Are you planning to start a business, or are you already in business and just want to check that you are doing everything by the book? Then it is definitely worth knowing the Trade Business Act, which regulates the conditions and rules for running a trade in the Czech Republic. In this article, we will introduce you to its basic principles, but also to the development of trade law and the importance of the annexes to the Trade Licensing Act.
The Trade Licensing Act, officially Act No. 455/1991 Coll., on Trade Licensing, lays down the rules for the business of natural and legal persons in the form of a trade. This law is the most important piece of legislation in the field of trade law, which is part of the broader framework of commercial law.
The Trade Licensing Act defines what a trade is, what types of trades there are, what conditions you have to fulfil if you want to practice it, and what obligations entrepreneurs have towards the state. At the same time, it also addresses control and sanction mechanisms, through the trade licensing authorities.
The roots of trade law in the Czech lands go back roughly to the Austro-Hungarian period. The first codified regulation from that period was the Trade Licensing Code of 1859. It was only this code that first introduced a relatively liberal concept of business. This meant that anyone who fulfilled the basic conditions could set up a business.
After 1948, when the Communists came to power, business in Czechoslovakia was a very difficult area to navigate. The establishment of a centrally controlled economy led to a significant restriction of private enterprise, with only selected individuals running businesses. It was only after 1989 that business was liberalised again, resulting in the adoption of the Trade Licensing Act in 1991.
Since then, the Trade Licensing Act has undergone dozens of amendments. Many changes were brought about, for example, by the Czech Republic’s accession to the European Union. This has led, for example, to the introduction of recognition of professional qualifications acquired in another Member State. Another important change was, for example, the establishment of single points of contact, i.e. so-called ‘one-stop’ trade licensing offices.
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What does the Trade Business Act regulate?
In addition to these areas, it also defines the competences of the trade licensing authorities, which in this case act as a supervisory authority. It also maintains the central register(trade register) and decides on authorisations and sanctions.
A trade is a systematic activity carried out independently, in one’s own name, on one’s own responsibility, for profit and under the conditions laid down by the Trade Licensing Act. According to this law, a person who runs a trade is called a sole trader or entrepreneur.
To be able to operate a trade, a person must meet the general conditions:
If someone wanted to run a business before reaching the age of majority, they would only have to do so through a responsible representative. For some trades, it is also necessary to meet the conditions of professional competence – typically to obtain an apprenticeship certificate or to have professional experience.
The Trade Business Act distinguishes two basic groups of trades:
1. Reporting trades
2. Licensed trades
Require a concession from the state (e.g. taxi service, security of property and persons, alcohol production).
The annexes to the Trade Licensing Act, which we will describe in more detail below, provide a breakdown of activities according to the different types of trades.
Tip: Did you know that running a business without a trade is possible and legal in some cases? Find out which jobs don’t require a trade licence.
Most entrepreneurs, when setting up a trade, are guided only by a list of selected activities, without realizing that these activities are however detailed in three essential annexes of the law.
Annex 1 – Craft trades
It lists the activities for which the law requires professional competence. These include, for example, plumbing, locksmithing, baking, hairdressing and chimney sweeping.
Annex 2 – Bound trades
In this appendix you can find trades for which not only an apprenticeship certificate or experience is not enough, but also, for example, a state examination, higher education or registration with a specialised authority. This includes, for example, bookkeeping, running a driving school, massage services or real estate.
Annex 3 – Licensed trades
This annex lists the activities that the State considers to be so sensitive or risky that it makes them subject to a special permit – a concession. Examples include the operation of a shooting range, the manufacture of pyrotechnics, a taxi service or the operation of a travel agency.
If you are setting up a business and want to make sure you are operating in the correct category, then knowing these annexes is essential. If, as a business, you list an activity that falls into, for example, a tied trade but do not obtain the necessary authorisation for it, you are committing an administrative offence.
Many an entrepreneur underestimates the classification of his/her activity when setting up a trade and chooses, for example, ‘trade and services not elsewhere classified’ without further analysis. But not all of them can be hidden under a free trade. The law is very precise in this respect and the trade authorities are guided by the annexes of the Trade Licensing Act. An example is real estate activity. It is a tied trade and if you operate it without proper authorization, you risk not only a fine but also loss of credibility.
In addition, by breaking the rules set out in the Trade Licensing Act, you run the risk of significant penalties. The Trade Licensing Authority may impose a fine of up to CZK 500,000, prohibit your business activities and revoke your trade licence. In addition, you may also face sanctions from other areas of law – administrative, criminal and tax.
However, the Trade Business Act also provides for situations when you want to modify, interrupt or completely stop your business. Changes may occur, for example, if you change your registered office, name or the type of business you are running.
You can suspend your trade for any length of time, but you must always notify the trade licensing office. Similarly, you must notify the authority of the cessation of your trade, otherwise you will continue to be listed as an active entity. We will advise you how to cancel your trade in a separate article.
Hint: Few people haven’t heard about the scandal involving scammers trying to scam seniors on sales trips. But the unfair business practices are much more extensive. Read on to find out what’s beyond fair trade.
Trade law is a complex field, especially if you, as an entrepreneur, find yourself in a dispute with the authorities or if you are planning to expand your business into areas that fall within the scope of a tied or licensed trade. Our lawyers will help you to correctly classify your trade according to the annexes of the law, prepare documents for obtaining a license and represent you in administrative proceedings and inspections.
The Trade Licensing Act is a fundamental pillar for every entrepreneur in the Czech Republic. Without knowing it, you can easily get into trouble, even in the good faith belief that you are “just” offering a service. The annexes to the Trade Licensing Act play a crucial role in determining what type of trade is required for a particular activity. If you are not sure where your business belongs, or if you are looking to expand, do not hesitate to contact the experts. At The Affordable Lawyer, we’re happy to help.
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Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
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