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| January 26, 2017

Requirements for members of supervisory board – foreigners

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In the Czech Republic, members of statutory bodies in multinational corporations are very often foreigners who are Czech non-resident taxpayers. These persons usually assume their position from abroad or they travel to the Czech Republic a few times a year. So what are the requirements for such members of a supervisory board?

General requirements

The requirements for members of supervisory boards are set by Act No. 90/2012 Coll. on Commercial Companies and Cooperatives (Business Corporations Act). In general, we are talking about a natural person who is legally competent, fulfills the requirements of Trade Licensing Act to carry on trade i.e. is law abiding and 18 years old or older. The further requirements follow:

  • A member of the supervisory board cannot at the same time be a member of the board of directors or another person legally allowed based on registration in the company register to act as an executive director of a company.
  • A member of the supervisory board cannot do business in the area of enterprise of the company, not even if some other person profits from it. He or she is also not allowed to mediate business of someone else’s company.
  • A member of the supervisory board cannot be a member of a statutory body of another legal person with a similar area of enterprise and cannot assume a similar position either, unless we are talking about a corporate group (a concern).
  • A member of the supervisory board cannot take part in business activities of another business corporation as a limited liability associate or as a person operating another person with a similar or identical area of enterprise.
  • Whoever shall become a member of a body in a business corporation, he or she should inform the founder or the corporation in advance if there was an insolvency of his property or of property belonging to a corporation in which he or she acts in or acted in during the last 3 years as a member of a body, or if there is anything else possibly preventing him or her from practise of function.

Thus a member of the supervisory board can be a foreigner, Business Corporations Act lays down no restrictions to this. If the member is an EU citizen, he or she is not even required to have a Czech work permit or a residency permit.

Income taxation

Income of a supervisory board member who is a Czech non-resident taxpayer is taxed with the withholding tax. Solidarity tax is not applied. The rate of withholding tax is firmly set and is based on the home country of the non-resident at either 15 % or 35 % (higher rate is applied in the case of non-EU countries with which the Czech Republic hasn’t made any agreement about exchange of information/prevention of double taxation). To have the lower tax rate applied, the member of a supervisory board must deliver a confirmation of tax residency/domicile issued by a relevant financial authority to the company in which they have their income. The basis of assessment for withholding tax is the same as the basis of assessment for calculation of advance tax of residents including increase by insurance for pension and health insurance. If the non-resident doesn’t pay insurance in the Czech Republic, the taxpayer will use the so called fictive insurance (i.e. as if he or she did pay insurance). Such member of a supervisory board will be obliged to deliver form A1 confirming that he or she is participant in his or her home system of insurance (the request for the form will probably be based on the concurrence of activities in two member states).

If there is an agreement about preventing double taxation, the income will be taxed according to the article on profit sharing (Tantiéma).  According to this article, income of a member of a supervisory board will be taxed in the country where the company is based (regardless of where the work is actually done).