1. Analyses of Czech legislative environment
related to social entrepreses
Introduction:
The legal order in the Czech Republic does not contain the legal definition of the
“nonprofit organization” or „civil society organisation“ and this term has not, legally, any
specific meaning. In the common use, non-profit organisations are subjects of private law
existing for some other purpose than profit-making.
These entities have several characteristics. They are either person-based or property-
based, are typically founded by means of a multilateral civil law act, exert activities for the
public or mutual benefit, are separate from the state, have a voluntary nature and a certain
organisational structure. Moreover, they are mostly equipped with certain mechanisms
enabling the control of their own activities, make use of a particular type of financing
(including certain tax benefits) and often utilise the work of volunteers.
Only the Act on Volunteerism affects all legal forms of nonprofits. Czech legislation
has not yet clearly defined the term “nonprofit organization,” which creates problems when
interpreting the legislation.
Their most important characteristic is the fact that they mostly do not distribute their
profit but use it for public benefit or mutual benefit purposes.
Czech law is, technically, a part of the German legal family. It has developed from
Austrian1 law, having been strongly influenced by Roman law and displaying many
similarities to the traditional German legal conception.
This traditional conception was, however, significantly disrupted during the process of
the so-called “socialist re-codification of private law”, carried out primarily in the 1960s.
Under this process, civil law came closer to the Soviet doctrine and was fragmented into
various branches of law regulated by an immense number of laws.
The political and social changes since the early 1990s have manifested the attempt to
rectify this undesirable situation and return to European standards.
Private law is, likewise, facing a significant reform: at present, there is a vibrant
discussion going on about the draft of the new Civil Code, which is meant to become the
fundamental norm in the area of private law.
1
The Czech state was a part of the Austrian (and Austro-Hungarian) Empire for almost four centuries (1526 –
1918).
1

2. Currently, only the general (and vey simple) regulation of legal persons is contained in
the Czech Civil Code, but each legal form is regulated by a separate law.
In contrast to the broader definitions of civil society2, the civil society sector in the
Czech Republic (partly under the influence of the Government Council for non-governmental
non-profit Organisations) employs a narrower definition of “non-governmental non-profit
organizations”, which covers only those organisations which have the legal form of a civic
association, foundation or foundation fund, public benefit institution (PBI), or registered
religious legal person.
These organisations have to be active in one of these areas: science, education,
research and development, learning, culture, support and protect youth, animal protection,
social, health care, environmental, humanitarian aid, sport and physical training.
Next to those above mentioned, under the currently valid Czech law, the following
legal persons may be also founded for some other purpose than for the purpose of business
(and be relevant for this text): trade unions3, political parties and movements, churches and
religious societies and their other types of “registered religious legal persons”4, housing
societies5, further co-operative, a limited liability company and a joint stock company may be
also founded for some other purpose than business (regulated in Commerical Code); as well
as interest groups of legal persons, regulated in Section 22(f) and subsequent sections of the
Civil Code, and some other legal forms6.
In Czech law, the legal base for non-profit organisations is provided mainly by civil
law. A similar approach is shared by many other European legal regulations, unlike the
significantly different situation in e.g. the USA, where fiscal law plays the primary role.
3.1. General Legal Framework Regulating CSOs
2
e.g. within the framework of the John Hopkins Comparative Non-Profit Sector Project, see Salamon, Anheier
et al 1999, or the CIVICUS CSI definition
3
subject also to the provisions of the Act No. 83/1990 Coll. on Association of Citizens, in some aspects a
specially regulated, see § 9a
4
See § 15a subs. 1 of the act No. 3/2002 Coll., on churches and religious societies, there are two kinds of
registered religious legal persons, the first kind – metioned above (§15 sub. 1 b) ) and others § 15 sub 1 a)
5
See § 9 of the Act No. 72/1994 Coll., on ownership of dwellings (flats and non-rezidental premises)
6
Not really relevant for this study, but necessary to mention, is a special hybrid category - contributory
organisations (prispevkove organizace), whose legal basis is provided by budgetary rules of the state, regions
and municipalities. Because of the area of their activity, they are often subsumed under the non-profit sector, but
they differ from other subjects in the non-profit sector by both their connection to public budgets and their
overall conception. In the current law, they exist as relics of the past.
2

3. The general regulation of legal persons is contained in the Czech Civil Code, but the special
types of legal forms of non-profit organisations are regulated by a separate law.
There are three main particular laws in the field of CSOs:
– Zákon č. 227/1997 Sb., o nadacích a nadačních fondech - the Act on Foundations and
Endowment Funds (No. 227/1997 Coll.), as subsequently amended
– Zákon č. 83/1990 Sb., o sduržování občanů, the Act on Association of Citizens (No.
83/1990 Coll.), as subsequently amended, and
– Zákon č. 248/1995 Sb., o obecně prospěšných společnostech - the Act on Public Benefit
Institutions (No. 248/1995 Coll.) as subsequently amended.
An Association is a legal person in which primarily natural persons associate, with a
limited secondary participation of legal persons (as long as it is not an association of legal
persons or unions of associations). An association may be generally characterised with the
following elements: corporate personality, principles of voluntariness and openness of
membership, principle of separation from the state which is a reflection of the constitutional
right of freedom of association, membership with voting rights, self-administration, purpose
other than business (i.e. profit-making).
Associations are legal persons regulated by and explicitly enumerated in Section 2 of
the Act on Association of Citizens. This concerns: associations, societies (scientific,
professional but not general purpose institutions or business corporations), unions,
movements, clubs and other civic associations (other than the above-mentioned, which are not
specified by the law in any more detail). This, however, includes trade unions, whose creation
is subject to a simplified regulation, and employers’ organisations. The Act on Association of
Citizens further regulates the legal relations between some other subjects which were created
during the socialist period, namely so-called ‘voluntary organisations’. The list would not be
complete without mentioning unions of associations.
An association is an independent legal person whose activities and position may be
interfered in by the state authorities only within the limits of the law. The activity may not
contravene the constitution and valid legislation and may not deny or limit any personal,
political or other citizen rights. No armed associations or associations with armed units may
be founded. It is not permissible for associations to have a goal aiming at enticing hatred,
intolerance and support of violence. Associations may not perform any functions of state
authorities, they may not manage such bodies or impose obligations on any individuals who
are not their members.
3

4. Associations may establish organisational units as long as this is explicitly provided
for in the articles of association7.
A foundation and an endowment fund are purposeful associations of assets established
and originating in compliance with the Act on Foundations and Endowment funds for the
achievement of publicly beneficial purposes (goals). Foundations operate with income
generated from a registered endowment, as well as from donations and other resources. They
are expected to provide financial or other grants to third persons exclusively for public benefit
purposes. An Endowment funds are a “more simple” form; they do not need to have a registered
endowment, but may raise funds for public benefit purposes and use them only for such a
purpose.
Foundations have existed within the territory of what is now the Czech Republic since
the Middle Ages. After taking power in 1948, the Communist Party abolished foundations and
the State confiscated the property of foundations. This situation lasted until 1990 when the legal
type of foundation returned to the legal system of the then Czechoslovak Federal Republic,
later, after 1993, the Czech legal system. The problem was that the legal regulation on
foundation was rather brief – only five sections in the Civil Code – and it were very easy to
establish a foundation without any funds at all. Consequently, it was often the case that this
legal form was misused.
Currently, within the European context, the Czech regulation of foundations is
understood as one of the most stringent ones. Nonetheless, the Czech regulation does not differ
from the European standard. The strictness of the rules stated by the Act 227/1997 Coll., on
Foundations and Endowment Funds is grounded especially by a broader historical context and
especially owning to the necessity to “repair” the reputation of foundations which have lost
their credibility due to liberal regulations which had been in force at the end of the year 1997. In
my opinion, the strictness has played a positive role and because of it, the foundation sector is
slowly gaining its lost position.
A Public benefit institution8 is a legal entity rendering generally beneficial services,
for which the organisation was established, to the general public and to all clients under
identical terms and conditions.
7
Section 6, subsection 2(e) of the Act on Association of Citizens
8
The Czech expression for a public interest institution – obecně prospěšná „společnost“ – uses the word
“corporation”, which is misleading: this is not a corporation but really an ‘institution’ of private law,
theoretically classified among legal persons with a property base. The name was modified by an unfortunate
amendment during the reading of this Act in the Czech Parliament. The strict translation of the Czech term
“obecně prospěšná společnost” in English language is “public benefit corporation” but I prefer to translate this
4

5. The Act No. 248/1995 Coll. on Public Benefit Institutions constituted a new type of a
legal person in the Czech legal system, whose statutory purpose was strictly limited only to
the provision of services beneficial to the public.
The law contains the legal definition of the public benefit institution. It is a legal entity
established under the Act No. 248/1995 Coll. and rendering generally beneficial services to
the general public and to all clients under identical terms and conditions, whose profit may
not be used for the benefit of its founders, members of its bodies or employees and must
serve for the rendering of the generally beneficial services for which the organisation was
established.
The legal form of the public benefit institution was originally meant to replace
budgetary and contributory organisations (see bellow) established by regions or
municipalities and still rendering the above-mentioned generally beneficial services. This,
however, did not happen. As a result, contributory organisations (legal persons under public
law) having a legal form that might be referred to as ‘a public institution’ currently co-exist
with private law public benefit institutions (having the legal form of ‘private institutions’).
There are also separate laws on churches and political parties, as well as some other
specific forms of not-for-business legal persons (as subsequently amended):
- Zákon č. 424/1991 Sb., o sdružování v politických stranách a v politických hnutích) – Act
on politcal parties and movements;
- Zákon č. 3/2002 Sb., o právním postavení církví a náboženských společností – Act on
position of churches and religious societies, especially § 15a – registered religion legal
persons;
- Zákon č. 72/1994 Sb., zákona o vlastnictví bytů – Act on ownership of dwellings (flats and
non-rezidental premises) § 9 ff. – housing societies (with limited purpose);
- Zákon č. 513/1991 Sb., obchodní zákoník – Commercial Code, regulates position of co-
operative, a limited liability company and a joint stock company, those legal forms can be
founded for some other purpose than business;
term as “public benefit institution”, because the term “corporation” seems to imply that this legal form is based
on association of persons (members). But this legal person is based on association of property and belongs to the
category of foundations (alongside foundations and endowment funds).
5

6. - Zákon č. 40/1964 Sb., občanský zákoník – Civil Code, general regulation of legal persons §
18 ff. and § 20f ff. - interest groups of legal persons (can have booth: not- for profit but also
for profit purpose);
In this text will be paid attention only to the legal forms of assocations, foundations,
endowment funds, public benefit institutions and registered religious legal persons (under §
15a sub. 1 b) of Act No.3/2002 Coll.) so-called "purpose-built facilities for the charitable
services“, because they can be consider9 as “typical” CSOs.
Empirical data:
There are four main different kinds of CSOs forming a basis for the non-profit sector.
At the moment, there are more than 50 000 organisations registered in the legal form
of an association. Many of them “formally” declare to have a non-profit making aim, although
they typically do engage in some kind of business activities. Up to June 2008 there are
registered 63 773 Civic Associations and 29 530 Chapters of Associations (i.e. branches of
Associations).
Up to June 2008 there are registered 404 Foundations and 1073 Endowment
Funds All foundations, endowment funds and public benefit institutions must have a strictly
public benefit purpose. Up to June 2008 there are registered 1587 Public Benefit Institutions.
There are 30 registered churches and religious societies, they have more than 4000
registered organs and istitutions (under § 15a sub. 1a) of act no. 3/2002Coll.). Up to June
2008 there are registered 4394 registered legal persons. For this text are relevant only
„registered religious legal persons“ under regulation of § 15a sub. 1 b) of Act no. 3/2002
Coll.), it exist about 231 such a subjects. There are currently 73 active political parties and
registered political movements.
Establishment and incorporation:
The establishment of all types of CSOs is regulated on the general level in the Civil Code. It
preserves the traditional two-stage character of establishment (formation – registration).
Individual special laws specify this general regulation and set further conditions.
The formation of an association is a private act of at least three natural persons. The motion
for the registration is filed by a preparatory committee. The law specifies the obligatory
9
Also by Government Council for NGOs
6

7. elements that such a motion and the articles have to contain10. An association has the right to be
registered if it cumulatively meets substantive and procedural statutory requirements. Recently,
there have been many problems concerning the registration of associations11.
An association is consider to become into beeing an independent legal person by
registration at the Ministry of the Interior, or by the effective day of the decision by the court on
the cancellation of the Ministry’s decision on the refusal to register, or by law on the 41st day,
i.e. on the day following the inactive expiration of the statutory period of time of 40 days.12
Theoretically, there are no restrictions but in the case of associations, however, the
theoretical interpretation clashed till 2007 with the long practice of the Ministry of the Interior,
which strictly requires that the preparatory committee includes at least three citizens of the
Czech Republic. This, however, was in conflict with the constitutionally guaranteed freedom of
association. The law provides that a founder of an association may be any “citizen” who meets
the statutory requirements. The term “citizen” needs to be interpreted in the sense of Article 42,
section 3 of the Czech Bill of Fundamental Rights and Freedoms as an “everyone”. Situation
changed in 2007 (when act no 116/1985 Coll. was amended, see bellow) and since that there is
accepted that also foreigns can create tha associations under act no. 83/1990 Coll.
In the case of trade union organizations and employer organizations13, the registration
principle is modified, due to the fact that the Czech Republic is bound by international
agreements of the International Labour Organization, by the “evidence principle”14.
The Czech legal system containes a relic from the past in the form of the Act No. 116/1985
Coll. on the Conditions for Operation of Organizations with an International Element in the
Czechoslovak Socialist Republic15.
10
See section 6 of the Act no 83/1990 Coll., on Association of Citizen
11
Although the law provides for the principle of registration and the relatively clear procedure to be followed,
the actual practice by the registrator, i.e. the Ministry of the Interior, has seen numerous instances when the
registration was not so easy as might have been expected with respect to the constitutionally guaranteed right of
association and the clear diction of the law.
12
See Section 8 subsection 5 of the Act on Association of Citizens.
13
In Section 9a, subsection 1 of the Act on Association of Citizens.
14
They become legal persons on the day following the delivery of the motion for their registration to the
Ministry of the Interior.
15
Till september 2007 this Act provided a different procedure for associations of foreigners, namely the
consession principle (i.e. the necessity of a permission by the Ministry of the Interior approved by the Ministry
of Foreign Affairs) as a precondition for the creation of entities regulated by this Act. This was entirely in
conflict with constitutional regulations and international documents guaranteeing the right to freedom of
association. This act was, despite its counter-constitutionality and ineffectiveness was applied by the Ministry of
the Interior in years 1990 – 2007. Currently, the associations formed till 2007 under conditions of this act are
considered to be association (created under act no 83/1990 Coll.). The act no. 116/1985 Coll. is further aplicable
for International non-profit organisations, but it is not really clear, what is meant by this term.
7

8. In connection with the preparation of the proposal of the new Civil Code, there was a
discussion, if the current legal regulation of establishment of associations, based on the
“registration principle”,16 should not be replaced with the “principle of freedom of
establishment17”. This concept was finally not accepted (the Ministry of Interior was strongly
against this idea) and pro futuro stays registration principle.
In the future, a court or some other body could be entrusted with the keeping of the registry
of associations because leaving this issue up to the Ministry of the Interior is generally
considered to be unsuitable.18
Registered religious legal person is established by a deed of establishment, signed by the
statutory body of a church or religious society; the authenticity of the signatures in the
agreement has to be officially verified. The law specifies the obligatory elements that such a
deed has to contain (§16 sub. 3 of act no. 3/2002 Coll.).
The deed of establishment must be submitted to the Ministry of Culture, which does
registration (incorporating the legal entity) and entering information about it into the Registry of
registered (religious) legal persons.
The establishment of foundations, endowment funds and public benefit institutions can be
done by an agreement in writing concluded between the founders; in this case the authenticity
of the founders’ signatures in the agreement has to be officially verified. There is also possible
to form the organisation by a founding charter, if there is only one founder. Foundations or
endowment funds can by established also by testament19. The charter (testament) has to be
executed in the form of a notarial deed.
The founding document must be submitted to a regional court (the registry court) which
decides on registration (incorporating the legal entity) and entering information about it into the
Registry of Foundations or Registry of Public benefit institutions.
A foundation, endowment fund or public benefit institution is considered become into
beeing on the date of its entry in the registry. The motion to have the organisation registered has
to be accompanied by the documents required by the law.
16
In the case of trade union organizations and employer organizations, this principle is modified, due to the fact
that the Czech Republic is bound by international agreements of the International Labour Organization, by the
evidence principle.
17
The draft proposal has found inspiration for this conception in the Dutch regulation.
18
This is a relic of the conception of the supervision of associations from the times of the Austro-Hungarian
monarchy, more specifically the period of the so-called ‘Bach absolutism’ in the 2nd half of the 19th century.
19
However, this kind has not been used in practice yet. It is related to some unclear points which the law does
not deal with in connection with the establishment of foundations mortis causa.
8

9. Public agancies:
The government, i.e. the Ministry of the Interior, is involved in the setting up of an
association; this body is involved in the establishment (registration) and possible (under
conditions set by law) also dissolution.
Registration of civic associations is fairly quick and easy, free of charge. Problem is,
that the Ministry of the Interior interprets strange way the Act on Association of Citizens and
either suspends or denies registration to those civic associations that provide beneficial services
outside of their membership base for a fee. This approach goes agains the freedom of
association.
The same applies to Ministry of Culture in the case of Registered religious legal
persons (§ 15a of Act no 3/2002 Coll.)
Courts are involved in the setting up of foundations, endowment funds and public
benefit institutions. Court is involved in the establishment (registration) and, under conditions
set by law, also possible dissolution. The registration procedure is more complicated than in the
case of associations.
There are no other agencies involved in the setting up of CSOs. There is no central register of
CSOs in the Czech Republic.
3.2. CSOs Commercial Activities and Non - profit Status
The purpose of CSOs:
The purpose of associations is thus primarily “associative interest activities”. The
formulation of the purpose must be included in the articles20. The purpose cannot consist in
association for purposes common to political parties and movements, professional chambers,
churches and religious institutions and for the purpose of attaining profits.21 The activity may
not contravene the constitution and valid legislation and may not deny or limit any personal,
political or other citizen rights. Associations may not perform any functions of state authorities;
they may not manage such bodies or impose obligations on any individuals who are not their
20
Section 6, subsection 2(c) of the Act on Association of Citizens. In practice, there are numerous problems
connected with the definition of the purpose and the subsequent registration by the Ministry of the Interior,
which is again in conflict with the constitutionally guaranteed freedom of association.
21
Section 1 Act on Association on Citizens; the regime of such associations is regulated by special laws, see
above
9

10. members. However, the practice of the registrating authority (i.e. the Ministry of the Interior)
often goes beyond the limits of statutory requirements.22
The purpose of registered religious legal persons is ex lege to provide charitable
services (see § 15a sub. 1b) of Act no. 3/2002 Coll.)
Foundations, endowment funds and public benefit institutions are types of legal
persons, whose purpose is strictly limited only to public benefit. A publicly beneficial purpose
is, in particular, development of spiritual values; protection of human rights or other
humanitarian values; protection of the environment, cultural monuments and traditions;
developments in science, education, physical education and sports23. No private benefits
may be provided to founders or members of the management board.
Public benefit institutions should generally provide beneficial services to the general
public and to all clients under identical terms and conditions. Their profit may not be used for
the benefit of its founders, members of its bodies or employees and must serve for the rendering
of the generally beneficial services for which the organisation was established.
CSOs can operate freely. Government entities do not create legal impediments to the
operation of NGOs. However, in 2008, the Ministry of Labor and Social Affairs halted their
financial support of some association programs on the grounds that, in general, associations
have low levels of operational transparency.
Economic activities of CSOs:
Economic activities are generally permited for all CSOs except foundations and
endowment funds; in their case, the law provides strict limitations. None of the CSOs can be
established to pursue economic activities and such activities may not be prevailing activities.
Economic activities should exist only as some kind of a financial basis of the
organisations and are irrelevant for considering the economic or non-economic purposes of
those organisations.
The problem is, that this is not clearly stated in the Czech law on associationa and very
simple regulation is often dissused.
Business activities are currently, apart from members’ contributions, one of the key
sources of income for associations not only in the Czech Republic but also in other European
countries.
22
E.g. it quite absurdly refuses to register such associations which provide services to non-members.
23
Section 1, subsection 1 of the Act on Foundations and Endowment funds
10

11. It is necessary to distinguish business activities from an economic purpose, which
both regularly appear in the case of business corporations. However, the fact that an
association engages in an business or some similar activity does not necessarily mean that it
pursues an economic (gainful) purpose.
The current Czech legal regulation expressly states that economic activities (business
activities) may exist as a supplementary activity whose profits support the goal of the
assocation. However, they may not, in principle, become the main purpose of an association.
Most associations in the Czech Republic depend for their existence, due to the lack of
other financial sources, on business activities. Under the current economic situation, these
associations can hardly expect to obtain the financial means in the form of subsidies from
public budgets; moreover, tax laws do not act as a motivating factor for potential donations by
entrepreneurs either.
Articles (not the law) specify whether an association may do business or not,
delimiting the scope of such activities.
The law does not, in any way, limit the participation of associations in the business
activities of other legal persons (undirect traiding). The regulation of such activities is left up
to the members to deal with in the articles of associations.
The members of associations are not, in general, liable for the debts of the legal
person. Creditors should recover from the assets of the legal person. When the assets are not
sufficient, this is normally the creditor’s risk.
The profit, if there is any, must be distributed primarily in harmony with the articles
of association, the Act on Association on Citizens lack a provisions specifying the manner of
dealing with such profit. Unfortunately is this conception often dissused.
In the case of registered religious legal persons (§ 15a sub. 4 act no. 3/2002Coll.)
specifically express that those entities may also provide other “auxiliary” business activity,
next to statutory public benefit activity (charitable, social or health). The duty to reinvest the
profit is not stated in the law, but it would be problably against the meaning of the regulation.
This legal form is not very suitable for the economic activities.
The Czech Act on Foundations and Endowment Funds24 includes a provision on the
ban of business activities engaged in by foundations. However, there are several statutory
exceptions to this prohibition.
24
Section 23 (1) of the Act on Foundations and Endowment Funds.
11

12. The foundation/endowment fund is prohibited from doing business under its own
name, save for real estate leases, organizing lotteries, raffles, public collections, cultural,
social, sports and educational events.
Assets of the foundation/endowment fund may not be used as collateral nor subject to
any other way of securing liabilities.
The foundation assets are inalienable if this is determined by the founder or the donor;
in other cases, it may be disposed of, including the change of the composition of the assets,
but only in harmony with the purpose of the foundation and with all due care. The law
provides a detailed regulation of the manner in which a foundation may invest its means;
everything is aimed at maximum protection of foundation property for the publicly beneficial
purpose.
Assets of the foundation/endowment fund may not be used for the participation in the
property of any other persons, unless the law provides for an exception to this rule. Such an
exception is the property participation of foundations (i.e. not endowment funds), limited by
law, in joint stock companies. A foundation may also be the founder of a public benefit
institution.
The foundation may participate in the business of joint-stock companies only. The
entire involvement of assets by the foundation may not exceed 20% of the foundation’s
property after deducting the value of the foundation equity. Publicly negotiable securities
issued by joint-stock companies may be purchased and sold by the foundation only in
regulated markets. The foundation’s stake in a joint-stock company’s assets may not exceed
20%.
By contrast, the law strictly provides that foundations and endowment funds may not
become members of an unlimited liability company, general partners in a limited partnership
company, silent partners or members of a cooperative whose members are obliged to cover
the losses of the cooperative over their membership contributions, or members of other legal
persons if such members are liable for the obligations of such persons.
Public benefit institutions must provide the services for which they have been
established for a reasonable fee that must be the same for all who need those services. These
entities may also provide other, so-called “auxiliary services” which must not reduce the
capacity of the public benefit institution to provide the statutory services. The auxiliary
services may be constituted by economic activities engaged in for the purpose of generating
income to cover the losses from statutory activities.
12

13. However, the law explicitly prohibits public benefit institutions from distributing its
profits, if any, to its trustees, officers and employees.
Public benefit institutions may neither create branches abroad and participate in the
commercial activities of other entities nor create their own.
Destination of surplus:
In the case of associations, in the case of dissolution, after satisfaction of all debts, the
liquidation surplus must be distributed primarily in harmony with the articles of association,
the Act on Association on Citizens lack a provisions specifying the manner of dealing with
such a surplus.
In the case of registered religious legal person (§ 15a odst. 1b) act no. 3/2002Coll.),
liquidation surplus (and also obligations) passes back to the church or religion society (the
founder).
In the case of foundations and endowment fuds, if the foundation charter does not state
that a liquidation surplus is to be transferred to another foundation/endowment fund due to its
purpose, the liquidator will offer this liquidation foundation/endowment fund of identical, or
similar, purpose; if no such foundation/endowment fund is identified by the liquidator, or this
liquidation balance is refused by the liquidator-indentified foundation/endowment fund, the
liquidator will offer this liquidation balance to the municipality where the
foundation/endowment fund is located. If the municipality does not accept the offer within 60
days from the offer date, this liquidation balance will go to the state treasury upon the
expiration of the 60-day deadline. The acquire is to use this liquidation balance for publicly
beneficial goals. There is a special regulation for foundations/endowment funds, which
received financial support from EU funds.
In the case of public benefit institutions, if the deed of establishment (charter) may
specify the public benefit institution entitled to take over the liquidation surplus, it the charter
can be also stated that specifying of such a receiving public benefit institution can be
determined by the management board in its resolution on winding up the public benefit
institution. Otherwise, the liquidation surplus shall be offered for transfer onto the
municipality in which the PBI has its registered office. The property may be transferred to the
municipality free of charge only if the municipality enters into a contract obliging it to use
such property in full extent for rendering the publicly beneficial services for provision of
which the pulbic benefit institution had been established. If not, the liquidation surplus shall
be transferred to the state (Czech Republic) to provide public benefit services.
13

14. Related laws:
Act no 83/1990 Coll., on Association of Citizens (zákon o sdružování občanů)
Act no 227/1997 Coll., on Foundations and Endowment fuds (zákon o nadacích a nadačních
fondech), Section 23 (1): „A foundation is prohibited from doing business uder its own name,
safe for real estate leases and organising loterie, faffles, public collections, cultural, social,
sport and educational events.“
Act no. 248/1995 Coll., on Public Benefit Institutions (zákon o obecně prospěšných
společnostech)
Act no. 3/2002 Coll., on Churches and Religion Societies
Conditions for conducting business activities are set out in the following legislation:
Act no. 455/1991 Coll., Licensing act (živnostenský zákon)
Act no. 513/1991 Coll., Commercial Code (obchodní zákoník)
Act no. 108/2006 Coll., on social services (zákon o sociálních službách25)
Act no. 198/2002 Coll., on volunteerism (volunteer´s services) (o dobrovolnické službě)
and many others by the type of activity….
Tax law:
Act no. 337/1992 Coll. on the Administration of Taxes and Fees., sec. 6 (zákon o správě daní
a poplatků)
Act no. 586/1997 Coll., on Income tax (Income tax law) (zákon o dani z příjmů)
Act no. 357/1992 Coll., on Gifts, Inheritance and Real property Tax (zákon o dani darovací,
dědické a dani z převodu nemovitosti)
Act no. 253/2004 Coll., on VAT (o dani z přidné hodnoty)
Act. no. 16/1993 Coll., on Road Tax (o dani silniční)
Fees:
Act no. 549/1991 Coll., on court fees (o soudních poplatcích)
Act no. 368/2002 Coll., on administrative fees (o správních poplatcích)
25
A bit controversial is Act on Social Service, which came into force in 2008. This law sets quality standards
for social service providers. The positive ramification of this law is that it forces NGOs to improve their quality
of services. Some NGOs have a hard time meeting the quality standards. The law introduces some questionable
aspects concerning NGO operations. For example, it restricts the extent of social service fees.
14

15. Act no. 565/1990 Coll., on local fees (o místních poplatcích )
Labour Law:
Act no. 262/2006 Coll., Labour Code (zákoník práce)
Act no. 435/2004 Coll., on employment (o zaměstnanosti) - §67 – 87 – emplyment of dissable
people, § 112 – 119 tools for activ policy of employment
Accounting:
Act no. 563/1991 Coll., on Accounting (zákon o účetnictví)
Conclusion:
International Centre for not-for-profit law uses the term „economic activities“ to refer
to self-financing activity. Economic activities are defined as „reguregularly pursued trade or
business activities“ with the exception of those that have traditionally been excluded (ticket
sales, cultural and educational events etc.).
NESsT use the term „self financing“ to refer to activities that generace revenues for
the CSO´s, including membership fees, fees for services, produkt sales (e.g. books or other
publications, mugs, t-shirts etc., renting out real estates, ise pf „soft assets“ – intellectual
property, reputation etc., investment of dividents.
In the Czech Republic are „economic (business) activites“ defined in § 2 of
Commercial Code as „systematic activity conducted independently by entrepreneur in his own
name and on his own responsibility for profit“. There is not a legal definition of the term
„self-financing“.
In the Czech Republic, in most of cases are CSOs not prohibited from generating
profits, mostly those profits may not be distiributed to privat persons who might be in a
position to control them for personal gain, such a founders, members, officers, directors etc.
In the case of associations is this rule not very clear because the Act on Associations of
Citizen does not express this rule. I its up to articles of an association if this topic will be
regulated or not.
Economic activities or business activities of associations are not prohibited by the
currently valid law, as long as they are not engaged in for the purpose of generating profits.
These activitites are often carried out only in order to cover costs.
Economic activities should mostly exist only as some kind of a financial basis of the
organisations and are irrelevant for considering the economic or non-economic purposes of
15

16. those organisations. There is difference (and often it is also very unclear), if some economic
activity is conducted as for- profit26 or as not- for- profit (statutory) activity.
Foundations, endowment funds, public benefit institutions and registered religious
legal persons are by definition a legal persons organized and operated primarily to provide
public benefit purposes. In the case of associations can be purpose public benefit and also
mutual benefit but always other than for-profit one (§ 1/3 Act on Association of Citizen).
The legal regulation of foundations and endowment funds is strictly unfavorable
towards commercial activities. The essential difference between the Czech conception of
foundation law and most regulations in Western Europe consists in the acceptability (or
unacceptability) of possible business activities and other limitations concerning economic
activities and the use of the assets of foundation subjects. The aim of this strict legal
regulation is to eliminate the possibility of any misuse of the institute of the foundation and,
above all, the protection of property. This conception, however, causes many problems in real
life and there are indications that it is likely to be dropped in the future.
This strict regulation reflects the legislators’ effort to protect the foundation property
for the performance of the foundation purpose and to minimise the risks related to its
activities. Foundations and endowment funds may also engage in other gainful activities
which, however, may not meet the criteria constituting economic (business) activities.27
In general, foundations and endowment funds can use their resources exclusively for
their statutory purposes, mostly in the form of grants given to third persons. Assets of the
foundation/endowment fund may be used only in line with the purpose and condition set forth
in its foundation charter or the statute. The costs pertaining28 to administration of the
organisation must be kept separately from the foundation contributions.
Only a restricted portion of available assets may be used to cover the operational costs
of the entity. They must set rules, fixed for five years, limiting the use of their assets for
26
Example: An association has as statutory purpose to support culture on the country site. They do organize
open-air movie on the medoow next to villige and have a shows once a week in summer. Is it business activity or
not? Probably not, because this activity is to fill the statutory not for profit purpose and this is why i tis not
necessary to have a licence for this activity and will be the income taxed.
27
In April 2002, an amendment to the Act of Foundations and Endowment Funds was adopted (No. 210/2002
Sb.). This made the current regulation of possible economic activities of foundations and endowment funds more
precise.
28
Costs pertaining to administration of the foundation/endowment fund include particularly the costs to achieve
and valorize assets of the foundation/endowment fund; costs to promote the purpose of the
foundation/endowment fund; and operating costs of the foundation/endowment fund, including emoluments for
the oard of directors, the supervisory board, or the controller.
16

17. administrative purposes as well as for all salaries, remunerations and other management-
related expenditures.
Even more strict regulation is there for the 71 foundation – recipients of the financial
support from public fund called NIF (Foundation Investment Fund29).
In the case of associations, public benefit institutions and registered religious legal
persons – the economic activities are possible, generally, as a financial base for statutory
purposes and activities. The economic activities should be only „auxiliary“. There are some
limits mentioned above.
3.3. Taxes on CSO Commercial Activities
From the perspective of tax law, foundations, endowment funds, public benefit
institutions, associations and registered religious legal persnons in the Czech Republic have
principally similar position as regards taxation.
Tax matters accompany these entities throughout their existence – from their creation
until their termination. However, tax issues do not concern only the institutions themselves
but also their founders, members, donors and other persons. In some cases these are the cases
for which the particular legal forms of the foundation and the association are actually used.
The system of tax regulations governing the non-profit sphere is relatively complex
and, in some respects, not entirely satisfactory. The key problem is a certain variance and
sometimes even inconsistency in the wording of particular tax laws.
In addition, many laws provide tax benefits depending on the legal form of subjects
regardless of the fact whether a given legal person really engages in activities that are worthy
of public support in the form of tax advantages.30 On the other hand, some activities, such as
sports (including professional sports) are identified as being of public benefit and, as a result,
such activities enjoy tax advantages.
At present, there is a debate going on in the Czech Republic on the issue of defining
the notion of ‘public benefit’. Various approaches are currently being considered that would
enable a more effective support of public benefit activities, mainly in connection with the
possible introduction of ´public benefit status´.
29
see more about NIF in Chapter 4
30
Since foundations, endowment funds and public benefit institutions must be established strictly for ‘the
purpose of public benefit’, this conception is acceptable; a problem, however, may arise only in the case of
associations. As a result, the law permits tax benefits to be accorded only to those associations that are active in.
some of the fields listed by the law and considered as being of public benefit, even though the act itself does not
operate with this notion.
17

18. In the Czech Republic, non-profit organisations are based on civil law, not primarily
on tax law. On the other hand, there is a specific regulation affecting non-profit subjects. They
are only taxable as far as they run an enterprise with a profit purpose.
Related acts (as subsequently amended):
- zákon č. 337/1992 Sb., o správě daní a poplatků - the Act No. 337/1992 Coll. on the
Administration of Taxes and Fees., sec. 6
- zákon č. 357/1992 Sb., o dani dědické, darovací a dani z převodu nemovitostí, act on
Inheritance, Gift and Property Transfer Taxes
- zákon č. 586/2002 Sb., o daních z příjmů – the Act no 586/1992 Coll.. on Income
Taxes
- zákon č. 235/2004 Sb., o dani z přidané hodnoty – the Act no. 235/2004 Coll., on
VAT
- zákon č. 16/1993 Sb., o dani silniční – the Act no. 16/1993 Coll., Road tax Act
- zákon č. 338/1993 Coll., o dani z nemovitostí, Act no.338/1992 Sb., on real estate
property tax
Survey of tax privileges:
Prior to dealing with the legal position with respect of taxes, the actual position of –
CSOs as tax subjects needs to be delimited. The tax subject is defined in Section 6 of the Act
on the Administration of Taxes and Fees31. This act also includes the duty of tax subjects to
be registered, regulates the issuance of tax identification numbers and establishes the duty to
file tax returns (or reports).
In general, non-profit organisations do not enjoy any special regime and are
regulated in a similar manner as all other legal persons. However, if they are founded for a
public beneficial purpose, which is the case of all foundations, endowment funds and public
benefit institutions, registered religious legal presons and some associations, they may, after
meeting certain statutory conditions, enjoy tax privileges.
There are two basic kinds of special norms regulating the tax regime of subjects
existing for some public benefit. These are tax advantages or exemptions from taxes (tax-
31
The Act of the Czech National Council No. 337/1992 Sb. on the Administration of Taxes and Fees.
18

19. benefits) for CSOs whose activities generate incomes, and tax incentives and deductions (tax-
incentives) to entice donors to make donations for the benefit of these subjects.32
Tax benefits:
There is a tension between exemption from taxes or some other tax benefits and the
principle of generality and equality of taxation; any such benefits thus have to conceived in a
very narrow manner and are properly justified, which is sometimes problematic.
There are opinions that if a foundation or an association becomes involved in market
business relations and finds itself in a competitive relation to some other subject, then either
no exemption is possible at all or only under highly restrictive conditions.33
Exemption from taxes due to public benefit is not in conflict with the above-
mentioned because it actually concerns an entirely different sphere. Business activities are
performed in order to generate profits for the entity involved in doing business. However,
public benefit activities are directed for the benefit of other subjects than the one exerting
such activities.
Foundations, endowment funds, public benefit institutions, registered religious legal
persons and associations constitute, from the perspective of the Act on Income Taxes, legal
persons not established for the purpose of doing business, for which a special regime is
provided by the law (Section 18 (3), (6) and (7) a (8)).
Income tax is not applicable to incomes mentioned in § 18 sub. 4 ot he Act on Income
taxes - incomes from subsidies, grants for operations and other aid from the state budget,
county budget and municipal budget provided under special laws, EU funds, public funds of
foreign countries, incomes from interests in current accounts and incomes arising from the
statutory purpose as delimited in their statutes, foundation deeds, and special regulations.
In other words, income arising from the main activities of a non-profit organisation is
not subject to the tax as long as the expenses (costs) expended on such activities exceed the
incomes. By contrast, incomes from advertising and rent payments are always subject to
taxation.
32
For a similar categorisation, see also Hondius, W. F., Ploeg, T. J. van der: International Encyclopaedia of
Comparative Law, Volume XIII., Business and Private Organizations, Chapter 9, Foundations , 2000, p. 74 and
subsequent pages.
33
For more on these opinions, see e.g. Koller, T.: Stiftungen und Steuer, Die Stiftung in der juristischen und
wirtschaftlichen Praxis, published by H. M. Riemer, Europa Institut Zuerich, Schulthess, Zuerich 2001, p. 52.
19

20. Foundations, endowment funds, public benefit institutions, registered religious legal
persons and associations are legal entities considered by law as not established for
commercial purposes.
As such, these entities pay a reduced corporate income tax (§ 20 sub (7) Income tax
act) .The reduction in corporate income tax is by 30% of the tax base, but this reduction may
be no less than CZK 300,000 (1 Euro = 26 CZK) and no more than CZK 1,000,000. The
money thus saved must be used to support related activities. In the case of university-type
institutions, the money must be used for educational, scientific, technological development or
artistic activities. Foundations are fully exempt from corporate income tax on incomes
generated by a registered endowment, be they interests from financial accounts, dividends
from securities and bonds, rents from real property or royalties from patent rights or
copyrights. No such exemption is applicable for endowment funds.
Under certain conditions are exempt from several other taxes: tax on real estate
property transfer, tax on gifts and donations, inheritance tax.
The provision of Section 20 (4) of the Act on Inheritance, Gift and Real Estate
Transfer Taxes34 expressly mentions the exemption of foundations, endowment funds and
public benefit institutions from inheritance and gift taxes.
There are further exemptions from inheritance and gift taxes applying to free
acquisitions of property intended to finance equipment and humanitarian activities in the
fields of culture, education, science, health care, social care, ecology, physical education,
sports, education and protection of children and young people and fire protection, as long as
the property is acquired by legal persons (i.e. including associations) established for
performing these activities and having their registered office in the Czech Republic.
The real property transfer tax (transferred for a consideration) does not distinguish
between the individual paying subjects; in the case of foundations, endowment funds and
associations, there is no special regime. The rate is 3%.
The real estate tax35 distinguishes between two kinds of taxes – a tax on plots of land
and a tax on buildings. Under Section 4 subsection 1, the tax exemption applies to those plots
of land that form a single functional unit together with a building serving, among other,
34
The Act No. 357/1992 Coll. on Inheritance, Gift and Property Transfer Taxes
35
The Act of the Czech National Council No. 338/1992 Coll. on Real Estate Tax
20

21. foundations. Endowment funds, however, have not been included in the law. Associations are
exempt from the tax in a similar way – Section 4 (1)f mentions “plots of land forming a
single functional unit with a building in the ownership of an association of citizens and
public benefit institutions”, Section 4 (2)e mentions “plots of land forming a single functional
unit with a building or its part serving for the performance of religious rites of churches and
religious organisations recognised by the state, and a building or its part serving for the
performance of spiritual administration of such churches and religious organisations”. The
tax on buildings under Section 9 (1)e, f, and k is regulated in a similar way.
Both foundations and associations may assert the tax exemption only if the plots of
land and buildings are not used for entrepreneurial activities or subleased.
The obligation to pay the road tax under the Road Tax Act36 applies to those
foundations and endowment funds which use vehicles for their entrepreneurial activities or
some other independent gainful activity, or in a direct connection with entrepreneurial
activities, or for activities generating incomes subject to income tax under special regulations
or similar taxes abroad.
The Act on Value Added Tax37 provides, among other, that goods from some other EU
member state, obtained for money in this country, is subject to taxation if obtained by a legal
person founded or established for some other reason that business.
All taxpayers (including CSOs) whose turnover exceeds CZK 1,000,000 in any
consecutive 12-month period must register as a VAT contributor with the tax authorities. The
taxation period can be one or three month period. The turnover does not include membership
fees or subsidies from the state budget or the EU budget.
Tax incentives:
Partial benefits also apply to donors, sponsors and other subjects making contributions
towards the activities of foundations, endowment funds, public benefit institutions and
associations.
Under Section 20 (8) of the Income Tax Act, any legal person may deduct from its tax
base the amount of donations provided to foundations and associations with their registered
office in the Czech Republic, if used for the financing of science and education, research and
36
The Act No. 16/1993 Coll. on Road Tax
37
The Act of the Czech National Council No. 235/2004 Coll. on Value Added Tax
21

22. development purposes, culture, education, police, fire protection, support and protection of
young people, animal protection, for social, health, ecological, humanitarian, charitable, and
religious purposes of registered churches and religious organisations, for physical education
and sports purposes, and for activities of political parties and movements, as long as the
amount of the donation is at least CZK 2,000. Starting from 2001, the total of no more than 5
per cent of the tax base for income tax of legal persons may be deducted. Before that, this
amounted to merely 2 per cent of the tax base. A donation provided in this way is not only
bound to a particular purpose without the possibility of being used for any other purpose but
it is also exempt from the gift tax. A donation may be obtained on the basis of a gift
agreement (or a subsidy agreement), clearly delimiting the purpose of the donation. This
deduction may not be carried out by entities not founded or established for the purpose of
business.
Donations to CSOs (registered in Czech Republic), and from 2009 EU, Norway and
Island) may, in accordance of Section 15 (8) of the Income Tax Act, be provided also by
natural persons. Such natural persons may deduct from their tax base amounts exceeding, in
a given tax period, 2 per cent of the tax base or at least CZK 1,000. They may, however,
deduct no more than 10 per cent of the tax base.
Conclusions:
According to tax law and donations for CSOs are tax-deductible for individuals and
companies. The current maximum allowed deduction, however, is inadequate to motivate
potential donors.
The tax environment is further complicated by inconsistent interpretations of tax laws.
For example, a lawyer, an economist, an accountant and a financial office may all interpret
the law differently.
The tax law does not give much advantages to CSOs who conduct self-financing
activities. CSOs can generate income through the provision of goods or services, but such
activities are not explicity supported and, in some cases, are indirectly limited.
Many problems arise from different interpretations of commercial activities of CSOs,
because are not well defined by the law.
Act no. 117/2001 Coll, on public collections regulates revenue from collections for
public benefit purposes. According to the Act only legal entites can undertake public collections
for public benefit purposes (humanitarian, charitable, development of education, physical
22

23. training and sport, protection of cultural heritage or environment). The legal entity can use a
limited amount of funds from the collection’s revenues to cover for administrative costs (up to 5
% from gross revenues).
3.5 Tax Filing and Legal Reporting:
A CSO such as any other legal entity has to submit a tax declaration with the local Tax
Administration Authority in the matter of income tax, VAT tax, inferitance and donation tax,
real property transfer tax, real estate property tax and road tax.
Every type of tax has different tax declarations and different time limit for their
submission. CSOs are usually income tax payers as soon as they undertake commercial
activitiess or have employees. As soon as the CSO’s source of funding is donations or an
inheritance, the entity has to submit a donation or an inheritance tax declaration (to apply for
tax excemption). Other types of tax daclarations for CSOs are not so common. The tax filing
procedure is complicated, so CSOs often are assisted by an accountant and a tax consultant. In
some special cases, the annual financial statements proceedings of CSOs have to be supported
by auditors.
Income tax – legal persons:
As soon as a CSO starts economical activities it has up to 30 days to register with the
Tax Administration Authority (§33 Act on income taxes). The registration proceeds by filling
out the blank form, entering the data and information such as the name of the organisation,
location, identification number, names of statutory bodies, names of persons eligible to
negotiate in the name of the organization. The information filled has to be documented (e.g.
by record from the CSO register, by contract with a bank institution proving the bank account
balance roll). In a case of a change in the registered information it is compulsory to notify the
new informationto to the Tax Administration Authority within 15 days.
Income tax – natural persons:
A CSO has up to 15 days to register with the Tax Administration Authority when the
organization hires an employee (the registration procedure is the same as above).
23

24. A CSO has to submit an income tax declaration by the 6th month after the end of tax
declaration period. If the declaration period is a full calendar year, the organisation has to
submit the income tax declaration no later than end of June.
VAT:
All taxpayers (including CSOs) whose turnover exceeds CZK 1,000,000 (approx.
39,000 €) in any consecutive 12-month period must register as a VAT payer with the Tax
Administration Authoritiy. The organisation has to register to the Tax Administration
Authority within 15 days after the month when the turnover level was exceeded. The liability
to pay the VAT tax starts the first day after 3 months from the date when the turnover was
exceeded.
Inheritance and donation tax:
In order to apply for a tax exception from the Inheritance and Donation Tax the
organization must submit the Tax Declaration to the Tax Administration Authority within 30
days after the donation was donated or after the end of the inheritance procedure (§ 21 odst. 1
of act no. 357/1992 Coll., on inheritance tax, donation tax and property transfer tax).
Property transfer tax:
The CSO has to submit a property transfer tax daclaration within 3 months after (i) the
property or real estate was entered into the property register (ii) from the date when the
property transfer contract (if property is not recorded into real property register) came into
force or (iii) from the date when the verdict confirming the property right came into force (§
21 odst. 2 of act no. 357/1992 Coll., on inheritance tax, donation tax and property transfer
tax).
The real estate property tax:
The CSO – as owner of the real estate – has to submit a real property tax declaration
by 30th January (§ 13a of act no. 338/1992 Coll., on real estate property tax).
Road tax:
CSOs have to register to the road tax if they own an engine-powered vehicle (car) or
pay travel costs by car for it employees. The CSO has to register to the Tax Administration
24

25. Authority by 30th January after the end of the year of the taxation period. (§15 of act no.
16/1993 Coll., on vehicle duty tax (Road tax)). The road tax is payed in advance (tax advance
deposit) – on 15th April, 15th July, 15th October and 15th December.
Accounting:
Accounting of the NGOs has to follow the specific regulations, especially act no.
563/1992 Coll., on Accounting and public notice no. 504/2002 Coll., implementing act on
Accounting no.563/1991 Coll., – vyhláška č. 504/2002 Sb., kterou se provádějí některá
ustanovení zákona č. 563/1991 Sb., o účetnictví
Annual report:
Annual report - Foundations, Endowment Funds and PBIs have to prepare and publish
annual reports. Annual reports have to be filed with the Court Register within 30 days after
the document was approved by the board of directors. Everyone is entitled to make use of the
annual report and make copies including excerpts.
The foundation and endowment fund have to prepare and publish an annual report in
line with the Act on Foundations. The foundation and endowed funds (EF) compile its annual
report by the deadline determined by its Board of Directors, or by the Statute of the
foundation/endowment fund, but at the latest within 6 months of the completion of the period
under review. The period under review is the past calendar year, or the time elapsed since the
establishment of the foundation/endowment fund through the end of the calendar year in
which the foundation subject was established, if it is its first annual report.( § 25 article 1 Act
on Foundation).
The annual report outlines activities of the foundation/endowment fund in its entirety
during the period under review as well as an assessment of these activities. Inparticular, it has
to include:
1) An outline of assets and liabilities of the foundation/EF.
2) An outline of the use of the property of the foundation/EF.
3) An outline regarding persons who were beneficiaries of the foundation/EF.
4) An assessment whether the foundation/EF adheres to the administrative cost-curbing rule
in its economic performance.
5) An assessment of basic disclosures contained in the annual financial statements and the
auditor’s opinion supplemented by significant findings from the audit report; the annual
25

26. financial statements constitute an appendix to the annual report. (§ 25 article 2 Act on
Foundation).
Foundation Investmet Fund foundations (FIF) in a devoted section of their annual
report have to state information about the management of the FIF endowment. FIF
foundations have to submit an annual report to the Ministry of Finance and to the
Government‘s Advisory Body for NGOs.
Auditing:
Auditing – The foundation’s annual financial statement have to be verified by an
auditor. The endowment fund’s annual financial statements have to be verified by an auditor
for any calendar year in which the sum of total costs or revenues disclosed by the endowment
fund exceed 3 million CZK (approximately 115 400 Euros; 1 EUR = 26 CZK), or if the
endowment fund’s assets are in excess of 3 million CZK.
PBI’s annual report have to be verified by an auditor (i) if the PBI is recipient of the
public subsidies, (i) if it has not been established the supervisory board or (iii) if the turnover
of the PBI exceeds 10 million CZK (385,000 EUR).
In the case of associations, there is no legal duty to publish annual report or necessary
to let verify the annual accounts by an auditor.
Public Collection Report:
If a CSO undertakes a public collection, it has to once per year report an account
statement to the local municipality. The report has to be submitted by the 3rd month after the
end of a one year period of the collection’s realization and within 3 monts after the end of all
public collections (a public collection can be carried out in a maximum period of 3 years), see
Act no 117/2001 Coll., on Public Collections.
3.6. Experitse Needed to Manage Commercial Activites
For some type sof commercial activities is necessary to obtain živnostenský list
(licnse, certificate of concession) acc. Act no 455/1991 Coll., Licensing act (živnostenský
zákon). Some special law (e.g. Act on Social Services) can set more requirements.
CSOs that carry out commercial activities in addition to activities related directly to
their social mission have to track the income and expences form commerical activities
separately from the mission related once.
26

27. There are not many specialist tax expert or accounters.
Publications:
The Czech Republic has only a small group of CSOs legislative specialists. Legal
consultancy services are available in Prague, Brno and some regional cities.
Access to these services is limited in rural or more isolated regions. At the same time,
the country does not produce a sufficient number of lawyers specialized in the CSO sector.
Usefull contact information:
Infocentre for NGOs www.neziskovky.cz
Centre for research of NGOs, www.e-cvns.cz
Association of foundaitons www.donorsforum.cz
Masaryk University, Law Faculty http://www.law.muni.cz/
Masaryk University, Faculty of Public administration, www.econ.muni.cz
Charles University, Faculty of Social Sciences http://fsveng.fsv.cuni.cz/
Charles University, Faculty of Humanitarian Studies http://www.fhs.cuni.cz/
Portal of the Public Administration - http://portal.gov.cz
Government Council for the NGOs www.vlada.cz
Conclusions:
As regards taxes, non-profit organisations are regulated by essentially the same rules as
other legal persons. However, if they are established for a publicly beneficial purpose, which
is the case of all foundations, endowment funds, and public benefit institutions (but also
associations and registered religious legal persons), they may, after meeting certain statutory
conditions, enjoy tax privileges and exemptions.
Tax exemption in the Czech Republic is, in most cases, connected morely with the legal
form of a given subject.
One may be surprised to find out that from the point of view of taxes, the Czech legal
system does not distinguish properly between “a public benefit” and a “mutual or private
benfit”, thereby providing public advantages also to private activities or, to put it another way,
legal persons which exert solely private activities. Tax advantages are conditioned by the legal
form, not the purpose of establishment – or activity – really performed by a given legal person.
At the same time, individual tax laws are not uniform and are sometimes even chaotic
in setting up groups of subjects which enjoy tax advantages. Another paradox is that a certain
27

28. type of activities, more specifically “sports” (even professional sport, i.e. performed on a
commercial basis) is declared by a special law38 to fall within the scope of “public benefit” even
without there being a systematic or any other reason with view to other types of activities which
are, in their character, in the scope of ‘public benefit’ without any dispute.
At the beginning of 2002, the Chamber of Deputies of the Czech Parliament debated a
bill on the determination of parts of proceeds from income tax of natural persons for charity (act
on assignations). The bill was turned down during the first reading. According to the drafters, it
was meant to contribute to an improvement in the field of financing the non-profit sector.39 In
my opinion, this attempt constitutes a non-systematic intervention into the structure of taxes in
the Czech Republic; the situation might be better dealt with by an amendment of the Income
Tax Act, which could set higher limits for tax deductions for those natural and legal persons
intending to donate a part of their profits for charitable purposes.
With the respect to ICNL typology presented in Chapter 2, Czech tax treatment for
CSO´s is combination of following:
1. Some incomes are not taxe at all (§ 20 sub 4), some incomes are taxed always (§ 20
sub 3 of Inocome tax Act), is used concept - source of income tax.
2. CSO´s are exempt form taxes on profit generated form their economic activites up o
a certain income level (see § 20 sub 7 of Income tax Act). Above this level, CSO is taxed at
the regular corporate profit tax rate. That mean, that CSOs are taxed on profit from their
ecomonic activities using mechanical tax.
Chapter 4
Introduction:
The core of the civil society in the Czech Republic is, undoubtedly, formed by
associations. As regards their character, they are representing one of the most fundamental
and essential components of the non-profit sector. People who are sharing a common interest
and find it suitable, useful and practical to associate and together perform activities aimed at
38
See The Act No. 115/2001 Coll. on the Support of Sport.
39
PSP ČR, III. volební období, sněmovní tisk 1194, poslanecký návrh, zákon o asignacích, accessible online at
www.pspcr.cz, cited on 11.1.2010
28

29. achieving such a common goal (purpose). Because of very simple legal framework, there is a
huge space for such acitve approch to own life and enjoing the freedom of association.
Dark side of this very basic regulation is very problematic position of such a
association very low level of trust of the public (see bellow).
Further on, the present legal framework in the Czech Republic, as established during
90´s, is favourable to the creation and operation of foundations, endowment funds and public
benefit institutions, which are the counterpart to the English term “foundations”.
Foundations and endowment funds, more than other subjects of law, are characterised
by the private law requirement of freedom of implementation of interests held by private
individuals on the one hand and the public interest of retaining the use of the foundation’s
property for the publicly beneficial purpose. This is related with the significant mandatory
nature of the Act on Foundations and Endowment funds (see below).
A special legal person is the public benefit institution is established for the purpose of
providing services for the benefit of the public and currently is this legal formu sed more and
more for different kinds of purposes (but always public benefit). Although it is not
immediately clear from its name, this legal person also has the character of a foundation with
an initial property contribution.40
4.1. Perception
Because of historical reasons, there is not really a tradition of strong and independent
„civil society“. Before the Czechoslowak Republic was founded, in 1918, all associations
were focused mostly on a „Czech Question“ fight for self-determination of the Czech nation.
After 1918 there was just a little time to find a new aims and purposes. After that
came economical crises, second world war and turn to communism in 1948. The traditional
40
The Czech expression for a public benefit institution – “obecně prospěšná společnost” – uses the word
“corporation”, which is misleading: this is not a corporation but really an ‘institution’ of private law,
theoretically classified among legal persons with a property base. The name was modified by an unfortunate
amendment during the reading of this Act in the Czech Parliament. The strict translation of the Czech term
“obecně prospěšná společnost” into English is “a public benefit corporation” but I prefer to translate this term as
“a public benefit institution”, because the term “corporation” seems to imply that this legal form is based on
association of persons (members). But this legal person is based on association of property and belongs to the
category of foundations (alongside foundations and endowment funds).
29

30. conception of civil society was disrupted during the process of the so-called “socialist re-
codification of private law”, carried out primarily in the 1960s.
The political and social changes since the early 1990s have manifested the attempt to
rectify this undesirable situation and return to European standards. But, unfortunately, later on
happend fatal mistake.
The laws passed for the legal regulation of the position of CSOs – foundations and
associations – were drafted in a hurry, were brief and simple….end often missused. The laws
regulating this area have since then been amended and improved (at least in the case of
foundations).
The strictness of the rules stated by the Act 227/1997 Coll. on Foundations and
Endowment Funds is grounded especially by a broader historical context and especially
owning to the necessity to “repair” the reputation of foundations which have lost their
credibility due to liberal regulations which had been in force at the end of the year of 1997. It
is precepted that the strictness has played a positive role and because of it, the foundation
sector is slowly gaining its lost position.
In the last years CSOs are slowly but surely winning back the lost trust, trying as hard
as they can.
Currently, the public understands the importace and legitimacy of CSOs and
philanthropy is rooted in society and slowly growing. Mostly are CSOs perceived positively,
especially those with which the public is already familiar (from TV etc). Big foundations
which have a „good name“ in the eyes of public have donators, who support them
periodically. People prefer anonymous sponsorship (DMS – donations in the form of SMS)
when is necessary „fast aid, like nature disasters.
State and public administration describe CSOs as partners and co-workers, although
their relationship is not equal in practice. A a big problem is found that CSOs are too
depended on funding from public funds or EU funding. When this support ends, CSOs are not
able to continue and sustainability is very problematic.
Another problem that there not so many „community“ CSOs, but this segment is
growing because i tis very imoportant for building good realationship (partnership) with local
authorities.
Corporations include NGOs in their corporate social responsibility (CSR) concepts,
and they provide support for certain issues or regions. Cooperation with NGOs improves
30

31. corporations’images and is gradually becoming a part of their corporate culture but global
financial crises is affecting this field. CSR concept is supported more by foreign comapnies,
czech commerical sector still understand philantropy more as PR or marketing strategy (they
mix up a donations or sponsorship with the advertisment).
Problematic is found very simple and easy exploitable regulation on the field on
associations. One of the most significant drawbacks of the current Act on Associations of
Citizens consists in the insufficient protection of rights of third parties establishing legal
relations with associations. This is the result of the absence of any public registry of
associations, not very satisfactory conception of regulating the termination of associations as
legal persons and the unclear regulation of the position of organisational units of
associations.41
Preception of CSO´s with respect to commercial activities:
It is quite common opinon that commercial (business) activities are currently, apart
from members’ contributions, one of the key sources of income for associations, not only in
the Czech Republic but also in other European countries.The current Czech legal regulation
expressly states that commercial activities may exist as a supplementary activity whose profits
support the goal of the association. However, they may not, in principle, become the main
purpose of an association.
In the Czech Republic are registered more then 65 000 associations. Mostly they are
depend, due to the lack of other financial sources, on business activities. Under the current
economic situation, these associations can hardly expect to obtain the financial means in the
form of subsidies from public budgets; moreover, tax laws do not act as a motivating factor
for potential donations by entrepreneurs either.
Most of associations work properly, some of them not. Some of those subjects
function as common for-profit-organisation, do commercial activities, under legal form of an
association. And this is not very good precepted by the public.
There were some expamles in the TV, news, that a legal form of association was
dissused in connection with commercial activities. Last expamle is the case of Championship
41
It is up to the articles of association to determine whether an association will establish organisational units and
whether they will be invested with legal personality.
31

32. in Classical Skiing in Liberec 2009, were 70 mil. CZK are missing. This championship was
organized by an association. In the eyes of the public – an association is – no control, no
protection of thier parties, no legal certainty….It is still not clear, how it end a who will pay
for it, if somebody….
At the beginning of 2000, there was a momentary hope that Act on Association might
be passed since the governmental draft of the new Act was submitted to the Parliament. This
was quite well-done, attending to solve most of the above-mentioned problems of the current
legal regulation. Unfortunately, the debates in the Parliament became dominated by individual
interests of certain lobby groups (mainly sports clubs) who felt the draft was too regulative.42
On the other hand, it is precepted that under current economic situation, due to the
lack of other financial sources, many associations are depended on commercial activities. It is
because most of the associations can hardly expect to obtain the financial means in the form
of subsidies from public budgets; moreover, tax laws is not really a motivating factor for
potential donations by entrepreneurs either. Those commercial activites should be
supplementary activity whose profits support the goal of the association. However, they may
not, in principle, become the main purpose of an association.
In the case of foundations, endowment funds, public benefit institutions is the purpose
of an organisation limited only to public benefit, in the case of foundation subjects there are
strict limits to any kind of commercial activities and the regulations are very detailed.
This relatively extensive foundation law is a reaction to the former very liberal
approach to the regulation of foundations in the Civil Code, which was one of the main causes
of the discreditation of the institute of the foundation in the Czech Republic at the beginning
of the 1990s.
Currently are foundations and endowment funds precepted as “financial base” of non-
profit sector, but more or less only as subjects, which collect and distribute financial means
(granting fundations).
42
During the discussion stage, there were some opinions claiming that there was no need for a new Act on
Association, because the old one was “well proved and practical” – let me add the comment ‘to misuse’ to this
quote. For more information, see Ronovská (Adámková), K: Úvaha nad „potřebnosti“ nepotřebného zákona o
spolcích [Some thoughts on the ‘necessity’ of an unnecessary Act on Associations], Právní rozhledy 2/2001, p.
65 and following, and Pajas, P: Do the Czechs need a new law on Association?, accessible online at
www.icnl.org/JOURNAL/vol2iss4/ar_pajasczech.htm
32

33. Limited commercial activities of public benefit institutions are precepted well, as
extra income to support of the public benefit purpose. Majority of public benefit institutions
provides some commercial activities as “auxiliary” and additional activity. There was a
decision interesting decision last year of the High court in Prague (7 Cmo 537/2008-50)43
about the distinction between public benefit purpose and economical activities of a public
benefit institution.The same applies to registered religious legal persons under § 15a of act no.
3/2202 Coll.
Evaluation:
To evaluate the spirit or motivation of politicians (especially on central level) to
regulate economic activites for CSOs, on one hand, politicans have not much interest to
libaralization of the foundation law, on the other hand there is also no interest to more strict
regulation for associations. Important seems to be discussion around and the destiny of the
Act on organisations with public benefit status.
4.2. Implications of the Regulatory Framework on Public Policy
4.2.1. Simplicity or complexity of administration – Good, but in a case of associations not
very satisfactory.
In the civil law and also in tax law there is a special treatment for CSO´s. The legal
framework is quite complex and sometimes too complicated.
4.2.2. Effects on revenue collection
4.2.3. Effects on commercial sector
Moderate - There is always a tension between exemption from taxes or some other tax
benefits and the principle of generality and equality of taxation; any such benefits thus have to
conceived in a very narrow manner and be properly justified, which is sometimes
problematic.
There is always a problem also with an unfair competition between CSO´s and for-
profit entities. But the CSO´s are encouraged and sometimes forced by the law to be active in
those fields where is not much interest from commercial entities.
Other problem is unfair competition between CSO´s and Contributory organisations
(see bellow).
43
This decision was not publihed.
33

34. 4.2.4. Effects on the development of the NPO sector
Moderate – Good
The legal framework did not changed much in last couple of years, so for some
conceptual (and also particular) changes is still waited. It seems like that legal form of public
benefit institution is used more that it used to be, and a legal form of assiciation is used less.
The reason is (maybe) the Act on social services, which states that some „social services“
cannot be provided by associations, so the legal type of public benefit institution is only
choice.
4.3. Limitations of the Regulatory Framework
4.3.1 General Legal Framework Regulating CSOs
- There are too many different legal forms (and thank the unlimited fantasy of the politicians
it growing);
- Interpretation is always a problem, different governmental offices and even each officer
does have sometime own interpretation;
- I tis up to legal form, some are easy to use, some are too detail…
- To promote concept of social enterprise the way like e.g. in Italy..…. it is a bit far from the
Czech conception, but the legal form of public benefit institution is good to use for this.
4.3.2 CSO commercial Activities and Non profit status
- The legal regulation is quite clear, mostly possible as „additional activity“ on CSOs;
- There is a discussion about the Act on organisations with public benefit status – drafted by
government (currently) which would change a lot.
4.3.3 Taxes on CSO Commercial Activites – see Chapter 3.3.
4.3.4 Relevant laws on non-commercial sources of Funding
Act no. 117/2001 Coll., o veřejných sbírkách, Act on public collections
Act no. 202/1990 Coll., o loterijích a jiných obodbných hrách, Act on Gaming – ?zmínit
problem “s určením výtěžku ze zisku na obecně prospěšný účel” (zneužívání ustanovení
zákona společnostmi, které provazují loterie) a neexistence možnosti provozovat charitativní
loterie, se kterou napr, počítá zákon o nadacích?
Public subidies:
34

35. The granting of subsidies is partly regulated by law44 and partly a matter of the policy
of the central or local government authorities. The funding conditions are mostly not set down
by law. The grant rules are set by individual ministries and public funds, e.g. the State Fund
for the Environment, the Grant Agency of the Czech Republic etc.
Public subsidies are an important source of income for NGOs. Financing from public
sources has been characterised by a high degree of centralisation. Every year, the government
sets the major areas for state subsidies for NGOs for the coming year. After the reform of the
public administration (2001), this system was decentralised; as a result, regional units and
municipalities now have their own policies on providing subsidies.
On the central (governmental level), the Principles for distributing the subsidies45 are
submitted to the Council for non-state and non-profit organisations46, which is an advisory
body to the government of the Czech Republic and may influence its decisions.
There is a discussion going on to unified the graning rules at the governmental level,
but some state organs (f.e. Ministry of Culture) are not very happy about this idea.
An especially Czech reality is the existence of the Foundation Investment Fund
(called NIF, in English FIF), established in 1991 for the purpose of supporting the non-profit
sector (via foundations). For this purpose, the government set aside the amount of 1 per cent
of the shares from the second wave of voucher privatization (approximately 2,8 billion CZK).
Until 1996, there were disputes in the government about which foundations should receive the
financial means from FIF and in what manner. The most important part of the proposal was
the decision to use the contributions from FIF for the increase of the registered endowment of
the foundations and not for their programmes. The finances were distributed only nine years
after the establishment of the Foundation Investment Fund. In this way, the intention
anticipated by the law, i.e. the support of foundations by the state was met. This procedure
adopted in the Czech Republic was unique among other post-communist countries. The state
not only became the donor to non-state foundations, but it also conditioned its contribution by
having it transferred into the foundation capital of particular foundations (the contracts
44
Act No. 218/2000 Coll. - the Act on Budgetary Rules, and the Act No. 250/2000 Coll. on Budgetary Rules of
Regional Budgets
45
Zásady vlády pro poskytování dotací ze státního rozpočtu České republiky nestátním neziskovým
organizacím ústředními orgány státní správy, Principles for granting for year 2008 see:
http://www.cas.cz/rvs/dokumenty/zasady_vlady.pdf, citováno 12.1. 2010
46
The Council for Non-State Non-Profit Organisations is an advisory body to the government of the Czech
Republic in matters related to the non-profit sectors. The aim of the Council is to create the possibility for mutual
contact between the non-profit sector the governmental administration.
35

36. between the government and the recipients – foundations stipulate special duties such as the
strict “contractual” external supervision etc.)
Special rules for the provision of subsidies have been set in the agreement on the
provision of contributions from the FIF to foundations – FIF recipients.
The subsidies are provided on the basis of agreements on the provision of
contributions. It is also possible for contracting parties to agree on other rights and
obligations. Any violation of such rules may be sanctioned by e.g. the duty to return the
contribution made.
Very problematic und unsufficient is Act no. 202/1990 Coll., o loterijích a jiných
obodbných hrách, Act on Gaming, there is stated that part of the profit of gaming provides has
to be income of a public benefit sector. This concept is often disused and has to be improved
in the future. This act also doesn’t account with the possibility to organize charitable loteries.
4.3.5 Tax Filling and tax Reporting
See chapter 3.5.1.
4.3.6. Expertise Needed to Manager Commercial Activites
See chapter 3. 5.2.
Proposed changes:
Legal framework for the organisations of civil society (CSOs), which was constitutied
in the 90ies of the last century, became stabilized and current changes are only partial.
The trends that may be seen on the field of the Czech foundation sector in the last
couple of years clearly aim at the certain (however, often limited) liberalization of the
foundation law. This new trend was manifested also in the proposed amendment to the Act on
Foundations and Endowment Funds,47 which, hopefully, should be soon given a vote in the
Chamber of Deputies of the Czech Republic. Probably the most important change is that
foundations and endowment funds should be “freed” to carry out their own programs and
separate costs of these activities from administrative costs of the foundation subjects. Such a
change would open more space for own activities of foundations and endowment funds.
Moreover, the amendment takes into account the particularities of endowment funds
and targets also transparency of the foundation sector.
47
The proposal is available at: http://www.vlada.cz/cz/pracovni-a-poradni-organy-vlady/rnno/legislativa-a-
financovani/schuze-vyboru-pro-legislativu-a-financovani-rvnno-26136/, cited on January 2010.
36

37. Currently, in Parliament should be disscused also amendment of the act on Public
benefit Institutions, which wants more or less only eliminate a gaps and difficulties of this law,
especially increase accountability of the statutory authority, ensure the protection of property
contributed by founder during an existence of public benefit institution and also in a case of
liquidation, etc.
On governmental level, there is currently disscused also important amendment of the
act no. 3/2002 Coll., on religious organisations and societies. In 2005 article about the
organisation units of churches - religious legal persons § 15a - was changed and this change
proved to be unsuitable. It seems like that it will be changed again.
At present, an amendment to the Act on Public Collections is being drafted. It is meant
to remove the drawbacks existing in the application practice. It should mainly aim at
simplifying the possibility to hold collections in exceptional circumstances, specifying and
extending the ways of holding collections, specifying the regulation of so-called ‘travelling
collections’, and improving the quality of supervision over public collections.
Consiredable changes should bring a new concept of private law, in particular the new
Civil Code. Important change would mean also Act on the organisations with the status of
public benefit.
At present (for at least 10 years), there is a discussion going on about the
recodification of the Czech private law48 which will also result in changes of the legal position
of legal persons (and CSOs) - including the positive specification of the legal regime of
associations, foundations and institutions as special legal forms49. Part of this complex reform
private law is also proposal of a new act on commercial companies.
The Act on the organisations with status of public benefit will be part of conceptual
reform, which would cover not only filed of private law (civil law) but also the area of tax law.
48
A proposal of a new Civil code will be soon discussed by the Czech Parliament but it is not sure if it will be
passed, mostly because of political reasons.
49
The current Act No. 227/1997 Coll. on Foundations and Endowment Funds should be cancelled as well, and
the legal regulation of foundations should serve as lex generalis for legal persons of the foundation type. There is
also the intention that the Act No. 83/1990 Coll. on Associations of Citizens should be cancelled, the regulation
of associations should be shifted into the Civil Code and the legal form of association should serve as a general
regulation for legal persons of the corporation type. The proposal also anticipates the cancellation of the Act No.
248/1996 Coll. on Public Benefit Institutions. However, public benefit institutions founded previously will be
able to continue their existence and will be regulated by the existing legal regime, while newly founded
beneficiary societies will have the legal form of “institutions”.
37