10 key tax and accounting challenges for Polish firms operating in Czechia

For many Polish companies, expanding into the Czech Republic is a natural next step. The Czech market offers geographical proximity, economic stability, and a familiar business environment. As a result, more and more Polish businesses are entering the Czech Republic or considering cross-border operations.

However, despite similarities between the Polish and Czech systems, companies often face unexpected tax, accounting, and regulatory challenges when operating in the Czech Republic.

Understanding these differences early is crucial for avoiding risks and ensuring smooth market entry.

Key business differences between Poland and Czechia

1. Choosing the right structure: subsidiary, branch or cross-border model

Polish companies entering the Czech market must decide how to structure their operations.

The most common option is a Czech limited liability company (s.r.o.), which is relatively easy to establish and requires only minimal share capital. However, the process involves notarial deeds and strict registration deadlines.

Alternatively, companies may operate through a branch (odštěpný závod) or even initially on a cross-border basis without a formal presence.

Why this matters:

The chosen structure affects tax exposure, compliance obligations, operational flexibility, and perception by local partners.

Learn more How to open a company in the Czech Republic 

2. Permanent establishment (PE): the most underestimated tax risk

One of the most critical issues for Polish companies operating in the Czech Republic is the risk of creating a permanent establishment (PE).

A PE may arise even without a Czech legal entity, for example through:

• long-term construction or installation projects,
• employees or management operating in CZ,
• use of office, warehouse, or technical infrastructure,
• dependent agents concluding contracts.

It is essential to distinguish between:

• Permanent establishment (CIT concept), and
• Fixed establishment (VAT concept) – these are not the same.

Czech tax authorities increasingly assess the economic substance of local operations. Structures without sufficient local presence may be challenged, particularly in the context of transfer pricing and withholding tax.

Why this matters:

Failure to identify a PE may lead to unexpected corporate income tax obligations and retrospective adjustments.

3. VAT in the Czech Republic: practical differences

Although VAT systems are harmonized within the EU, their application differs significantly.

Key Czech specifics include:

• standard VAT rate of 21%,
• extensive use of domestic reverse charge,
• obligation to submit a control statement (kontrolní hlášení),
• possible VAT registration even without a fixed establishment.

Common challenges:

• incorrect reverse charge application,
• misunderstanding VAT registration triggers,
• invoicing errors when a Czech establishment exists.

Why this matters:

VAT errors are highly visible and often trigger tax audits.

4. Corporate income tax: similar framework, different outcomes

Corporate income tax in both countries is based on accounting results, but practical differences are significant.

Key Czech aspects:

• CIT rate of 21%,
• different depreciation rules,
• stricter treatment of provisions,
• interest deductibility limitations,
• no group taxation.

Why this matters:

Tax positions accepted in Poland may not be deductible in the Czech Republic.

5. Transfer pricing and intra-group transactions

Cross-border transactions between Polish and Czech entities must comply with transfer pricing rules.

Czech tax authorities apply a formal and documentation-driven approach, with particular focus on:

• management services,
• cost allocations,
• intercompany financing.

Why this matters:

Improper transfer pricing may result in tax adjustments, penalties, and double taxation.

6. Withholding tax in cross-border payments

Payments such as dividends, interest, and royalties may be subject to withholding tax.

Although EU directives allow for exemptions, they require:

• meeting ownership thresholds,
• holding periods,
• proof of beneficial ownership.

Why this matters:

Incorrect application may lead to additional tax liabilities and administrative complications.

7. Employment and cross-border workforce

Polish companies frequently assign employees to the Czech Republic.

Key considerations:

• notification obligations,
• personal income tax rules (15% / 23%),
• higher employer contributions,
• EU social security coordination (A1 certificates).

Why this matters:

Incorrect setup may result in payroll errors or double taxation.

8. Accounting differences: Czech GAAP vs Polish GAAP

Despite a common EU framework, Czech accounting rules differ in practice.

Key differences include:

• treatment of assets and technical improvements,
• structure of financial statements,
• more formal documentation requirements,
• mandatory Czech-language reporting.

Why this matters:

Differences often create challenges in group reporting and consolidation.

9. Compliance and reporting obligations

The Czech system is highly formalized and increasingly digital, which requires companies to implement structured and timely compliance processes.

Companies must comply with:

• strict tax deadlines (VAT, CIT, payroll),
• detailed reporting requirements, including VAT control statements (kontrolní hlášení),
• mandatory electronic communication with authorities via datová schránka.

Czech tax authorities are generally formalistic and documentation-driven, with a strong focus on consistency between filings, accounting records, and supporting documentation.

Companies should also carefully assess statutory audit obligations, which differ from Polish rules and may apply earlier than expected due to different thresholds and evaluation criteria.

For a detailed overview, see our article: Statutory audit requirements for Polish companies operating in the Czech Republic

Why this matters:

Even minor compliance errors – such as late filings or inconsistencies in reporting – may result in automatic penalties and increased audit risk.

10. Incentives and investment opportunities

The Czech Republic offers:

• R&D tax incentives,
• EU funding programs,
• investment support schemes.
• However, eligibility often depends on early planning.

Why this matters:

Opportunities are frequently missed if addressed too late.

Despite the similarities between the Polish and Czech business environments, Polish companies frequently encounter recurring issues when entering or operating in the Czech market. These challenges are often not the result of complex structures, but rather of assumptions that the systems work in the same way.

In practice, even minor misunderstandings can lead to significant tax exposure, compliance risks, or unnecessary costs.

The table below highlights the most common pitfalls we observe in cross-border projects – along with their potential consequences.

Most common pitfalls for Polish companies operating in the Czech Republic

The Czech Republic remains an attractive market for Polish companies. However, differences in tax, accounting, and regulatory frameworks require careful planning and local expertise.

A proactive and coordinated approach allows businesses to minimize risks and focus on long-term growth in the Czech market.