Financial reporting and audit for companies in Czech Republic

In business, financial transparency isn’t just a legal requirement – it’s a sign of a company’s professionalism and maturity. In the Czech Republic, the system of financial reporting is designed to ensure economic stability, protect business partners and investors, and strengthen the reputation of businesses that operate responsibly.

Financial statements are a key tool for assessing a company’s stability. They show how efficiently resources are used, whether decisions are made wisely, and whether the company can be trusted in the long term.

Audits in the Czech Republic complement this transparency. An independent auditor is not a “detective” looking for mistakes but rather a partner who helps view the business from a different perspective. Their role is to verify the accuracy of financial data and identify potential risks or, conversely, opportunities for growth.

This guide outlines the main requirements for financial reporting for companies in the Czech Republic: the types of reports companies must submit, who is required to undergo an audit, and the consequences of failing to comply.

Accounting for Czech Companies

All companies in the Czech Republic, regardless of legal form, are required to maintain accounting records and submit annual financial statements in accordance with the Accounting Act (Zákon o účetnictví). This applies to both Czech companies and foreign legal entities operating in the country through branches or offices. Accounting is also mandatory for sole proprietors registered in the Czech Republic.

Typically, companies maintain full accounting records, but there are exceptions. Some non-profit organizations, such as associations, trade unions, housing cooperatives, religious institutions, and hunting societies, may keep simplified accounts.

For other companies, including limited liability companies (s.r.o.), the law requires full accounting, typically using double-entry bookkeeping. In this system, every financial transaction is recorded twice: once showing where the funds came from (debit) and once showing where they went (credit). This “double check” ensures that accounting is accurate, transparent, and understandable for owners, banks, auditors, and tax authorities alike.

In the Czech Republic, the retention periods for accounting documents are set out in the Accounting Act. Accounting documents and records (invoices, bank statements, contracts, primary documents, accounting books and journals) must be kept for at least 5 years after the end of the reporting year. Financial statements (annual balance sheet, profit and loss statement, notes to the financial statements, annual report if required) must be kept for 10 years. In practice, many Czech companies retain all accounting records for 10 years, as tax inspections often cover this period.

Annual Financial Statements in the Czech Republic

Financial statements are prepared based on accounting records and are essential for the normal operation of any business in the Czech Republic. They are not just a formality – they are a vital tool showing the company’s real financial position and results for the year.

Submitting annual financial statements is mandatory for all legal entities, even if assets, income, and expenses are zero.

The scope and format of financial statements depend on the company’s size: micro, small, medium, or large. Classification is based on three criteria: assets, annual turnover, and number of employees. A company belongs to a category if it does not exceed two of the three thresholds:

• Micro companies: assets up to CZK 11 million, turnover up to CZK 22 million, up to 10 employees
• Small companies: assets up to CZK 120 million, turnover up to CZK 240 million, up to 50 employees
• Medium companies: assets up to CZK 600 million, turnover up to CZK 1.2 billion, up to 250 employees
• Large companies: assets over CZK 600 million, turnover over CZK 1.2 billion, more than 250 employees

For micro and small companies, three key documents are sufficient:

• Balance Sheet: The balance sheet reflects the financial position of the company at the end of the reporting year. It shows the assets owned by the company and any liabilities it may have.
• Profit and Loss Statement: This statement demonstrates how efficiently the company operated during the year. It presents revenues, expenses, and the financial result – profit or loss. It shows which areas of activity generate income, which expenses are the largest, and the actual business outcome.
• Notes to Financial Statements: They include accounting methods, depreciation policies, information about loans, liabilities, reserves, and other significant details.

For medium and large companies, the financial statements also include:

• Cash Flow Statement: This document shows how money actually moves within the company – how much cash was received and how it was spent.
• Statement of Changes in Equity: This statement reflects how the company’s equity changed over the year, including contributions from shareholders, dividend payments, retention of profits, or coverage of losses.

Deadlines and Submission of Financial Statements in the Czech Republic

Financial statements must be prepared annually and approved no later than six months after the end of the financial year. Once approved, the statements must be submitted to the Collection of Deeds (Sbírka listin) of the Commercial Register within 30 days of approval, or no later than 12 months after the end of the financial year.

Alternatively, financial statements may be submitted together with the corporate income tax return as an integral attachment.

For late submission or failure to submit financial statements, the company may face:

• Up to 3% of the value of assets – fine by the tax authority for violating the Accounting Act.
• Up to CZK 100,000 – fine from the Register for failure to submit the statements to the Collection of Deeds.

Audit in the Czech Republic – is it an additional check?

Many companies still perceive an audit as a “mandatory check looking for mistakes.” In reality, in today’s Czech business environment, an audit is more of a tool for business control and development than a punitive mechanism.

An independent auditor does not just verify the numbers. They help assess whether the accounting records accurately reflect the company’s actual operations, comply with applicable standards, and do not conceal potential risks.

Who is required to undergo an audit?

Czech law clearly defines the cases in which a company is required to undergo a mandatory financial statement audit.

Small and micro-enterprises are generally exempt from mandatory audits, significantly reducing their administrative burden.

An audit is mandatory for medium and large companies, i.e., if during the reporting period at least two of the following three conditions are met:

• total assets exceed CZK 120 million;
• annual turnover exceeds CZK 240 million;
• average number of employees exceeds 50.

Financial audit is not a random check but a clearly structured process consisting of several logical stages:

• Preparation and Familiarization with the Business: The auditor studies the company’s operations, organizational structure, accounting policies, and key risks. The goal is to understand the business, not just review the numbers.
• Document Analysis: Accounting records, primary documents, contracts, inventory records, and other financial data are reviewed. At this stage, not only accuracy but also the logic of transaction recording is important.
• Assessment of the Accounting System: The auditor evaluates whether business transactions are correctly recorded and whether the accounting complies with Czech standards or International Financial Reporting Standards (IFRS), if applied by the company.
• Auditor’s Opinion: Based on the audit, an official audit report is prepared, which either confirms or, in exceptional cases, questions the reliability of the financial statements.

Annual Report for Czech Companies

The annual report is often confused with the financial statements. In reality, these are different documents with different purposes. While financial statements show the numbers, the annual report tells the story of the company over the year – its development, achievements, challenges, and plans for the future.

Czech legislation clearly defines that the annual report is not mandatory for all companies, but only for those required to undergo a financial statement audit. Typically, this includes medium and large companies or enterprises that meet the established financial and staffing criteria.

What does the annual report include?

Unlike standard financial statements, the annual report combines financial and non-financial information to provide a comprehensive and balanced view of the company’s situation. The annual report must include the full financial statements, the auditor’s report, and a management report, which discloses matters of influence and control: who actually manages the company, existing corporate relationships, and the ownership structure.

In other words, the annual report shows not only “how much was earned” but also “how the company operates and where it is headed.” It is submitted together with the annual financial statements to the Collection of Deeds (Sbírka listin) of the Commercial Register.

Filing a Tax Return in the Czech Republic

The corporate income tax return is an annual report through which the Czech tax authorities assess a company’s performance and determine the amount of tax payable.

For companies in the Czech Republic, filing a tax return is an obligation, not a right, regardless of the size of the business, the number of employees, or the company’s activity during the year.

An important point that often surprises business owners: a tax return must be filed even if the company did not generate a profit or conduct any business activities. In such cases, a so-called “zero return” is submitted. Failure to file the return may result in penalties, even if the tax due is zero.

Deadlines for Filing a Tax Return in the Czech Republic

Several deadlines apply for submitting the tax return. As a general rule, the return must be filed within three months after the end of the tax year (i.e., by April 1). However, this deadline can be extended to four or even six months in certain cases (for example, in case of electronic submission or due to an audit).

Failure to submit the return or late submission exceeding five working days may result in significant costs. The Czech tax authorities impose penalties as follows:

• 05% of the assessed tax per day of delay, or 0.01% of the tax loss per day if the return shows a loss;
• maximum penalty limit – 5% of the assessed tax or of the loss.

Statistical Reporting for Czech Companies

Many company owners in the Czech Republic believe that filing tax and financial statements fulfills all their obligations.

In reality, there is another set of requirements that is easy to overlook but for which penalties can be imposed. This concerns statistical reporting to the Czech Statistical Office (ČSÚ). Statistical reports are not automatically required from all companies, but almost any business can be selected as a respondent.

Companies subject to this reporting requirement receive an official notification from the Statistical Office, specifying which forms must be submitted, the deadlines, and the reporting format.

Failure to submit the required statistical reports on time or ignoring this obligation may result in penalties, which can reach up to CZK 100,000.

Other Reports and Who Is Required to Submit Them

1) VAT Reporting

Once a company’s turnover exceeds CZK 2,000,000 over 12 months, VAT is no longer optional – it becomes mandatory.

Along with VAT registration, a company must submit a set of reports:

• VAT Return – the basic value-added tax declaration;
• Control Statement (Kontrolní hlášení) – a detailed report of transactions;
• Summary Report – primarily for transactions with EU counterparties.

VAT reports must be submitted monthly (deadline: 25th of the following month) or quarterly (deadline: 25th of the month following the quarter).

A key feature of VAT reporting is that submission is exclusively electronic; there is no paper filing.

Penalties for late submission of VAT returns are similar to those applied for late corporate income tax filings. In addition, failure to submit or delay in submitting the VAT control statement may result in fines ranging from CZK 1,000 to CZK 50,000, depending on the length of the delay.

2) Social and Health Insurance Reporting

If a company has employees, another obligation arises – reporting to social and health insurance authorities.

The filing deadline is clear: by the 20th of the following month. Ignoring this obligation may result in fines of up to CZK 50,000.

Bringing order to a company’s finances is a systematic process that protects the business from fines, misunderstandings, and potential risks, and, most importantly, builds trust with partners, investors, and government authorities. Every number in the financial statements matters, and proper reporting demonstrates that the company operates transparently and responsibly.

The specialists at Azola Legal Services ensure that all reports are prepared in accordance with standards, submitted on time, and fully compliant with all requirements of Czech legislation. Our goal is to make financial transparency not a burden, but a reliable tool for business development, allowing you to focus on what matters most – the growth and success of your company.