September 2018 – We have prepared a brief overview of important changes in Czech legislation and the most significant high court judicial decisions issued over the past few months that might affect your operations in the Czech Republic or that may be of interest to you.
Changes in company law and corporate governance
- Concurrency of employment relationship and performance of the executive director’s office. After many years of back and forth, the Czech Supreme Court has resolved that it is possible for an executive director to also have an employment contract with the company, under which he/she performs business management tasks. Nevertheless, the employment contract does not establish an employment relationship between the parties, and some serious grey areas remain where the rights and obligations between the parties to the employment contract are unclear. Therefore, we recommend avoiding a situation in which an employment contract is in place between an executive director and the company. Instead, the parties should enter into an agreement on performance of the executive director’s office, covering all parties’ interests.
- Executive directors and proxy holders acting together. The Czech Supreme Court has decided that a provision in the company bylaws that requires executive directors and proxies to act together on behalf of a company is void.
- Circular resolutions. In cases when general meeting minutes on certain resolutions (e.g. changes to a company’s bylaws) must be executed in the form of an official public deed (i.e. notářský zápis in Czech), this formal requirement does not apply to individual votes by shareholders in the event of a circular resolution (known in Czech as a per-rollam decision). Each voting shareholder must certify the signature on his/her reply (e.g. on a letter by which he/she votes). The resolution as a whole should then confirmed by a notary at the end of the circular resolution proceedings.
Criminal liability of legal entities. The Supreme Public Prosecutor’s Office has issued methodology on corporate compliance with the Act on Criminal Liability of Legal Entities that outlines compliance issues and the possibility of exculpation, which allows a corporation to shield itself against unlawful conduct of an individual acting on behalf of that company (e.g. an employee, executive, etc.).
Changes in contractual matters and various business-related law
- Pre-emptive right of co-owners of a real estate property. A change to the Czech Civil Code has brought back the pre-emptive right of co-owners of real estate properties. As of 1 January 2018, a seller must first offer his/her share of a real estate property to co-owners. If the seller fails to make this offer, the co-owner could invalidate the contract. The concept of pre-emptive right is very different from what it was under the old Civil Code, as the offer to the entitled party must be made only after a relevant purchase contract is concluded with the prospective buyer. Therefore, it is necessary to have an actual buyer before the pre-emptive right is dealt with.
- Insurance. The Czech Republic has transposed the IDD directive into Czech legislation. The new Act on Distribution of Insurance and Reinsurance aims, among other things, to increase the level of protection of consumers and to secure stricter and more specific professional requirements on employees of insurance companies and to freelance intermediaries. The changes will come into force on 1 December 2018.
- Trademarks. The Czech Parliament is currently deliberating transposition of the EU directive on trademarks harmonisation. The amendment as it is currently proposed should strengthen the rights of trademark holders, as well as provide for easier enforcement of those rights. It also specifies a protection mechanism for undisclosed know-how and trade secrets against their unlawful acquisition, use or disclosure. The proposed changes in law are expected to be adopted in Q4 2018.
- Payment Services Directive 2. A small revolution in the banking sector began in January 2018, when PSD2 was transposed into Czech law. The legislation aims to boost innovation with regard to payment initiation services via a third party, methods in cyber-crime prevention, transparency of bank-issued fees and numerous additional changes to the system. PSD2 aims for full harmonisation within the EU, and therefore the rules are to be identical in all states in the EEA.
Changes in administrative law
- Registrations of ultimate beneficial owners. The Czech Republic has implemented the European Directive on the Prevention of Use of the Financial System for the Purposes of Money Laundering or Terrorist Financing. All business corporations are newly obliged to register their ultimate beneficial owner(s). This information will not be publicly available. Companies are required to keep records of beneficial owners as of 1 January 2018 and must comply with the registration obligation by 1 January 2019.
- Securing orders by financial authorities. The Czech Supreme Administrative Court has clarified conditions upon which the financial authorities can lawfully use an instrument known as a “securing order” (in Czech zajišťovací příkaz) if they suspect tax fraud. The financial authority cannot use this instrument against all the entities in a long supply chain; rather, it must identify the specific entity liable for potential wrongdoing and provide evidence that justifies the use of this drastic instrument against the entity.
- Wastewater. The Czech Parliament amended Act No. 254/2001 Coll. on water. The new rules aim at tightening control of wastewater and its disposal. In addition, the new law also changes the methodology of water tax calculation. The first part of the amended rules comes into force on 1 January 2019.
- EIA and Building Act. The amendment to the Building Act and related laws has brought substantial changes to the process of construction permits granting, for example, an easing of regulations on the EIA procedure, the exclusion of associations in certain procedures, and introducing a concept of joint proceedings for larger projects. The changes came into force on 1 January 2018.
- Key infrastructure construction. This new law amending the Act on Acceleration of Infrastructure Construction came into force on 31 August 2018. The new rules set out several new legal instruments, including new time-limits on government agencies for issuing a decision, defining new interim decisions in expropriation procedures, and strengthening the rights of owners who want to negotiate with an expropriator in good faith.
Changes in employment law and social security law
- Minimum and guaranteed wage. The Government issued a new decree on the minimum wage and guaranteed wage. Currently, the guaranteed wage ranges from CZK 12,200 (approx. EUR 490) to CZK 24,400 (approx. EUR 980), depending on the type of work.
- Paternal post-natal care leave. Beginning in February 2018, fathers are eligible to take paid paternal post-natal care leave of a maximum duration of one week. The compensation for this paternal leave is paid from the social security system, similarly to the compensation for maternity leave.
Other significant changes
- Personal data processing. On 25 May 2018, the General Data Protection Regulation (the GDPR) came into force in the European Union. The regulation unified personal data protection legislation across the EU and introduced many changes related to marketing, supplier chain management, employment, and day-to-day business practices as well as increasing sanctions for non-compliance with the regulation. As of today, the Czech Parliament has not adopted any special law regarding personal data processing.