Home I need to arrange… Doing Business as a Foreigner in the Czech Republic

Doing Business as a Foreigner in the Czech Republic

In this section of the Prague for All, you will learn about the characteristics of business and about running a business as an individual as well as a company. We will introduce the types of business in the Czech Republic and have a detailed look at trades. We will focus on the conditions under which foreigners can do business in the Czech Republic. We will also tell you where to seek help with starting a business and where to arrange all the necessary requirements. You will find here links to trustworthy information on business. Attention will be paid to the obligation of entrepreneurs to pay health and social insurance and taxes.

What Counts as Business?

Czech law defines business as a continuous activity carried out by an entrepreneur independently, in their own name and on their own responsibility in order to gain profit.

Business in the Czech Republic usually takes the form of 1) business of natural persons – most often on the basis of a trade licence, or 2) business of legal entities – participation in a company. The two forms are described in more detail in separate chapters.

Let’s have a close look at the characteristics of a business activity:

Continuous activity

An activity is considered continuous if it takes place repeatedly. For example, if you only have occasional or episodic (one-time) income from helping a friend with building his house, lawn mowing or house cleaning, or from a one-off paid counselling, it does not qualify as business. However, if you plan to pursue the activity, then it qualifies as business even if it takes place only a few times a year.

A business run in your spare time or only at certain time of the year alongside your employment is also considered a continuous activity.

Independent activity

If it is you who decides about your working hours and the place of business, if you organise your work and pay for the costs of your business yourself (e.g. premises, tools, and equipment), you qualify as an independent self-employed person.

Activity carried out in your own name and on your own responsibility

You act in your own name or in the name of your company. You are also fully responsible for the outcome of your actions, especially if you breach your obligations or violate the law. The self-employed (natural persons) are liable for all obligations arising from their business with all their assets.

Beware of unfair employer practices – especially the Švarc system!

If your employer forces you to acquire a trade licence and to formally act as a sole trader, even though the activities you are supposed to carry out for them are typical for an employee, it is an illegal circumvention of the law (a.k.a. the Švarc system – an illegitimate way of cooperation between the employer and the employee)!

A typical example would be teaching at a language school where you have your own working place, a computer, and business cards with the name of the language school. Such activity is not considered as ‘carried out independently by the entrepreneur in their own name and on their own responsibility’ as defined by the law. In addition to facing a financial penalty, you also lose all benefits of employment (as an employee you can’t be made redundant without a fair reason, you are entitled to annual leave, etc.) and you are not protected by the Labour Code. At the same time, your pension will most probably be lower than if you were employed.

Gaining profit

You get paid for the work you do. However, you do not receive a salary as you would if you were employed. You issue invoices to your clients. Your aim is to generate profit but it is not important whether you actually make a profit. If you for example offer surplus from your garden, it is not considered business.

Updated for socio-legal content as of 8^th November 2021.

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