The jurisdiction of the Czech Republic

Brief description of jurisdiction

The Czech Republic is a country in Central Europe, with a territory of 78,866 square kilometres and a population of 10.5 million people, its national currency is the Czech koruna. Czech political system is parliamentary republic.

The Czech Republic was formed as an independent state on January 1, 1993 as a result of the collapse of the Czech and Slovak Federal Republic (CSFR). In 2004 the Czech Republic along with nine other countries joined the European Union, and in 2007 the Czech Republic entered the Schengen zone. Among other post-communist countries, the Czech economy has proved to be one of the most stable and successful.

According to the World Economic Forum for 2012-2013, Czech Republic occupies the 39th place in the ranking of global economic competitiveness. In 1995 the Czech Republic was the first among all the former socialist countries to be admitted to the Organisation for Economic Cooperation and Development (OECD). Currently the Czech Republic is a member of over 60 international economic and financial organisations.

Favourable environment for the economic prosperity of the country is created by such factors as its central position in Europe, membership in the EU, skilled workforce, a large number of foreign investors, high proportion of people with higher education, low cost of labour and price stability, comprehensive and high-quality infrastructure, mentality and culture, corresponding to the level of Western countries.

Regulatory base

Czech legislation is a part of the Romano-Germanic legal family. The primary sources of law are laws and regulations. Their hierarchy includes the Constitution, the Charter of Fundamental Rights and Freedoms, the constitutional laws, ordinary laws, decisions of the President of the Republic, government regulation, the legal provisions of ministries and other administrative agencies and territorial self-government bodies. We should also take into account other documents, which reflect the official position of a ministry, although are not generally binding legal regulations (i.e., guidelines of Ministry of Finance of the Czech Republic).

According to the Constitution, ratified and published international treaties on human rights and fundamental freedoms are in force in the Czech Republic and are directly applicable and take precedence over the law. EU directives and regulations are equated to international treaties.

Financial market

In the Czech Republic there are 45 currently operating banks, 21 of which are subsidiaries of foreign banks.

With the development of information technologies that allow for cashless payment for goods and services, non-bank financial institutions began to appear in the global market for payment services (Money Service Businesses, MSB), creating competition to the banks. Traditionally, banks around the world demonstrate a conservative approach to the development of their business and do not respond quickly enough to market changes. This situation creates an environment to develop a flexible, smart, quickly adapting market for various institutions providing financial services. Such institutions in the Czech Republic, among others, include payment organisations (platebni instutuce), issuers of electronic money (instituce elektronickych penez), small payment organisations (poskytovatele platebnich sluzeb maleho rozsahu), small electronic money issuers (vydavatele elektronickych penez maleho rozsahu).

Currently in the Czech Republic there are 106 small payment organisations registered from 2010, and 7 small issuers of electronic money, which also appeared over the recent few years.

There are 24 payment organisations, including branches of foreign payment organisations. Three subsidiaries of foreign payment organisations were the first to receive operating licenses in 2009. Payment organisations headquartered in the Czech Republic began to appear in 2011.

Statistics of rapid growth in the number of payment institutions over the past few years indicates that the Czech financial market of non-bank payment institutions is very young and open for new players. The current situation on the market provides great opportunities for the emergence of new payment systems with a wide range of convenient services.

At the moment, the international community has formed a common legal framework for the control of the developing market of payment institutions. Each jurisdiction has its own characteristics in the legislation, but the foundation remains the same.

The laws and regulations governing the sector of payment services

The legal framework of the financial market includes the laws issued by the Ministry of Finance and, in some cases, the Ministry of Justice, as well as comments, resolutions and decrees, usually issued by the Czech National Bank. In order to support market participants CNB also produces teaching materials in the form of official statements and answers to questions. Increasingly appear published binding regulations and training materials directly sourced from the institutions of the European Union.

Here are the basic laws governing the financial market of the Czech Republic:

On subjects and type of activity
  • Law number 284/2009 Coll. "On the provision of payment services" - zákon č. 284/2009 Sb., O platebním styku. This law came into force on 01.11.2009, replacing the previous law № 124/2002 Coll. "On the provision of payment services" in Czech legislation transposed the Directive of the European Parliament and Council Directive 2007/64 EC of 13 November 2007 on payment services in the internal market;
  • Law № 21/1992 Coll. "On Banks" - zákon č. 21/1992 Sb., O bankách regulates the activity of banks in the Czech Republic;
  • Act № 6/1993 Coll. "The Czech National Bank" - zákon č. 6/1993 Sb., O České národní bance defines the activities of the Czech National Bank, a State Institute which oversees the financial market in the country;
  • Law № 90/2012 Coll. "The trading companies and cooperatives" ("On the Trading Corporation") - zákon č. 90/2012 Sb., O obchodních společnostech a družstvech (zákon o obchodních korporacích) defines business entities, regulate their activities and legal relations;
  • Law number 240/2013 Coll. "On investment companies and investment funds" - zákon č. 240/2013 Sb., O investičních společnostech a investičních fondech;
  • Law №408 / 2010 Coll. "On provision of financial guarantee" - zákon č. 408/2010 Sb., O finančním zajištění;
  • Law number 254/2004 Coll. "The limitation of cash payments" - zákon č. 254/2004 Sb., O omezení plateb v hotovosti;
  • Law number 277/2013 Coll. "On currency exchange services" - zákon č. 277/2013 Sb., O směnárenské činnosti.
  • Statutory acts of AML
  • Law number 253/2008 Coll., "On Countering legalization of proceeds from crime and terrorist financing" - zákon č. 253/2008 Sb., O některých opatřeních proti legalizaci výnosů z trestné činnosti a financování terorismu and a decree, developed as a supplement to the Law, number 281/2008 Coll., On the requirements for the system of internal principles, procedures and specific measures against legalization of proceeds from crime and terrorist financing - vyhláška č. 281/2008 Sb., O některých požadavcích na systém vnitřních zásad, postupů a konkrétních opatření proti legalizaci výnosů z trestné činnosti a financování terorismu with changes and additions to the Decree number 129/2014 Coll. - Vyhláška č. 129/2014 Sb .;
  • Law № 69/2006 Coll., "On the implementation of international sanctions" - zákon č. 69/2006 Sb., O provádění mezinárodních sankcí
  • Nařízení Evropského parlamentu a Rady (ES) č. 1889/2005 ze dne 26. října 2005 o kontrolách peněžní hotovosti vstupující do Společenství nebo je opouštějící
  • Nařízení Evropského parlamentu a Rady (ES) č. 1781/2006 ze dne 15. listopadu 2006 o informacích o plátci doprovázejících převody peněžních prostředků.
  • Protection of personal data
  • Law number 101/2000 Coll. "On protection of personal data and amending certain laws" - zákon č. 101/2000 Sb., O ochraně osobních údajů ao změně některých zákonů. This law is based on European Union legislation and international agreements, implementing the right of everyone to be protected from unauthorized interference in private life and regulates the rights and duties in the field of processing of personal data. As in other areas, the law applies to all actors of the financial sector.
  • The activities of payment institutions, electronic money institutions

    The law number 284/2009 Coll. "On the provision of payment services," along with the CNB subordinate rules regulate the activities of payment institutions.

    Questions of payment services provision and transactions with electronic money are regulated by the directives of the European Parliament and of the Council number 2007/64 / EC on payment services and the number 2009/110 / EC on the organisation, activities and prudential supervision of electronic money institutions.

    Standards Directive number 2007/64 / EC have been developed as a result of a decade of discussions by experts concerned and now form the basis of European legislation in the field of payment services.

    The directive number 2009/110 / EC is designed on the basis of the directive number 2000/46 / EC on the organisation, activities and prudential supervision of electronic money institutions and adopted by the European Parliament and the Council after four months of discussions by experts concerned.

    According to the Directive number 2007/64 / EC, payment services are:

  • Services of depositing of cash to the current (settlement) account, as well as all the operations necessary to manage the current (settlement) account;
  • services of cash withdrawal from the current (settlement) account, as well as all the operations necessary to manage the current (settlement) account;
  • commission of payment transactions, including transfer of funds on current (settlement) account of his payment service provider or any other payment service provider:
  • implementation of direct debits, including one-off direct debits;
  • committing a payment transaction using a payment card or a similar payment instrument;
  • implementation of credit transfers, including standing orders;
  • commission of payment transactions using a credit line provided by the payment service user:
  • implementation of direct debits, including one-off direct debits;
  • committing a payment transaction using a payment card or a similar payment instrument;
  • implementation of credit transfers, including standing orders;
  • issuance and / or acquiring of payment instruments;
  • money transfer;
  • committing the payment transaction when the payer gives consent to its implementation with the use of telecommunications, digital and information technology, and the payment is addressed to the operator of telecommunications or computer systems or networks, which acts solely as an intermediary between the payment service user and the supplier of goods and services.
  • European legislation provides for the category of payment service providers, including banks, the central (national) banks and non-bank institutions, post offices and other legal entities that have received authorization to provide payment services in accordance with the requirements of the legislation.

    Payment institution is a legal entity, which is authorized to provide payment services in accordance with the license for the provision of payment services, issued by the Czech National Bank.

    Control of the financial market and payment services sector

    Control and regulation in the Czech financial market are conducted by the National Bank of the Czech Republic (CNB). The main objective of the CNB is to maintain price stability, and therefore the CNB sets monetary policy, manages cash flow, payment and clearing system of banks, supervises the banking sector, capital market, insurance, pension funds, credit unions, payment organisations and issuers of electronic money, and also carries out currency control. The Czech National Bank was established on the basis of the Constitution of the Czech Republic and operates in accordance with the law № 6/1993 Coll. "On the Czech National Bank" and other provisions. The CNB has the status of a public authority and independently manages the assets entrusted to it by the state. CNB is part of the European system of central banks and contributes to the achievement of its goals and objectives. CNB cooperates with the European Systemic Risk Board (ESRB) and European supervisory authorities of financial markets.

    CNB monitors compliance with the obligations under the Act number 253/2008 Coll., "On some measures against the legalization of proceeds from crime and terrorist financing", in relation to reporting entities. The aim of these measures is to prevent abuse of the financial system to launder the proceeds from crime and terrorist financing, and to create conditions for the detection of such behaviour.

    The central executive authority in the financial market with the exception of supervision of the capital market is the Ministry of Finance of the Czech Republic http://www.mfcr.cz/. The duties of the Ministry of Finance include managing the state budget and the national accounts of the Republic, implementation of tax and customs control, financial management, financial control. In addition to other obligations, its scope also includes activities aimed against the legalization of proceeds from crime, as well as the coordination of procedures for international sanctions at the national level.

    Czech Banking Association - a voluntary association of legal entities doing business in finance and related fields - is a key player in the development of laws to regulate the financial sector. The main activities of CBA are preparation of various laws and regulations (in the area of banking supervision, payments, capital markets, securities, mortgage lending, accounting and tax, internal audit), cooperation in the prevention of banking and financial crime and against the legalization of proceeds from crime, organisation of seminars, development of business relations with regulators and other financial market participants, publication of recommended standards for banking activities (most of them are dedicated to security in the banking and financial sectors). After the entry of the Czech Republic to the European Union, CBA increased its participation in the activities of the European Banking Federation, and it is developing cooperation with the banking associations of the Member States.

    Registration and obtaining a license from the competent authority

    Regulatory and supervisory authority in the area of financial services in the Czech Republic is the Czech National Bank (CNB), which carries out the registration and licensing of implementing entities of the financial sector.

    Company registration

    Czech Republic Commercial organisations are guided in their activities by the Law "On Corporations". Limited Liability Company (LLC), in accordance with this law, shall be liable for breach of its obligations with all of its property. Its owner(s) is responsible for the obligations of the company up to the amount of its unpaid contributions recorded in the commercial register.

    The company can be created by one person and include unlimited number of participants.

    To create a limited liability company in the Czech Republic, it is required to make an appropriate commercial name that will represent the company on the market. In order to make sure that the chosen name is not already on the market, it is necessary to take advantage of the commercial register. The company name must contain the words "limited liability company", but it is sufficient availability of abbreviations LLC.

    The minimum amount of capital company is 1 CZK. The amount of the contribution of each participant may also be 1 CZK. If a participant is not going to make a cash contribution to society, it should be indicated in the memorandum of association, specifying the object and its value.

    Memorandum must contain the following information:

  • a) full and abbreviated company name and location of the company,
  • b) composition of the society; in the case of individuals, the address of the place of residence, in the case of legal entities, company name and legal address,
  • c) key activities of the company,
  • d) the amount of the authorized capital of the company, contribution of each member, the amount of contributions paid, method and procedure of their application. In case of non-monetary contributions of the participants - the object and its value,
  • e) names, addresses and identification numbers of founders. In the case of foreign physical persons, not having an identification number, their dates of birth are indicated,
  • f) names, addresses and identification numbers of the members of the Supervisory Board. In the case of foreign physical persons, not having an identification number, their dates of birth are indicated,
  • g) full name of the account manager,
  • h) the size of the reserve fund, if the company creates it, and the way of its completion,
  • i) award granted to persons who participate in the creation of companies or activities in order to obtain permission to create,
  • j) the expected costs associated with the establishment of the company,
  • k) additional information, if required by law.
  • In the Czech Republic, a constituent agreement must be in the form of a notarial deed. When signing the contract, all founders or their authorized persons must be present. The signatures of all founders in the contract should be notarized. Notary fee for the drawing up of the contract depends on the size of the authorized capital. The minimum amount of the fee is 4840 CZK, with the authorized capital from 1 CZK up to 266 500 CZK. Notarization of one signature costs 30 CZK.

    An important step is to identify the company’s major activity. Limited liability companies in most cases choose an activity that belongs to the category of free entrepreneurship. For this purpose, it is necessary to obtain a certificate of entrepreneurial activity. Application for this certificate is submitted to the competent regional authorities, depending on the address of the company.

    A newly formed company (which has not yet been recorded in the commercial register) will receive a certificate of entrepreneurial activity from the competent regional authority in the case of fulfilment of all legal conditions for LLC founding. After consideration of the application, the company will receive the certificate within five business days. Upon receipt of this certificate, the company will get a unique identification number.

    Certificate of business is a resolution on entrepreneurship, but it comes into force only as of the day of recording in the commercial register.

    The application for the certificate is submitted by all founders of a limited liability company, in accordance with the law, they must be over 18 years old, have no criminal record and legal capacity. When applying it is necessary to attach the following documents:

  • a notarized copy of constituent agreement,
  • a notarized power of attorney for representation of the company, in case the application is submitted by founder’s representatives,
  • confirmation of ownership of the property where the legal address will be registered or a lease contract, with the consent of the owner to provide the address for registration in the commercial register,
  • a completed application form,
  • proof of payment of administrative fees.
  • Also, the company performs registration in the competent regional authority for income taxes and provides an application for registration of the company in the commercial register.

    Contributions of the shareholders must be deposited on a bank account. Through a bank statement of the company, the company provides evidence to the competent authority on the amount of the paid share capital.

    To open a bank account in a Czech bank, companies usually have to provide:

  • completed application for opening an account, specifying the type of account and currencies,
  • a certificate of registration issued by the Commercial Register as soon as company is registered. The bank may also require a description of the company, as well as information on past and expected turnover,
  • documents certifying the identity of the participants of the company.
  • Bank statement should be attached to the application for registration of the company in the commercial register. In addition to the application is required to report the following:

  • articles of association with notarized signatures,
  • certificate of entrepreneurial activity,
  • confirmation of ownership of the property where the legal address will be registered or a lease contract, with the consent of the owner to provide the address for registration in the commercial register,
  • consent of the authorized person on granting the function of a founder of the company or a member of the Supervisory Board,
  • police clearance certificates, not older than three months, for the founders.
  • If all the requirements of the application for registration of the company are met, the court will register the company within five business days from the filing date. The court fee for the registration of the company is 6000 CZK.

    Every company that has been recorded in the commercial register, in accordance with the Law №586 / 1992 "On Taxes", is obliged to apply for registration of taxes on profits in the financial department. A company is required to do it not later than 15 days from the date of registration. After that, the company will have a certificate of registration with the tax identification number.

    Profit tax is applicable for:

  • profits or income from business, profession or occupation
  • remuneration from employment or self-employment, including fringe benefits
  • dividends, bonuses, interest or discount
  • pensions, compensation, annuities
  • rents, royalties, bonuses and other income from property
  • other income.
  • Profit tax in the Czech Republic is 19%

    Limited Liability Company is required to keep accounts. In accordance with the Law "On Corporations", a LLC should provide to the Registry of financial statements the following documents:

  • balance sheet at the end of the accounting year,
  • interim balance sheet,
  • annual financial report
  • audit report,
  • notification of the date of approval of the balance sheet.
  • To approve the balance sheet of a limited liability, there should be a meeting of the founders up to six months at the end of the year. If the Company is composed of one person, the balance sheet is approved by its independent decision.

    Accounting records must meet all the requirements, depending on the accounting system. The company has to record in the accounting book all transactions that are recognized in the accounts. A company can not record in this book any transactions, which in fact were not effected. In case of such violations, a company can be penalized with a fine ranging from 3% to 6% of total assets.

    Taxes

    The taxation system in the Czech Republic is similar to the tax systems of other European countries. Taxes are divided into direct taxes related to income of the subject and indirect taxes related to the purchase or consumption of goods and services, they are defined in the following two laws:

  • The law number 586/1992 Coll. "Income tax" - Zákon č. 586/1992 Sb., O daních z příjmů;
  • The law number 235/2004 Coll. "On Value Added Tax" - Zákon č. 235/2004 Sb., O dani z přidané hodnoty;
  • Tax Collection Act regulates the number 280/2009 Coll. "Tax Code" - Zákon č. 280/2009 Sb., Daňový řád

    Management and collection of taxes is the responsibility of the Ministry of Finance of the Czech Republic and its subordinate administrative bodies, primarily the local tax authorities, which is governed by law number 456/2011 Coll. "The financial management of the Czech Republic" - zákon č. 456/2011 Sb., O Finanční správě České republiky.

    Non-bank payment services company

    The Czech system of financial entities includes the activity of non-bank organisations providing payment services. There are 4 types of institutions: payment organisations, issuers of electronic money, small payment organisations, small electronic money issuers. Some of the above laws apply to these organisations. There are laws and regulations that directly regulate their activities:

  • Law number 284/2009 Coll. "On the provision of payment services" - the basic law regulating the activities of all payment institutions, including non-bank. This is the law that describes the 4 types of institutions and defines their rights and obligations;
  • CNB decree number 141/2011 Coll. "On the implementation of the activities of payment institutions, electronic money issuers, small payment organisations, small electronic money issuers" - vyhláška ČNB č. 141/2011 Sb. o výkonu činnosti platebních institucí, institucí elektronických peněz, poskytovatelů platebních služeb malého rozsahu a vydavatelů elektronických peněz malého rozsahu to the law number 284/2009 Coll. "On the provision of payment services." This regulation implements the decisions of the EU Directive 2009/110 / EC "On the activity of issuers of electronic money" and the EU Directive 2007/64 / EC "On the provision of payment services in the internal market";
  • Changes to the decree number 141/2011 Coll. CNB subsequent resolutions: Resolution number 233/2014 Coll. - Vyhláška č. 233/2014 Sb., Decree № 31/2014 Coll. - Vyhláška č 31/2014 Sb.
  • Resolution number 142/2011 Coll. "On the provision of information by payment institutions, issuers of electronic money, small payment organisations, small electronic money issuers" - Vyhláška č. 142/2011 Sb., O předkládání informací platebními institucemi, institucemi elektronických peněz, poskytovateli platebních služeb malého rozsahu a vydavateli elektronických peněz malého rozsahu České národní bance with two applications.