• 10% for income from journalistic work for mass media up to CZK 3,000(approx. EUR 95) per medium and month.

*6.3 Restaurants are taxed at 5% since May 2004 and hotels since Jan 05. 5% reduced rate on catering & hotels, books, printed materials, food, medicines and passenger transport w.e.f. 01/04/00. The VAT rate on most services (legal, tax, accounting, real estate, construction work and telecommunication services for example) increased from 5% to 22% w.e.f. January 2004. Just prior to entry into the EU this rate change will also apply to cosmetics, laundry, shoe repairs and waste disposal services, except heating supplies and apartment building construction services, which will remain at 5% until December 2007. VAT on restaurant bills has risen from 5% to 19.5% following the Czech Republic's entry into the EU on 1 May 2004.

EUROPEAN SAVINGS TAX DIRECTIVE EUSTD
On July 1st 2005 a new legislation came into force, the European Savings Tax Directive (EUSTD). It is an agreement between the 25 European member states* and applies to individuals who earn interest in one country but have their residence in another. This effects only residents in one of the 25 EU countries, but the British Virgin Islands, Anguilla, Turks & Caicos Islands, Cayman, Isle of Man and Channel Islands have also adopted the EUSTD because of their status as dependent territories** from the U.K. It consists of two systems: Information exchange and withholding tax. Individuals who are subject to the EUSTD have to choose between the two options. Withholding tax of 15% is levied on interest earned after 1 July 2005. This tax rate will increase to 20% w.e.f. 1 July 2008 and to 35% w.e.f. 2011. Exchange of information means an agreement to report interest paid to the individual's resident state's tax authorities. This includes the disclosure of the recipient's identity. As this interferes with the tradition of banking secrecy in some member states, these will adopt the withholding tax system, which does not include the reporting of the recipient's identity.

*EU member states: Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, United Kingdom
**Other territories: Andorra, Anguilla, Aruba, British Virgin Islands, Cayman Islands, Guernsey, Isle of Man, Jersey, Liechtenstein, Monaco, Montserrat, Netherlands Antilles, San Marino, Switzerland, Turks & Caicos