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1) What is an SRO and what does it cost to establish one?
An SRO is a Czech or Slovakia limited-liability corporation, and forming one is the fastest, most convenient, and cost-effective way for foreign citizens to establish themselves as residents in the Czech Republic or Slovakia with all the required visas, a tax base, health insurance, and the many benefits of being a legitimate resident.
An SRO is required for any non-EU citizen to purchase property in the Czech Republic,or Slovakia and highly recommended for all EU and local citizens.
Why?
Because for both EU citizens and non-EU citizens alike, forming an SRO allows you as a foreigner to purchase property, start a business, or relocate an existing company in the Czech Republic or Slovakia safely, legally, and with the appropriate tax and liability shelters to protect your assets both here and at home from both legitimate and fraudulent lawsuits.
Whether a lawsuit against you is legitimate or not - and often it is not - your property is at risk if you are holding it as an individual rather than an SRO shareholder.
In a nutshell, an SRO provides you with the tools you need to operate legally and responsibly as a foreign citizen, whether you reside here or abroad.
Our office will establish the SRO for any client at near our cost, which is currently 52.000 CZK or about $2,737. The process generally takes about 1 months.
2) What are the benefits of owning an SRO, vs. the risks of not having one?
Again, the risks of not conducting your business goals through an established SRO are total and complete personal liability for any civil suit, legitimate or fraudulent. This includes all of your assets, both here and abroad, being subject to seizure.
In addition, a foreign individual operating without an SRO will find it extremely difficult to conduct normal legal and business activities in the Czech Republic or Slovakia, such as obtaining a visa, obtaining a business license, paying taxes and taking the allowed deductions, purchasing professional services, setting up utilities such as phone service, etc.
Many property purchases for foreign (non-EU) citizens require an SRO.
The only exceptions to these rules are generally if you have dual-citizenship, or are married to a Czech or slovakian spouse and have established your permanent residency.
We advise all of our clients to conduct all of their activities through an SRO.
Your established SRO is a powerful tool with which to achieve all of your important personal, business and investment goals in the Czech Republic or Slovakia.
The clear benefits of an SRO include, but are not limited to:
- You may easily form a company, small business, or perform freelance consulting and/or teaching in the Czech Republic legally and legitimately.
- You may use the Czech Republic or Slovakia as a legal tax base for income earned here or abroad.
- An SRO makes your yearly accounting and tax requirements simple and straightforward.
- You will more easily qualify for a Long Term Visa (non-EU citizens), health and social insurance for yourself, your spouse, children, partners and employees in order to live and work legally and safely in the Czech Republic or Slovakia.
- You may purchase a property in the Czech Republic Slovakia for business, residence, holiday or investment purposes without restrictions that are otherwise attached to the types of property you can purchase.
3) What is the process for starting an SRO and how long does it take?
Establishing your SRO follows a 3-step process which takes about 1 to 2 months.
Step 1:
Week 1
- Email or post me your completed SRO Questionnaire form, which will contain the initial details our office requires in order to begin your paperwork.
Week 2
- Send me all required documents, if any, via DHL (worldwide) or United States Post Office Global Priority (USA only). These are the most dependable postal services in the Czech Republic.
- To send me a copy of the first page of your passport, you may simply scan it and email it to me directly.
Step Two:
Weeks 3 and 4
- Receive all of your required paperwork via email (free) or DHL ($50 fee).
- Print the forms (in case of emailed documents) and make the correct number of copies for each form. Forms are all in the Czech language or Slovakian language, so unless you speak Czech or Slovak, please be careful not to mix-up the forms!!
- Arrange a phone call with me to verify in person that you have all the forms printed out correctly and in the proper amounts.
Do not skip this step, unless you want to make additional trips to the Slovak or Czech Embassy!
- Sign and verify (have notarized) all documents and copies at the Czech or Slovak Embassy nearest you (call and make an appointment first!), and return them all to me via DHL (world) or U.S.P.S. Global Priority (US only - though DHL is best).
Do NOT mail these documents to me by standard post or "airmail!" They will not arrive, and you will have to do this all over again!
Step Three:
Weeks 5 and 6
- Your signed and verified documents are submitted by our office to theSlovak or Czech Commercial Registry and a plethora of other national, local and city agencies, and government fees are paid. (These fees are included in your one-time fee - they are not additional - you will not be charged for this service!).
- If you are the Jednatel and are not located in the Slovak or Czech Republic, then our attorney will have arranged for a Power of Attorney form for us to open the SRO account for you.
- Now is the time to wire your 200.000 CZK deposit (see next question) to your SRO bank account, and proceed to the nearest Czech embassy or consulate to verify the deposit. This amount will be held by the bank for approximately 15 to 30 days while your SRO is registered with the Czech Commercial Registry.
- After the SRO is fully registered, all funds (you will not be charged fees on your deposit!) are released in your SRO bank account for you to use for your business.
Congratulations! Your SRO is now complete and ready for use.
4) What are the five (5) legal requirements for starting an SRO?
Note:
A full discussion of the Sidlo, Jednatel and Zastupce requirements and the risks associated with fulfilling them is presented in full in the next section (section 5).
Sidlo - pronounced "SEED-lo"
The Sidlo is the address where your business will be located.
Typically this is not the actual physical address, but simply a physical location where you will receive all official mail for your SRO.
Jednatel - pronounced "YED-na-tel"
The Jednatel is your company executive (CEO) in the Czech Republic. They are responsible for all the basic functions of your business, such as proper accounting, tax reporting, contracts and banking.
Who your Jednatel will be is by far the most important consideration you will have when forming your SRO, and a very full and complete discussion of this key topic will follow in the next section (section 5).
Zastupce - pronounced "ZAS-toop-seh"
The Zastupce is the company's trade representative, who insures that your business meets the requirements of the local Trade Office.
Typically, this person has no function except to meet the legal requirement that you have one, in which case you can function as your own Zastupce.
However, in certain circumstances (such as if your business will be handling food or toxic chemicals) your Zastupce must be a licensed, experienced professional whom you must hire on as a paid employee of the company.
Zivnostensky List - pronounced "ZIV-no-sten-ski"
Use a soft "z" like the "s" in the English word "treasure."
"List" is as the English word "list."
The 'Z. List' is the Trade or Business License your company will be provided when you form your SRO. For example, if your company will be performing computer repair, you will receive a Zivnostensky List for computer repair.
You can apply for as many Z. Lists as you require. However, as with the Zastupce above, some Z. Lists may require proof of special education or experience.
Initial Deposit – 200.000 CZK Shareholder(s) Account
The Czech government requires an initial deposit of 200.000 (about $8,500) to be placed in the account of your SRO before it is completed.
Please note the following:
- This amount is the total required deposit, regardless of the number of shareholders (owners) of the SRO.
- These funds are due after the submission of the initial paperwork, and after our attorney has established the SRO account. In other words, you may choose to cancel your SRO filing before you make this deposit.
- Deposits are generally made by international bank wire. Instructions and confirmation of deposit will be given to you by the bank of your choice.
- These funds are held by the bank, in compliance with Czech government regulations, until the SRO is established. This process generally takes between 2 and 4 weeks after the date of deposit.
- Once the SRO is complete, these funds are 100% available to you for purposes of running your new business and completing your relocation.
- Absolutely no fees of any kind are taken from this deposit by our office or any other entity, besides the minimum amount required by the bank for processing the type of account that you choose.
- You may choose to use the funds in your SRO account to pay fees to our office and other service providers, and most clients do, but these payments will be made only at your request (by your Jednatel). They will not be automatically deducted without your permission.
- If our office is functioning as your Jednatel, (see discussion below), then these funds will not be accessible to the shareholders, but will be maintained by the Jednatel in charge of your company account and full accounting will be provided to you on a weekly or monthly basis.
5) Sidlo, Jednatel, Zastupce: A Complete Discussion of Requirements & Risks
Sidlo Requirements and Risks
A proper, legally registered Sidlo (company address) is required by the Czech government before your SRO will be established.
Before you run off to the nearest Mailboxes Etc, however, please note that not just "any address" will do.
To meet the legal requirements of a proper Sidlo, you must have a written contract signed by the owner of the property in which your Sidlo is located.
This means that you cannot use your rented flat or office space as a Sidlo address, nor can you have a contract signed by "your landlord" - it emphatically must be signed by the officially registered owner of the property in question, which must also be registered as a Sidlo with the local tax office and high taxes paid on the fees collected.
Due to the highly complex nature of Czech rental and property laws, and low wages for the average Czech worker, this combination can be nearly impossible to find.
Further things to consider, are:
- The person who operates your Sidlo must be reliable and responsible enough to forward your mail to you. All government forms for your SRO will be mailed to your Sidlo address, and most require return within 10 days or less.
- Your Sidlo ideally should be located in the same area where your attorney, tax professional and business consultant are located. If you use our offices to form your SRO and assist you with additional business functions, that means your Sidlo must be located in Brno.
Why is this the case? Because the Czech government is still localized in most offices. That means that all paperwork for an SRO located in, for example, Prague must be filed in Prague - in fact, in the proper district of Prague.
Thus, having an SRO filed in Prague but your attorney (who must do the filings) located in another city creates serious logistical problems.
Unless you own your own property in the region where your attorney, tax professional and business consultant live, and have registered this property with the local tax office as a Sidlo, we suggest that you simply use a proper, registered Sidlo service to complete this requirement, which our office will provide you for a yearly fee (currently 16.000 CZK, or about $720).
Jednatel Requirements and Risks - Important!
The Jednatel is the 'Executive' or Chief Executive Officer (CEO) of your SRO (Czech limited liability company).
The Jednatel is responsible for making sure all activities of the company are performed according to Czech law, including all accounting, tax filing, purchases, business activity, contractual obligations, payment of invoices, employee relations, etc.
Czech law requires all SROs to have a functioning Jednatel before the SRO will be established by the Czech Commercial Register. Furthermore, the Jednatel must be either a Czech citizen, or legal permanent or long-term resident.
Foreign residents may become their own Jednatel (As of new law 2007)
East Point Consulting provides Jednatel service on a temporary basis, which allows you, the foreign client, to:
- Establish your SRO
- Acquire your visa(s)
- Legally assume Jednatel duties
- Complete your relocation
The typical time for the first three steps averages about 6 months.
Therefore, our Jednatel service is provided at the minimum legal salary rate mandated under Czech employment law for an initial period of 6 months paid in advance, and then quarterly until such time as you are able to appoint a new Jednatel and relieve our office of these duties.
Please Be Advised:
Besides theft of one's personal property (in Prague), attorney and/or Jednatel fraud is the second most common way a foreign citizen is typically ripped off in the Czech Republic.
Problems in Hiring a Jednatel
Filling the Jednatel position for your SRO with a responsible and trustworthy individual is the most critical initial step in forming your SRO, and the foundation of your business, investment and relocation plans.
But quite obviously, the problems that arise with finding a qualified Jednatel are:
- As a foreign citizen, you may not know anyone qualified to be your Jednatel. You may not even know anyone, period, in the Czech Republic at this time!
- You may know some people in the country, but not well enough (or perhaps too well!) to trust them with such an important function.
Three potential solutions to this common problem are as follows:
Solution A: Hire A Qualified Jednatel
For anyone starting an SRO which will be performing daily business inside the Czech Republic, this is an essential step. Part of your business plan should be conducting interviews for a qualified Jednatel, who will be your first employee.
Solution B: Hire A Functional-Only Jednatel
Many of our clients start an SRO for purposes of providing a legal way to work freelance, purchase property and obtain a visa in the Czech Republic. They are not necessarily planning on conducting daily business, and thus hiring a Jednatel as a full-time employee does not make financial sense.
In addition, our clients who are relocating an operating business to the Czech Republic normally (90% of the time) require someone to act as a temporary Jednatel during the 6 month period while they are awaiting acquisition of their Long-Term Visas, which are required before they may assume Jednatel duties themselves for their companies.
Therefore, our office does provide qualified and dependable Jednatel service for our clients until more permanent arrangements can be made.
These services are provided by agreement at the minimum legal rate allowed under the Czech labor law, currently 6.600 CZK / month (about $300) and are subject to strict contractual obligations for which there are no exceptions.
Please email us and request our Terms of Service, for a basic summary of the terms by which we provide this essential service.
Solution C: Be Your Own Jednatel
If you live in the Czech Republic, and you speak Czech or have immediate access to an assistant who does, and you have a Long Term Visa or Permanent Residence (or citizenship) in the Czech Republic, and you have a clean tax record in the Czech Republic, and you have a clean criminal record in both the Czech Republic and the country of your citizenship (and can get this record, verified and notarized appropriately), then: it is possible to be your own Jednatel.
However, due to the nature of the job, you may still wish to consider hiring a professional to perform this critical function for your SRO.
If you do not meet all of the above requirements (tax and criminal record are non-negotiable), but you live outside the Czech Republic and you are not planning to do daily business in the Czech Republic at this time, it is possible to, in this order:
- Complete your SRO with a functional-only Jednatel (takes about 2 months);
- Complete your Czech Visa (takes about 4 months);
- Obtain the proper paperwork and register yourself as your own Jednatel.
Keep in mind that you will be required to perform the important legal requirements of your SRO at the proper time, on time, via the Czech Embassy in your country of residence, and that all documents will be in Czech.
The cost of transferring the Jednatel is currently 18.000 CZK, (about $800).
A Common Question About Jednatels:
Once I have hired a Jednatel, am I "stuck" with this person forever?
You are not stuck with your Jednatel. A Jednatel can be hired, and replaced, much as any other company employee. The important differences are that:
- You must have a Jednatel at all times or your SRO will be cancelled.
- A Jednatel must either give (in order to quit) or be given (in order to be fired or laid off) 3 months notice in advance before being replaced.
Also, both the owner/shareholder(s) signature(s) and the signature of the Jednatel must be obtained in order to transfer the Jednatel's position. It is always our recommendation that you have this document signed in advance, although it is only valid for 90 days.
Zastupce Requirements and Risks
In most cases, your Zastupce simply has to be registered with the Czech Commercial Register and Trade Office to meet the legal requirements of owing an SRO. If you fall into this common category, you can be your own Zastupce.
However, in some cases which depend on the type of work you propose to perform under your SRO, you may have to hire a professionally licensed technician to be your Zastupce and pay him or her a fair wage as an employee.
Typical cases requiring a licensed Zastupce are opening a pub or restaurant, any business that handles hazardous chemicals, and other specialty industries.
6) What are the yearly costs of maintaining an SRO?
The basic costs required to maintain a non-active or 'real estate' SRO include:
- Sidlo rental fee. Our office charges 16.000 / year (about $700).
- Jednatel wages. Our office charges 6.600 / month (about $300).
- Zastupce wages, if necessary. This can vary widely, but most (95%) SRO shareholders can function as their own Zastupce, at no charge.
- Accounting fees. See below.
The total yearly amount for most non-active or real-estate only SROs is approximately 150.000 CZK, or about $6,000.
This amount can be lowered to only 50.000 CZK, or about $2,000 per year, by functioning as your own Jednatel.
This amount can be lowered further to approximately only 30.000 CZK, or $1,200 per year, by using your purchased property or rental unit as your own Sidlo.
The yearly cost for an active SRO varies widely depending on the nature and extent of the business conducted.
Accounting and Tax Filing:
Proper accounting must be completed and taxes filed and paid yearly on your SRO (due in March). If you do not earn any income in a given year, filing fees are very minimal.
The basic fee charged by our office for yearly accounting for a non-active or real-estate only SRO is 15.000 CZK (about $600) including VAT tax.
The tax return for a non-active or real-estate only SRO is also 15.000 CZK ($600).
These fees exclude any advisory work, which are billed at our normal rates.
Fees for active SROs are of course much more, dependant upon the nature of the business and the amount of activity.
You may discuss tax law, amounts and procedures with our tax advisor after your SRO is completed, or at any time by appointment.
7) How does one shut down, or sell, an SRO?
An SRO is a legal corporation, and as such, cannot simply be abandoned or you risk serious legal and financial complications.
Abandonment of an SRO also leaves serious liability on the employees associated with your company, especially your Jednatel.
If your plans lead you to no longer require having your SRO, simply give our office a call as early as possible to inform us of this situation and we will offer solutions.
Two fairly simple options exist to properly terminate your ownership of the SRO, and those are simply to sell the SRO to someone else, or, to contact our attorney so he can properly close down your SRO with the Czech Trade Office and Commercial Registry.
Each of these processes is fairly simple, inexpensive, and take as little as 2 weeks.
So please, don't just up and leave, as this creates big problems that are impossible to solve without your signature. Instead, simply give our office a call and allow us to assist you in properly terminating the ownership of your SRO according to Czech law.
Can you sell an SRO at a profit?
Yes, of course. At any time you may choose to sell your company, your SRO, or both to any buyer you choose, for any price that you choose.
If you will be running your company in another location, or merging with another firm, you can simply sell the SRO itself without any company assets.
The name of the SRO can be changed, and the SRO itself sold to another party who wishes to have one for various reasons.
If you wish to sell the entire company, you can sell the SRO as a package including any amount of company assets you wish, such as the operations, client lists, distribution setup, properties purchased under the SRO, etc.
Besides the obvious (up to date accounts, certificates are in order, profit/loss statements), a buyer will also be looking for all paperwork associated with the SRO to see that all records are clean, all taxes paid, all debts are listed correctly, no liens or pending litigation exists, etc.
Do we recommend purchasing an existing SRO?
Absolutely not.
For reasons amply discussed on this website/report regarding the complexity of fulfilling the proper procedures for legal and business activity in this country, and the prevalence of investment fraud against foreign citizens, all foreign investors are always advised to start their own SRO filings from scratch.
This is the only way to insure that you are starting from a clean slate, and not assuming all manner of debts and responsibilities of a previous shareholder. |
Understanding the SRO Process in Detail
