There is no easier path to starting your own business than a trade license. You have a good business idea and want to be your own boss? Only a few simple administrative steps separate you from becoming self-employed.
What is a trade license?
Trade license enables you to conduct business in the Czech Republic. Often referred to as sole-proprietorship, self-employment and sole trading, trade license is a registration with a trade license office based on which you become an entrepreneur. A person engaged in trade is called a self-employed person. Trade license is a business, however it has a significant difference from a company. A company is an independent legal entity with one or more directors. Trade license is connected to a person, hence the name of the trade license is the name of a person. This person is 100% liable for the business by their personal assets.
What are the types of trades?
There are two groups of trades: free, thus not requiring special approval or certification and those that require qualifications. There are 82 free trades and they include a multitude of activities (full list of free trades), most common among foreigners are consulting, teaching, IT, retail and real estate. Qualified trades are medical, nail and beauty, restaurant, accounting services etc. In case you are not sure what qualifications you require for setting up a trade license – we can share this information during a consultation (Book a consultation).
Establishing a trade license while employed.
In case you have permanent employment (HPP) but also wish to work for yourself, Czech law allows getting a trade license alongside employment. Specifically as a secondary activity (read more). One pleasant benefit is that you don’t have to pay health and social insurance contributions in the first year of your operations. However, having a secondary activity comes with certain limitations and conditions. First step should be to check your employment contract. It may require you to inform your employer of your intention to engage in business activities or obtain their written consent. State employees, in any case, must have written consent from their employer. Lastly, consider non-competition clauses. Those may prohibit you from conducting business in the same or a similar field as your employment without your employer’s written consent. Note: If your secondary activity amounts to less than 300 hours per year (i.e., 25 hours per month), you do not need a trade license for it; a simple work agreement will suffice.
Can students become self-employed?
In addition to employees, students also have the opportunity to be self-employed. Their business activities are also considered secondary. The difference is that the state covers health insurance for students, so they do not need to address this issue. Nevertheless, students are required to notify the health insurance company of the start of their business activities within eight days. Students are also subject to reporting their income and expenses to the health insurance company annually. In contrast, social insurance is not covered by the state for students, although this misconception is common. However, this does not necessarily mean that you will have to pay for it yourself. The obligation to pay social insurance arises only when your net annual income exceeds the so-called threshold amount. This amount is determined each year, and for this year (i.e. 2023), it is 96,777 CZK (more in Czech).
How to establish a trade license as a foreigner
Foreign nationals can become self-employed in the Czech Republic, but the process is somewhat more complex. In addition to standard steps, such as an application form and a registration fee, foreign nationals also need to submit the following documents*:
- passport or travel document
- residence permit (for non-EU citizens)
- officially certified translation of the criminal record extract issued by the home country (for non-EU citizens)
- consent from the property owner where the business will be conducted (unless the owner is the foreign national themselves).
*Note: requirements differ based on your country of origin. You can find a full list of requirements here.
Cancellation of trade license
Whether you are conducting a primary or secondary activity based on a trade license, you can either suspend or completely cancel it. You can request either a temporary suspension or its complete cancellation. Trade license can be suspended for any length of time. You can reactivate it if needed. You must also inform your health insurance and the Czech Social Security Administration (ČSSZ) about the changes.
During the suspension, you are not required to pay social insurance contributions. However, this period does not count toward your retirement. Health insurance still has to be paid. When canceling your self-employment, please be aware that your information in the trade register will remain accessible for four years after the end of activities. Certain entities may still have access to it even after that period. In case you are wondering about the process of trade license registration – you can find it here.
Advantages of Trade license versus LLC (sro)
There are certain advantages to becoming self-employed instead of owning a company:
- fast and cheaper setup (you only require a list of documents mentioned above,
- beneficial tax regimes: you can choose to pay a flat-tax rate a report lump sum expenses (60/40),
- can be paused and reactivated or stopped easily. LLCs undergo a complicated liquidation process,
- with it WU citizens get access to public health care,
- you can employ people same as un LLC.
If you are trying to decide between those two, while starting your first business, we recommend self-employment. You can always move up to a company, if needed. Here you can read more about both. On a consultation with us you can not only get an estimation of how much taxes you would potentially pay on a trade license, but also the same for sro.