The main considerations are grouped under headings
• The scope of business of the branch may not be broader than the scope of business of the foreign entity.
• The branch must publish the financial statements of the foreign company in the registry of documents kept by the Commercial Register, which effectively means getting the whole report of the company the branch is part of and translating it into Czech, and publicising it even if the accounts were not liable to be made public in the jurisdiction of the Company.
• In general the same statutory obligations apply for both branch and legal entity from accounting and financial reporting point of view, i.e. every corporate entity doing business in Czech Republic must keep the books in Czech language and must file the financial statements to the Commercial Register.
• The only difference we can see is that the statutory financial statements of branch are to be incorporated into the statutory accounts of the founder whereas in case of legal entity financial statements stands alone and the financial asset (i.e. investment in the subsidiary) is to be shown in the accounts of the parent company. Branches do not really have separate equity, as they are not legal persons, but in order for the balance sheet to balance the capital employed needs to be shown as if they were, on a pro-forma basis. Likewise purchases of goods by the branch from the company it is part of is legal nonsense, as there is no tranfer of ownership to a branch, but still in order to give a picture of the performance of the branch as well as to be above board with regard to international transfer pricing, again branch accounts should be done with these intra-company “sales” and “purchases” included as pro forma. Remember that the branch has its own tax life in the country where it is.
• The same statutory obligations apply for both branch and legal entity to have its accounts audited.
• The general rules are as follows:
1) joint stock companies One of the following criterions is met for two consecutive accounting periods: a) gross assets of 40.000K CZK b) revenues of 80.000K CZK c) average number of employees over 50.
2) other legal entities (limited liability companies, branches, etc.) Two of three above criterions are met for two consecutive accounting periods.
• From the Czech corporate taxation point of view the branch must register for corporate income tax only if having taxable income in the Czech Republic through a permanent establishment, the legal entity must register in any case.
• In case of the branch the income and costs need to be allocated to branch activities, however keeping in mind transfer pricing and substance-over-form principle that are applicable under both structures, i.e. under both branch and legal entity constructs.
• Profits/losses will be included in profits of the founder of the branch taking into consideration double taxation reliefs.
• From the VAT perspective in case of the branch the VAT payer is actually the headquarter that has Czech VAT registration while in case of the legal entity it is actually the entity itself being Czech VAT payer.
• Profit repatriation in the case of the legal entity must be taken into account, however, if the parent company being an EU entity with more than 10% shareholding for more than 12 months dividend payments are tax exempt.
|Tax registration||obligatory||Only if taxable income from sources in the Czech Republic|
|Tax at operational level||19% CIT||19% CIT|
|Tax at parent/headquarter level in respect of subsidiary’/branch’s profits||Participation exemption or tax credit (in cases of dividend distribution)||Tax rate of the headquarter (note: double taxation relief ® participation exemption or tax credit)|
|Withholding tax (dividend, interest, royalties)||Often (note: EC Directives and tax treaties)||Rarely|
|Loss settlement with foreign parent company/headquarter||In principle no||Yes (unless exempt under headquarters’ domestic tax law)|
|Liability debt (claims) at operational level||Local operating company (=subsidiary)||Headquarter|
The above was based on the amiable co-operation of TGC Corporate Lawyers and Baker Tilly sro in Prague and Brno.
On 15 November 2010 an amendment to the Law on Health Protection against the Consequences of Tobacco Products comes into force. The amendment introduces a total ban on smoking, i.e. in hospitals and health clinics, schools and colleges, cultural and recreation sites, pubs and restaurants, sports facilities, public transport and workplaces. Owners or property managers (e.g. hotels, schools, workplaces) may designate smoking rooms on their territory, which means separate facilities that meet certain standards of construction and air ventilation.
Implications for employers
To date smoking in the workplace was also prohibited, but employers with at least 20 staff were obliged to establish a smoking room, regardless of the number of smoking employees. Specific standards in terms of space and ventilation of smoking rooms are governed by general health and safety (BHP) regulations.
After 15 November 2010 the decision on establishment of a smoking room will belong to the owner or administrator of the building. The existing smoking rooms may continue to operate if they meet the standards required by BHP regulations. In addition, the owner or property manager is obliged to put up in visible places clear information about the ban on smoking tobacco in the building. Employees smoking outside designated sites may be punished by a disciplinary penalty, and the employer may be given a mandate.
While considering the establishment of a smoking room in the office, the employer should take into account many aspects. Creation of a smoking room generates costs, but lacking a smoking room will not result in smokers resigning their habit or improving work efficiency. The need to go outside the office premises to smoke results in a loss of working time, and the sight of groups of smokers and cigarette-ends outside the office entrance does not improve company image. Certainly, more effective would be the prevention of psychosocial hazards and the promotion of healthy behaviour by the employer.
Traditional vs. electronic cigarette
For several years e-cigarettes have been available on the market, which are electronic devices that provide inhaled doses of nicotine. The electronic cigarette is a small device – resembling a traditional cigarette – which is electric or battery powered. The “smoke” from an e-cigarette is almost odourless and much less burdensome for non-smokers.
The e-cigarette is a new product and therefore its legal status is varied. In some countries its sale is forbidden, and in some completely legal or permitted under certain conditions. Poland has not yet developed any regulations on the sale and use of e-cigarettes. Recent legal changes have not covered this issue as well, although the Ministry of Health is considering a prohibition of the sale of e-cigarettes in the near future.
To find out more
If you need a detailed interpretation of the new regulations or consultation on creating healthy work environment, please contact the experts at TGC who are briefing businesses and individuals on this area:
Director of the Labour Law Department
Tel.: +48 22 653 3862
Consultant/ Occupational Psychologist
HR Management Department
T: +48 22 653 3866