In a recent judgment, the Supreme Administrative Court established once and for all that foreign legal entities whose seat lies in the EU are not obliged to establish a branch before they may register for the pursuit of a trade.
In its judgment of 15 June 2023, the Supreme Administrative Court addressed the issue of whether the trade licensing office has the authority to demand that a foreign legal entity whose seat lies within the EU produce proof of the establishment of a foreign branch in the Czech Republic (and proof of the legal title to the premises in which the branch is installed) for the purpose of registering a non-licensed trade.
As a general rule, foreign legal entities may do business in the Czech Republic e.g. through an affiliated branch, operational division, or subsidiary. Further, as per Sec. 5 (2) of the Trade Licensing Act, any foreign legal entity may pursue a trade on the territory of the Czech Republic on equal terms and in the same scope as any Czech entity. (Of course, the foreign legal entity must satisfy the prerequisites for carrying out such trade under the law.)
The Supreme Administrative Court had to assess a situation in which the trade licensing office, for the purpose of registration of a non-licensed trade, had demanded that a legal entity established in the EU (i.e., specifically, in the Kingdom of the Netherlands) produce proof of the establishment of a foreign branch and demonstrate that it has a legal title to use the premises on which it operates its business.
However, such obligation does not follow from the Trade Licensing Act or any other law. The Supreme Administrative Court noted that the trade licensing office have been erroneously inferring an obligation on the part of foreign entities to establish a branch for the purposes of registering their trade from Sec. 46 (2) of the Trade Licensing Act. The Supreme Administrative Court rebuked the trade licensing authorities for this inadmissibly broad interpretation of the law, and ruled that legal entities cannot be required to establish a foreign branch for the sole purpose of registering a trade. Legal entities whose seat lies in the EU thus may register trades in the Czech Republic without having to be entered in the Czech Commercial Register or having to establish an affiliated branch or operational division on the country.
However, at this point we should stress that the above only applies to foreign legal entities whose seat is located in another EU member state. By contrast, Sec. 44 of the Act on Public Registers does require foreign legal entities whose seat lies outside the EU to become entered in the Commercial Register (by themselves or through their branch office) before they may do business in the Czech Republic.
The above-described practice of the trade licensing office matches our own experience: we have been assisting in specific cases in which the authorities required the establishment of a foreign branch from foreign legal entities established in the EU. However, the question should now be settled thanks to the above-described decision by the Supreme Administrative Court, and one may expect that the trade licensing offices will no longer demand that legal entities whose seat lies in another EU member state first establish a foreign branch before they can register their trade.
Source:
Act No. 455/1999 Coll., on business operations in the form of a trade (Trade Licensing Act)
Act No. 304/2013 Coll., on public registers of legal entities and natural persons and on records of trusts
Resolution 2 As 193/2022 of the Supreme Administrative Court of 15 June 2023