Branch office of a foreign company in Czechia — registration, accounting and taxes

A branch office — in Czech law an odštěpný závod, also called an organisational unit — is a way for a foreign company to enter the Czech market without setting up a separate Czech s.r.o. Legally it is not a new person: the branch is merely a carved-out part of an already existing foreign company. The parent company remains the bearer of rights and obligations, and the branch is its “extended arm” in Czechia.

From this follows the main difference compared with your own company. Setting up an s.r.o. creates a new legal entity with its own share capital and its own liability; with a branch office no new company arises and the parent company is directly liable for its obligations with all of its assets. Which route is worth taking is worth weighing before the first step — we compared the two forms in our article on setting up a Czech s.r.o. as a foreigner.

What a branch office is under Czech law

The concept is governed by the Civil Code (Act No. 89/2012 Coll.) in Section 503. A branch is a part of the business that shows economic and functional independence and about which the entrepreneur has decided that it will be a branch. When such a branch is entered in the commercial register, it becomes a branch office (odštěpný závod). The key point is that the branch is not a separate legal entity — it remains part of the foreign company and is not a new subject.

At the head of the branch stands the branch manager (vedoucí odštěpného závodu). Only one natural person can hold the role, and by law they are authorised to represent the foreign company in all matters concerning the branch — including court, administrative and tax proceedings. In practice they are usually also the responsible representative for the trade licence, that is, the person answerable for compliance with trade-licensing rules.

Registration in the commercial register — what is needed

For a foreign company to do business in Czechia through a branch office, it must register the branch in the commercial register. Registration is governed by the Act on Public Registers (Act No. 304/2013 Coll.). The register records the branch’s designation (if it differs from the foreign company’s name), its seat or location, the subject of its activity or business, its identification number and details of the branch manager.

Before registration, or at the same time, the company must obtain a trade (or other) licence from the trade-licensing office — the branch does business in a specific field and needs authorisation for it just like a Czech company. Example of costs: the first entry in the commercial register costs CZK 6,000 if carried out by a court, or CZK 2,700 if carried out directly by a notary (plus the notary’s fee). The direct route through a notary tends to be cheaper and faster.

Accounting for the branch office

From the perspective of Czech law, the branch office of a foreign person is an accounting unit. This follows from the Accounting Act (Act No. 563/1991 Coll.): organisational units of foreign persons that do business in Czechia keep their books under Czech rules. In practice this means double-entry accounting, preparing financial statements and linking them to the tax return — not the simplified tax records that a sole trader may keep. We explained the difference between the two regimes in our article on tax records versus accounting.

The branch’s accounting is kept separately for its activity in Czechia, even though its results are at the same time reflected in the accounts of the parent company in its home country. For the branch manager this means one thing: even though no new company has arisen in Czechia, proper books must be kept here and the documents must be in order.

Taxes — permanent establishment and income tax

For tax purposes a branch office is almost always treated as a permanent establishment of the foreign company within the meaning of Section 22 of the Income Tax Act (Act No. 586/1992 Coll.). The income the company earns through the branch in Czechia is therefore subject to Czech corporate income tax — currently at a rate of 21%. The taxpayer, however, remains the foreign company; the permanent establishment is not a separate subject, it merely defines the scope of what is taxed in Czechia. When a permanent establishment arises and what follows from it we discuss in more detail in a separate article.

In practice the branch files an income tax return in Czechia for the income that belongs here, and the parent company then, in its home country and under the double-taxation treaty, ensures that the same profit is not taxed a second time. Whether and when the branch becomes a VAT payer follows the same rules as for Czech companies.

Conclusion

A branch office is a fully fledged way for a foreign company to establish itself in Czechia without setting up a new company — but it comes with its obligations: registration in the commercial register, a branch manager, a trade licence, proper accounting and taxation through a permanent establishment. For a company that wants its Czech activities in order, a credible address and tidy documents matter — which is exactly what a carefully run house for just thirty companies offers. Before deciding between a branch and your own s.r.o., it pays to discuss the specific situation with a professional.

Frequently asked questions

Is a branch office a separate company?

No. A branch office (organisational unit) is not a separate legal entity — it is part of the foreign company, which remains the bearer of rights and obligations. The parent company is therefore directly liable for the branch’s obligations with all of its assets. The branch is entered in the commercial register and has its own accounting and tax obligations, but it does not become a new legal entity.

Does a branch office have to keep accounts?

Yes. Under the Accounting Act (No. 563/1991 Coll.) the branch office of a foreign person is an accounting unit and keeps double-entry accounts under Czech rules, including preparing financial statements. The simplified tax records that a sole trader may keep do not apply to it. The branch’s results are at the same time reflected in the accounts of the parent company.

How is a branch office taxed?

A branch is usually treated as a permanent establishment of the foreign company under Section 22 of the Income Tax Act. Income earned through the branch in Czechia is subject to Czech corporate income tax at a rate of 21%. The taxpayer remains the foreign company, and double taxation of the same profit is avoided under the relevant international double-taxation treaty.