Czech Business registration: OSVČ or s.r.o.

Self-Employment (Živnost) vs. Czech Limited Liability Company (s.r.o.): Which Is Better?

If you're planning to start a business in the Czech Republic, one of the first big decisions is choosing between becoming self-employed (OSVČ) or establishing a limited liability company (s.r.o.). While they may seem similar at first glance, the differences can affect your taxes, liabilities, and how your business is perceived. Choosing the right setup from the start can save you time, money, and trouble later.

1. Self-Employment (OSVČ)

With a trade license (živnost), you operate as a self-employed individual. This means you're personally liable for any damages or debts with your entire personal property.

It's ideal if you want to start as a freelancer and meet the legal requirements. Need help registering? Follow this link: Trade License (Freelance Status – Živnostenský list)

2. Czech Limited Liability Company (s.r.o.)

An s.r.o. is a legal entity separate from you personally. It can be established by one person or up to 50 partners. A basic capital deposit is required—but the minimum is just 1 CZK.

The setup involves two steps:

1. Signing a founding agreement and depositing part of the capital

2. Registering the company in the commercial register

The company must also have a registered address. While it can be your home, this might look less credible to clients. You can fix this easily by renting an office or using a virtual address.

How to Choose the Right Form

1. Management For freelancers in areas such as IT, graphic design, or general consultancy, forming an s.r.o. is usually unnecessary. If your business is built on your personal name and skills, a trade license (OSVČ) is more practical. If you are working with corporate clients or high-profile partners, an s.r.o. can build greater trust. Over time, the company itself can also become a valuable asset, especially if you plan to sell it in the future.

2. Liability

• OSVČ: You are fully liable with your personal property. The only way to reduce this risk is by taking out liability insurance.

• s.r.o.: Liability is limited to the company’s assets and unpaid capital contributions, protecting your personal property.

3. Taxes

• OSVČ: Pay 15% income tax on 40% of your gross income.

• s.r.o.: Pays 21% corporate income tax on company profits. In addition, shareholders must pay 15% personal income tax when receiving dividends.

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4. Insurance

• OSVČ: Must pay both health and social insurance contributions.

• s.r.o.: Offers more flexibility. While not paying social insurance can affect your future pension, it allows for tax optimization that is not possible as an OSVČ.

5. Closing the Business

• OSVČ: Termination is straightforward. You can cancel or pause your trade license, and the change is usually processed within one business day. With Pexpats, the entire termination can be arranged online under a signed power of attorney.

• s.r.o.: Closing requires a formal liquidation process. This involves appointing a liquidator, notifying creditors, settling debts, preparing a final balance sheet, and registering the closure with the Commercial Register. The process often includes audits and can take several months.

Choose OSVČ if you:

• Want direct, personal contact with your clients

• Need a fast and inexpensive way to start

• Expect your income to stay below the solidarity tax threshold

• Want to take advantage of the Czech flat tax system (simple payments, no tax report)

Choose s.r.o. If you:

• Need more control over taxes and insurance contributions,

• Work with business partners,

• Plan to build the company’s reputation and long-term value,

• Later will sell or transfer the company.

Choose a Trade License (OSVČ) if you:

• Prefer simple registration and termination,

• Want to pay lower taxes and optimize contributions,

• Need less paperwork and easier tax administration,

• Plan to work as an individual without partners.

• What is the liability difference between OSVČ and s.r.o.? An OSVČ is fully liable for all personal property, but liability insurance can reduce this risk. In an s.r.o., liability is limited to company assets and unpaid capital contributions, protecting personal property.

• How are OSVČ and s.r.o. taxed? OSVČ pay 15% income tax on 40% of gross income plus health and social insurance. An s.r.o. pays 21% corporate tax, and shareholders also pay 15% personal income tax on dividends.

• Does Pexpats have a tax calculator for OSVČ? Yes. Pexpats provides a legal calculator that shows income tax, social insurance (ČSSZ), and health insurance for OSVČ. It works 100% online in English. Try the calculator.

• Can the Pexpats calculator show taxes for mixed income (employment + OSVČ)? Yes. The calculator covers both employment and freelance income, showing the correct income tax, health insurance, and social contributions. Calculate your mixed income taxes.

• Which option has simpler administration? OSVČ. Registration, tax payments, and even termination can be done online through Pexpats, often completed within one business day. An s.r.o. requires more documentation and long-term reporting obligations.

• How is insurance different for OSVČ vs. s.r.o.? OSVČ must pay health and social insurance monthly. An s.r.o. gives flexibility — avoiding social insurance may reduce pension benefits, but allows for tax optimization not available to OSVČ.

• How do you close OSVČ vs. s.r.o.? OSVČ can cancel or pause a trade license online, usually processed within one business day. Closing an s.r.o. requires liquidation with a liquidator, creditor notices, final balance sheet, and a Commercial Register application, often taking several months.

• When should you choose OSVČ? When you want fast registration, lower taxes, simpler paperwork, and to work under your personal name as an individual freelancer.

• When should you choose an s.r.o.? When you want more credibility with clients, plan to work with partners, need control over taxes, or intend to grow and later sell or transfer the company.

• Is OSVČ the same as a trade license (živnost)? Yes. OSVČ (self-employed person) operates under a trade license, also called živnost in Czech law. Registering for OSVČ means obtaining a trade license to work as a freelancer in the Czech Republic.