Doing Business through a Sole-Proprietorship (Trade License)

One of the common routes to doing business in the Czech Republic is though a sole proprietorship, often called a trade license. A sole proprietor (osoba samostatně výdělečně činná, or OSVČ) is a physical person who has income from carrying out a business and/or self-employment (a freelancer or entrepreneur). A sole proprietor may be registered with the Commercial Court (Obchodní soud), or the trade license regulator (živnostenský úřad). The sole proprietor is liable without limitation, and trades on his-her own full name – to which s/he might attach some differentiating trade name. S/he must be 18 years of age, have a clean criminal record. The annual accounting records of the company may be kept using either simple or accrual accounting. Sole proprietors do not need to file accounts with the commercial court’s document repository (sbírka listin), nor register for a databox (datová schránka) for e-communication with the government unless they choose to do so.

A sole proprietor might also be regulated under a special law, e.g. notary, tax advisor, journalist, farmer, etc. Or s/he might have income from shares of participation as a partner in a limited partnership (komanditní společnosti). We will focus here primarily on tradespersons registered with the trade license regulator, however.

Formation of a sole proprietorship
Sole proprietorships can be formed in 1-5 days after filing papers with the trade license regulator. You will need to file the application on a Monday or Wednesday, as other days are by appointment only. Preparing forms in advance (downloadable from the internet) is also advised. Applications can be processed while you wait, although generally staff will merely accept the forms and check the documentation and provide you a registration within a few days. Comprehensive services in this area are provided by accounting and business services firms, as well as many legal offices, but with patience and determination you can do it on your own. Fees for formation can vary depending on the level of hand-holding provided, 5,000–10,000 CZK being representative.

To form a sole proprietorship, the entrepreneur files with the trade license regulator a registration form describing the full name and personal details, residential and legal place of business (místo podnikání), and list of selected trades. The application must also contain photo identification, proof of citizenship or legal residency (usually a long-stay or permanent residence visa), a foreign criminal record extract or affidavit confirming you have no criminal record, depending on your country of origin, a property deed (výpis z katastru nemovitosti) and owner permission (souhlas vlastníka) for your place of business, trade license selection form, and a stamp tax of 1,000 CZK per trade license.

Taxes and Regulation
A sole proprietorship is regulated by a great number of government entities; the most significant are the trade license and finance and social insurance regulators, and a health insurance company. Employees of a sole proprietor are taxed in the same way as employees of an s.r.o. – we will not consider these regulations or taxes here (see section on s.r.o.s). Sole proprietors generally must file an income tax return (daňové přiznání) each year by March 31, and health and social insurance returns (Přehled o příjímech a výdajích OSVČ) by April 30. While sole proprietors without permanent residence in the Czech Republic are not eligible to participate in the public health insurance program, they are required to possess insurance of a type known as complex, or komplexní. Most sole proprietors will be obligated to pay into the Czech social insurance system, but others (like Americans) might be able to elect to pay elsewhere for a period of up to 5 years. Foreigners are advised to obtain a certificate of social security coverage from the country into whose system they are paying.

Sole proprietors must pay monthly advances on social insurance and health insurance that are netted against the annual liability due in April. The regulator/health insurance company provides a summary of advances received to the payer each February. In the first year of business, the advance will be set to the minimum amount; in subsequent years, to the amount of tax paid in the prior year. The amount of social insurance advances paid depends on whether self-employment is your main or secondary source of earned income. (See health and social insurance section).