Tax and legal aspects when buying a Czech company

Legal and Tax aspects in the Czech Republic

The Czech Republic is a member of the Multilateral Investment Guarantee Agency (MIGA), an international organization for protection of investments, which is part of the Word Bank – IMF group. The country has signed a number of bilateral treaties which support and protect foreign investments, for example with the United States, Germany, the UK, France, Austria, Switzerland, Italy, Belgium, Luxembourg, the Netherlands, Finland, Norway, Denmark and China. The Czech Republic has also concluded agreements for the avoidance of double taxation.

The Corporate Income tax in Czech Republic has decreased from 28% in 2004 to 19% in 2013.

General Legal M&A introduction when buying a Czech business

It is important for the parties involved in a transaction to agree on the structure of the acquisition and the relevant assets included in the scope, before the commencement of any negotiation process. Important to know is whether the transaction relates to an asset-deal or a share-deal. Main documents that are being used are the LOU (Letter of Understanding) and the SPA (Share Purchase Agreement). In this sense legal aspects in Czech Republic don’t differ that much from global practice.

Legal contents around the LOU

A typical LOU (Letter of Understanding) in Czech Republic will normally involve the following terms and conditions:

  • Names of the acquirer, seller and target company
  • Structure of the transaction
  • Purchase price or issue price in case of capital injection and basic assumptions regarding the valuation (cash free – debt free etc.)
  • Mechanism of payment of the purchase price and escrow mechanism if any
  • Conditions precedent of the acquirer and seller if any, conditions precedent specific to the transaction (such regulatory approvals etc.)
  • Process forward and outline of steps (financial, legal, technical due diligence, approvals of the corporate bodies of the entities etc.) and provisions related to access of company records
  • Conduct of target’s business for the period between signing of the LOU and signing of the SPA (Share Purchase Agreement)

Investment subsidies in Czech Republic

The Czech Republic offers both new and existing investors support covering up to 60% of costs associated with investment projects in manufacturing, technology centers and business support services. Aid is provided in all regions, with the exception of Prague.
To highlight the manufacturing sector, full corporate tax relief for up to 5 years for new companies is possible. Besides this, there is financial support for creation of new jobs (upto 2000 Euro per job) and training of new employees (upto 45% of eligible training costs) in selected regions. Minimum investment to be eligible for subsidies is Euro 2-4 mn (depending on regions’ unemployment rate).

Information about the Czech tax and legal system

For more information about the Czech tax and legal system, please contact our M&A advisor Sumit Arora in Czech Republic. He also can tell you about subsidies on Czech investments.