The Ministry of Industry and Trade has drawn up a draft of the so-called ‘start-up bill’, which is intended to establish a legal framework for the systematic support of young, innovative and scalable businesses. The draft Act on the Conditions for Innovative and Scalable Entrepreneurship is currently undergoing an inter-ministerial consultation process. According to the current timetable, it is proposed to come into force on 1 July 2027, although its final form may still change during the legislative process.

Who will be considered a start-up under the proposal?

The proposal introduces the legislative term ‘developing enterprise’ for start-ups. It does not introduce a new legal form of company, but rather a special status to be granted on the basis of an administrative decision. Certification is to be granted automatically upon fulfilment of the statutory conditions and professional criteria. The fundamental aim is to distinguish genuinely innovative and scalable enterprises from ordinary small and medium-sized enterprises.

Under the current proposal, the scheme is primarily intended for limited companies and, under specified conditions, also for enterprises from other EU or EEA countries with genuine operations in the Czech Republic. Key criteria include being no more than eight years old (up to ten years for selected deep-tech projects), an annual net turnover for the group of up to CZK 250 million, a prohibition on trading on a regulated market, and a prohibition on distributing profits or other own funds to shareholders. The proposal is also intended to prevent the deliberate spin-off of subsidiaries from established business groups solely for the purpose of obtaining benefits.

Certification as a gateway to benefits

CzechBusiness (to be created by merger of CzechInvest, CzechTrade and CzechTourism) is to decide on inclusion in the register of certified start-ups through administrative proceedings; the Ministry of Industry and Trade is to act as the appeal body. The process is to be fully digital, and the state is to make maximum use of data already at its disposal.

In addition to formal criteria, the assessment will focus primarily on the innovativeness and scalability of the business. The methodology for deciding on certification is to combine a fast-track process for objectively verifiable cases – such as a patent, research and development expenditure, demonstrable market traction or securing an investor – with a standard individual assessment. This is intended to enable the certification of software, SaaS, bootstrapped or very early-stage projects that do not yet meet the objective fast-track criteria. There are also plans to certify start-ups that have passed through start-up incubators and programmes.

The details of the certification process are not to be set out exhaustively in the Act itself. They are to be regulated by a government decree so that the criteria can be flexibly amended based on experience with the system’s operation. According to current information, the ideal decision-making period should be approximately 30 days, though the statutory maximum period may be up to three months.

The most important point – what tax benefits does the proposal offer?

The first significant incentive is to be a tax deduction for ‘early-stage investors’ – primarily business angels – when, as a natural person, they inject new capital into a certified start-up. The aim is to mobilise available Czech capital. It would be possible to deduct a cash investment of up to a total of CZK 5 million per tax year from the tax base. The proposal allows for both equity and certain quasi-equity instruments, including convertible financing. To retain the benefit, the investor must hold the investment for at least three years.

The incentive is not intended to benefit founders, their close associates, employees or persons with a significant shareholding or de facto influence. In its current form, it does not apply to investments by legal entities, funds or through SPVs.

The second proposed tax benefit is an extension of the period for carrying forward a certified start-up’s tax loss from five to seven years, which may be particularly significant for deep-tech companies with longer development cycles.

Start-up certification in itself does not constitute state aid. The tax relief is to be granted under the General Block Exemption Regulation (GBER). Provided its conditions are met, prior approval by the European Commission is not required.

What should start-ups and investors be keeping an eye on right now?

The draft is still undergoing inter-ministerial consultation and its parameters may change. We recommend monitoring on an ongoing basis whether your projects can obtain certification under the proposed criteria, particularly with regard to age, group structure, revenue, profit distribution and the ability to demonstrate innovation and scalability.

The Start-up Act is designed as a basic framework, to be gradually supplemented by further measures. Discussions are already under way, particularly regarding start-up visas and the possible introduction of further tax or administrative benefits. The introduction of a uniform legal definition of a start-up is intended to enable other legal and tax regulations, as well as public programmes, to refer to this certified status.

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This material is for general information on current topics only, it is not advice. It does not take into account any special circumstances, financial situations or special requirements of the addressees. Recipients should therefore always seek appropriate professional services for the information provided. Notwithstanding the careful compilation of this material, bpv Braun Partners s.r.o. advokáti, its partners, associates or co-operating solicitors and tax advisers cannot guarantee the accuracy or completeness of the information contained herein and accepts no responsibility for acting or refraining from acting on the basis of the information contained in this material.