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IV.
Corporations
COMMERCIAL CODE defines the following types of entities:
All these types of entities commence when signed into the Commercial Register. Corporations must obtain a Tradesman's License for each separate line of business (or professional license) from the Trade Licensing Office and register each of those lines with the Commercial Register. The Trade Law defines the conditions for qualifications (see Section for self-employed individuals). If the company's executive is unable or unwilling to fulfill the requirements, then another individual must be appointed. But be warned, horror stories abound. If a foreigner wants to be entered into the Company's Register as the official President, Managing Director or simply to sign legal documents, a Residence Permit is required. The Commercial Code also requires a branch of a foreign company (Organizacní slozka) to register with the Commercial Register. BOOKKEEPING All commercial entities must use Double Entry bookkeeping. The rules and regulations are stipulated in the Act on Accounting and Chart of Accounts, Tax Law, Act on Travel Reimbursements, VAT Law, and Law on Reserves. In our opinion, the statutory rules and chart of accounts are impractical. In some cases, businesses are keeping another set of accounts in order to prepare management information. In many important respects, the statutory regulations do not conform with international accounting standards. TAXES The corporate tax rate have varied between 32% and 39% of the adjusted gross income less allowances. A tax payer may deduct from the Czech tax liability foreign taxes abroad proportional to the foreign source income. Double tax treaties override local law. Adjusted gross income is the taxable income after deducting tax allowable expenses. It excludes non-taxable income (such as income subject to withholding tax - certain interest, dividends and royalty payments to Czech non-residents). Expenses have to be documented as statutorily required. The income tax laws start with the presumption that "all expenses incurred to earn or maintain income are deductible." However, there are several exceptions and anomalies in its interpretation. See part VI. The employer has to pay monthly payroll withholding taxes on wages. After the end of each calendar year the employer has to make a statement of withholding taxes paid to the government. SOCIAL SECURITY Employee contribution are about 8% of gross monthly income (comprising contributions for sickness, pension, and unemployment), the payments are paid through withholdings deducted from income. Employer contribution are about 26% of gross monthly income of employees (comprising sickness pension and unemployment). A corporation must register its employees with the Social Security Office. Corporations pay social security monthly. The amount is due and payable on the payroll date, or in certain instance on the 8th day of the following month. MEDICAL INSURANCE Employee contribution is about 4.5% of the gross monthly income. Employer contribution is about 9% of the gross monthly income of employees. The corporation must register its employees with a health insurance company of the employee's choice. Any person who does not have a permanent residence in the Czech Republic and works under foreign employment contract does not have to pay social and medical insurance. NB. Medical insurance covers hospitalization, prescriptions, and doctor's fees. The sickness fund pays the "employee wages" during absence for illness. |