Accounting obligations in the Czech Republic

Accounting in the Czech Republic

According to the Accounting Law, all legal entities are obliged to keep accounting records, whether they are limited liability companies (s.r.o.), joint stock companies (a.s.), public companies (v.o.s.), cooperatives, communities of unit owners (SVJ) and others.

The same rules apply to natural persons whose turnover exceeds CZK 25 million.

The scope of company accounting depends on the category to which the entity belongs. There are 4 categories, namely micro, small, medium and large accounting unit.

Each category has different obligations in terms of preparation and publication of financial statements, audit, preparation of annual report, cash flow statement and changes in equity.

Accounting records represent a comprehensive system of documentation of all financial and economic operations of an entity. They include accounting books, fixed assets records, accounts receivable and payable books, records for VAT purposes and other financial documents. The books of account in double-entry bookkeeping are the journal, the general ledger, the books of analytical accounts and the books of off-balance-sheet accounts.

Accounting entities should keep their accounts in accordance with the general accounting principles and rules, which are derived from the Accounting Act and related regulations and represent a set of certain rules and basic principles of accounting thinking.

Translating accounting principles and principles into practice then provides the required information about the entity's performance.

Accounting entities shall keep their accounts in such a way that the financial statements are presented in a manner that is understandable and gives a true and fair view of the subject matter of the accounts and of the entity's financial position.

Accounting entities shall keep one set of accounts for the entity as a whole. It is therefore essential to define the economic unit for which the accounts will be kept and to which all accounting transactions and financial statements will relate.

Types of accounting in the Czech Republic

The legal regulation of accounting in the Czech Republic distinguishes the following main types:

·         Accounting, formerly called double-entry accounting,

·         simple accounting,

·         tax accounting.

Double-entry accounting

Accounting, formerly double-entry accounting, is a basic system of accounting records where each transaction is recorded in two different places in the accounting system, ensuring accuracy and control over financial transactions. Each item is recorded as "Debit side" on one side and as "Credit side" on the other side.

This system allows companies to monitor and manage their financial resources, liabilities and assets with a high level of detail and accuracy. The accounting system provides a comprehensive view of a company's financial condition and is the basis for preparing financial statements.

Accounting is mandatory for legal entities such as limited companies and public limited companies. Individuals and self-employed persons are required to keep accounts if their turnover exceeded CZK 25 million in the preceding calendar year.

Simple accounting

Simple accounting records accounting cases in only one account. Its aim is to provide an overview of income and expenditure, assets and movements in economic resources. The system is cash-based, which means that expenditure and income are tracked, not income and expenses.

Simple accounts may be kept by associations, trade unions, employers' organisations, churches, hunting societies and other non-profit organisations. These entities must not be VAT payers, their total income for the last closed accounting period must not exceed CZK 3 million and the value of their assets must not exceed CZK 3 million.

Tax records

Tax registration is a system designed for individuals who are not obliged to keep accounting records. The main task of the tax register is to determine the income tax base. Subsequently, the amount of personal income tax is also calculated.

Tax records are kept by all natural persons who are not accounting entities and are therefore not listed in Section 1(1) of the Accounting law.

It is suitable for self-employed persons and small entrepreneurs with an annual turnover of less than CZK 25 million. It contains data on income and expenditure, assets, receivables and liabilities. For VAT payers, the records must be adapted to comply with the Value Added Tax Act. The law only regulates the content of the tax records, the form or method of keeping them is not strictly defined.

The tax register is a simplified accounting system that allows for efficient management of financial records and facilitates the process of tax calculation.

Financial statements in the Czech Republic

The financial statements must be drawn up annually within six months after the end of the financial year.

Each set of financial statements is an integral whole and must comprise, as a minimum, a balance sheet, a profit and loss account and an annex that explains and supplements the information contained in the previous two statements. In order to comply with the full scope obligation, a statement of cash flows, changes in equity, etc., must also be drawn up. These statements are to be attached as part of the income tax return by 30 June following the end of the financial year at the latest and are to be submitted together with the tax return in electronic format (XML) via the official data mailbox of the entity.

Approval and deposit of financial statements

Shareholders must approve the financial statements at a general meeting within six months after the end of the financial year. The approved documents must then be published no later than one year after the end of the financial year.

The publication of the financial statements is therefore deposited in the collection of documents of the registry court. Accounting entities that are required to submit an annual report to the Czech National Bank (CNB) send the financial statements and the annual report through the CNB. Other accounting units send their accounts to the competent court of registration.

The signed financial statements are sent to the court in PDF format by e-mail, data box, online filing in the collection of documents or via eFiling.

As of 2021, business corporations that do not have obligations to the CNB may also submit their financial statements through the tax administrator as an attachment to a tax return filed electronically.

Small and micro entities without audit obligations do not have to publish a profit and loss statement, just a balance sheet and an annex. Other entities (medium and large) must publish complete financial statements (including a statement of cash flow and changes in equity). If they are subject to audit, they also need to publish an annual report.

Consolidated financial statements and payment reports must also be published if required by law. Audited companies must also publish the auditor's report. According to Section 21a(2) of the Accountancy Act, the financial statements and the annual report must be published within 30 days after they have been audited and approved by the competent authority, but no later than 12 calendar months after the balance sheet date.

Failure to publish the financial statements is punishable by a penalty of up to 3% of the value of total assets in the case of non-business entities (associations, etc.). In the case of other accounting units, the penalty is the same, up to 3 % of the value of total assets or 3 % of the value of consolidated assets. In addition, you may be fined up to CZK 100,000 under Section 104.

Statutory audit in the Czech Republic

A statutory audit is an audit that is prescribed by law. In general, it consists of presenting the auditor's opinion on whether the financial statements comply with legal requirements and give a true and fair view of the financial position and results of financial operations.

The current Czech law on auditors has been in force since March 2009. In addition, audit guidelines issued by the Chamber of Auditors are in force. These guidelines are based on international auditing standards issued by IFAC and are adapted to take into account the local environment and local regulations, in particular the Accounting Act and the relevant Czech accounting regulations.

Audits in the Czech Republic are required for:

·         all banks and investment funds

·         foundations and certain other non-profit organisations

·         public limited companies that meet at least one of the following criteria in the current and previous financial year:

o   turnover exceeding CZK 80 million

o   total assets exceeding CZK 40 million

o   the average number of employees exceeds 50

·         other accounting units that meet at least two of the above criteria in the current and previous accounting period.

·         medium-sized and large accounting units according to the Accounting Act

The Ministry of Finance introduces a change from 1 January 2025 to increase the limits for statutory audit. Only those entities that meet 2 of the 3 criteria would be required to be audited:

·         Turnover over 240 million CZK. 240 million CZK (until 80 million CZK)

·         Value of assets above CZK 120 million. CZK 240 million (so far CZK 40 million)

·         More than 50 employees (so far 50 employees)

Other financial news in the Czech Republic

·         Statistical office reporting- monthly, quarterly, annual electronic submission of assigned statistical reports to the Czech Statistical Office.

The criterion for which reports an accounting unit will submit is its classification according to the Classification of Economic Activities (CZ-NACE), i.e. according to the predominant economic activity, its size and amount of turnover, as well as whether a particular survey is so-called exhaustive or sample based on mathematical-statistical methods. Thus, a company may be classified in the 'Monthly statement of trade and services' or in the 'Annual statement of total labour costs'. In addition, there are reports that are completed by all reporting units, regardless of their sectoral affiliation, e.g. the waste or fuel and energy consumption report or the very frequent annual business entities report P5-01.

The data provided are used by state institutions to calculate GDP, inflation rates, form the basis for economic policy making, influence the Czech Republic's contributions to the EU and the use of subsidies from EU funds.

·         Czech National Bank reporting - electronic submission of management reports to the Czech National Bank.

·         INTRASTAT - a system used to process statistics on internal trade between EU Member States. It is part of the EU statistical system that provides data on trade between EU Member States and is used to provide an overview of trade relations between Member States. Intrastat is only mandatory for businesses if they exceed certain export and import thresholds. These limits vary depending on the type of goods and may also vary within Member States. Businesses that exceed the export and import limits are required to send electronically once a month data on trade in tangible goods between EU Member States. 

A new feature from 1.1.2024 is the possibility to report in simplified mode. Simplified reporting allows sending only one abbreviated report for a given reporting direction per year if the value of goods exported or imported from another EU Member State did not exceed EUR 20 million. CZK in the current or previous period (separately for exported and imported goods) and does not trade in agricultural and energy commodities listed in the Communication of the Czech Statistical Office on the list of goods not intended for simplified reporting.