The Czech Republic is one of the top three countries in the European Union that has accepted the most Ukrainians fleeing the war. In the first three months of 2024, Ukrainian refugees contributed almost 3 billion CZK more to the Czech budget than the state spent on humanitarian and social aid for them.
During the same period, the number of entrepreneurs in the Czech Republic increased. In the first quarter of 2024, 23,000 individuals started their businesses. According to the Czech Credit Bureau, many of these businesses were opened in Prague and the Central Bohemian Region where thousands of Ukrainians have registered.
Financial consultant Yevhen Demenok, a co-founder of Capital Accounting s.r.o., specializes in accounting and legal services. In an interview with the Yellow Blue Business Platform, we discussed with Demenok the peculiarities of opening and running a business in the Czech Republic.
How easy is it to open a sole proprietorship in the Czech Republic?
In Czech, it’s called OSVČ (self-employed person), and it’s very easy to open. You can do it in a day if you have all the necessary documents. You need a passport and a residence permit. Ukrainians only need to show a temporary protection visa, address of registration, a certificate of no criminal record (you can submit a solemn declaration directly at the registrar’s office) and pay a 1,000 CZK administrative fee.
You can fill out the application for registering a new business at one of the registration centers, even if it’s not your local place of residence. These centres are located in every district city council.
During registration, you can select as many types of business activities as you want from the list. If you want to add a certain activity type later, you will have to pay the 1,000 CZK administrative fee again. You can start your business activities immediately after registration.
What starting capital is needed to start a business in the Czech Republic?
The lowest entry threshold is for opening a food establishment. To buy equipment and rent premises, you need at least 30,000 euros, although usually, it’s 3-5 times more. However, Prague is saturated with food establishments. Another option is to sublease an already operating café. In this case, you may not need to buy equipment, but its cost will be included in the price.
To open a hair salon, for example, you need between 30,000 and 60,000 euros. Starting a cleaning company can be cheaper, and the main thing here is to have an informative website, advertising and reliable employees. Traditionally, Ukrainian women work in this business — it was like that 20 years ago, and it is still the case now.
A small construction company (a crew) can start with relatively little money. The same goes for minor clothing repair businesses. Opening a small travel agency also won’t cost much.
Many people have bought a few cars and started working with Bolt or Uber. Newcomers often start with these types of activities, and after living here for a few years they consider moving into manufacturing, development, etc. But this requires connections, reliable partners and more knowledge of the local market.
What types of businesses are most popular among Ukrainians in the Czech Republic?
Primarily IT, construction and businesses that can be started with relatively little money, In particular, in the service sector. It all depends on the amount of capital available to start the business.
When starting their businesses, do Ukrainians invest money earned in Ukraine or their savings?
Yes, first and foremost it’s money earned in Ukraine. The option of obtaining a loan is available for those with a more secure status in the Czech Republic, such as a temporary residence permit or permanent residence permit. However, there are many Ukrainians who have long had big businesses. Everything happens gradually.
What is the most common question you, as a financial consultant, get from Ukrainians who are engaged in their own business in the Czech Republic?
How to optimize taxes to the maximum. Often, entrepreneurs haven’t found premises, don’t know the real market conditions or don’t have investment funds, but they always ask about taxes first. The thing is, administrative services for opening a business in the Czech Republic are straightforward, and information about this is publicly available. However, when it comes to running a business and doing taxation, you need to understand each type of activity in detail.
And what are the ways to optimize taxes? Do you have any tips?
Most Ukrainian entrepreneurs save on taxes by registering as a sole proprietor (OSVČ), and this is legal. The Czech Republic is a middle-class country, so the income level for sole proprietors which allows for simplified taxation is sufficient. For large corporations, a relatively new legal structure called SIKAV is used. This is akin to a low-tax holding company, and its organization makes sense for really high turnovers. This is an analogue of a low-tax holding company, and organizing it makes sense for businesses with really large turnovers.
Is it possible to reduce taxes if one of the company’s founders is a Czech citizen?
No, the Czech Republic is not Dubai. Taxes here are the same for people of all nationalities.
Is there double taxation between the Czech Republic and Ukraine? If you pay taxes in the Czech Republic, do you also have to pay taxes in Ukraine and vice versa?
Yes, there’s a Convention between the Government of Ukraine and the Government of the Czech Republic on avoiding double taxation. We are frequently asked for advice on this matter. The main thing here is to determine the tax residency, which can be complex, but we provide answers based on the Czech Ministry of Finance’s clarification on the subject.
Besides the business itself entrepreneurs need to open a bank account. Which banks are the most accommodating to Ukrainian entrepreneurs? And which banks are the most technologically advanced?
In 2022, not only were banks willing to open accounts but some even offered cash bonuses for doing so. Czech banks like ČSOB and Raiffeisen Bank offered up to 2000 CZK (approximately 40 euros). Now, the situation has changed due to cases of fraud. Currently, banks quite quickly open accounts for sole proprietors, but it’s more challenging for companies. You need to explain your business activities and provide evidence. All Czech banks are more or less similar in terms of technology. Among the largest are ČSOB, Raiffeisen Bank, KB, and Česka spořitelna.
And what about renting office spaces? In which cities rental prices are the highest, and where are they the lowest, but still acceptable for starting a small or medium business?
The highest rents are always in large cities like Prague or Brno. At the moment, it’s most difficult to find small (up to 150 square meters) spaces for food establishments. If the premises are in new buildings in popular locations, developers select from dozens of applicants. There is also a shortage of units in large shopping centres. But there are plenty of office spaces available.
Are there any types of businesses that Ukrainians cannot run in the Czech Republic?
There are no legislative restrictions specifically for Ukrainians. There are general rules according to which certain types of businesses require licenses, permits and diplomas. In the Czech Republic, there are three categories of business activities: free, no diplomas or permits are required to start them — for example, IT is a free activity. Some activities, like accounting or hairdressing, require relevant diplomas. And others, like the production of alcoholic beverages or security services, demand permits from the state.
Does the Government support small businesses?
Yes, it does. The taxation for OSVČ is very straightforward, tax rates are quite low and the accounting requirements are simplified. Most often, OSVČ is chosen by people who can work remotely, such as IT specialists. If you are a Czech entrepreneur, you can work with any country and any currency, open accounts anywhere and receive funds into any account.
You mentioned accounting. Compared to Ukraine, is it easier to manage in the Czech Republic, and is it common to fear the tax authorities?
For sole proprietors, it’s a bit simpler. There is a so-called «flat-rate regime, „where regardless of the income size, a person pays a fixed amount of taxes monthly. In this case, no bookkeeping is required, nor is there any tax reporting. You must meet the annual income criteria of up to 1.5 million CZK.
The tax level in the Czech Republic is slightly higher than in Ukraine. For example, for an entrepreneur with an annual income of up to 1.5 million CZK, the tax plus social and medical insurance contributions amount to about 11-12%. If the income is up to 1.5 million CZK annually, the monthly «flat-rate tax» is almost 7.5 thousand CZK. And here I will note that with the money the entrepreneur pays for medical insurance, they receive all the necessary medical care of European quality: from a doctor visit to an operation.
Entrepreneurs in the Czech Republic do not fear the tax authorities. The approach here is very lenient, which can be a shock for those familiar with Ukrainian realities. If the tax authorities receive information that an entrepreneur is breaking the law, they will schedule an audit. However, if you report honestly and on time, pay all taxes and contributions, you won’t face audits for years. Small businesses feel protected here.
Are there any tax incentives provided to entrepreneurs?
The Czech Republic does not experience any shortage of businesses. Tax incentives are typically discussed if you invest tens of millions of euros, for example, in bus manufacturing or building a factory where hundreds of people would work.
What are some mistakes or pitfalls of doing business in the Czech Republic?
Misunderstanding of local realities and attempts to work outside the rules, both with taxes and with business partners. The most common scheme is to hire sole proprietors instead of official employment. Here it is known as the «Schwarz system» and the tax authorities can immediately detect it if needed.
Yevhen, let’s talk about your experience. You started your own business in the Czech Republic — how did you dare and how did you develop it?
I have about 30 years of experience in finance. I started in Ukraine as an auditor back in 1995. My auditing company «Era» was nearly the largest in southern Ukraine, with more than 60 employees, including 15 certified auditors. I also worked as a chief accountant and CFO in big companies. So when I moved to the Czech Republic nine years ago, I naturally decided to continue in this field. Almost all small and medium-sized businesses here work with «external» accountants. The reason for this is that outsourcing accounting firms have more experience in different types of business.
What specific services do you offer?
We provide accounting services, tax consulting, company and entrepreneur registration. One of the co-founders of our company is a lawyer with many years of experience, so we also offer a full range of legal services.
Yevhen, what problems do Ukrainians most often face when they decide to start a business?
The issues are not normally related to the tax system or restrictions for foreigners. The biggest problem is a poor understanding of market realities. Ukrainian entrepreneurs often overestimate their strengths and abilities and underestimate the Czechs. There is also a belief that, like in Ukraine, almost everything can be solved with money. But it does not work like that here, because there are much more people with money.
To start a business, it is essential to thoroughly study your target market. Our entrepreneurs are faced with a lack of available premises, especially for cafes and restaurants. As for the business opening procedures — they are very simple, and there are almost no restrictions for foreigners. Some difficulties may arise when opening bank accounts, but you just need to prove your business model to the bank.
The Czech Republic is quite a small country. How do local entrepreneurs react to competition from Ukrainians?
There has long been a shortage of workers here, especially in small businesses. Protests against aid to Ukrainians mostly came from poorer segments of the population. Ukrainians are already paying significantly more in taxes to the state budget than they receive in aid. Initially, most small businesses opened by Ukrainians in the Czech Republic are aimed at other Ukrainians living here. However, over time, almost all of them try to shift their focus and cater more to the local population.
Ukrainian entrepreneurs often choose between Poland and other countries. What advantages does the Czech Republic have compared to Poland?
This has not been the case for quite a while now. Until 2022, it was indeed easier for small or medium-sized businesses to start expanding from Poland, given its closest geographic position and cultural similarities. But now many entrepreneurs have found themselves in various countries across the European Union and the United States. Once in a new country, entrepreneurs who are not used to being idle begin to think about what they can do there. In this regard, the Czech Republic is one of the best countries in terms of ease and convenience of starting a business, tax levels and overall prospects.
The final question — is the rate of business closures high?
Oddly enough, no. Although you can close a sole proprietorship in the Czech Republic in literally 5 minutes, you don’t have to close it completely. You can, for example, suspend its operation, which also takes just 5 minutes. Then you can restart it when you have new business ideas.
