Report Topics:
1:- General Information
2:- Cooling-off Period
3:- Pyramid Schemes
4:- Multi-Level Marketing
5:- Prohibition on Products
6:- Credit Restrictions Country
7:- Money Collections
8:- Licenses
9:- Status of Direct Sellers
10:- Earnings Claims
11:- Taxes and Fees
12:- Social Security
13:- Others
General Information
1: General Information
The Czech law does not define “Direct Selling”, but:
Act No. 89/2012 Coll., Civil Code regulates the conclusion of the distance agreements and agreements concluded outside of the regular business premises, which can be considered as the rules regarding the Direct Selling. As the distance agreements are considered the agreements concluded without physical presence (i.e. via telephone, internet etc.).
Act No. 455/1991 Coll., Trade Licensing Act makes it possible to issue municipal bans on direct selling for municipality.
Act No. 458/2000 Sb., Energy Act makes it possible, as of 1 January 2022, to issue a regulation restricting certain forms of sale of goods or provision of services carried out outside business premises in the energy sectors[1].
Act No. 634/1992 Coll., Consumer Protection Act, regulates the reporting duty of the Direct Sellers in the Czech Republic in the cases when the Direct Sellers hold the organized sales event.
[1] In this context, please note that, for example, Prague has banned door-to-door sales of energy.
2: Cooling-off Period
In accordance with Section 1829 of the Civil Code, the consumer has the right to withdraw from an agreement concluded in a distance manner (concluded outside regular business premises) within14 days (cooling-off period). If the consumer has not been informed of his right to withdraw from the contract, the consumer may withdraw from the contract within one year and fourteen days.
In accordance with Section 1829a of the Civil Code, the consumer has the right to withdraw from an agreement concluded outside regular business premises during a trip organized by an entrepreneur for the purpose or with the effect of promoting and selling goods or services, or during an unsolicited visit by the entrepreneur to the consumer’s home, within 30 days instead of 14 days.
Section 1825(2) of the Civil Code also fulfils the role of the cooling-off period. The trader is obliged to confirm the offer made during the telephone call to the consumer in text form without undue delay. The consumer is bound by the offer only once he has given his consent electronically or by signing a confirmation of the offer on a written document.
3: Pyramid Schemes
Both the Ponzi scheme (airplane) and the pyramid scheme are prohibited under the Czech law.
In the Consumer Protection Act, the definition of the pyramid scheme is contained in Annex No. 1 letter (n) as follows: “Commercial practices shall always be considered misleading if the seller… creates, operates or promotes a program in which the remuneration to consumers depends primarily on attracting other consumers to the program and not on selling or consuming the product (pyramid scheme). “ This standard transposes Directive of the European Parliament and of the Council No. 2005/29/EC.
Unlike pyramid schemes, Czech law lacks a legal definition of the Ponzi scheme. However, this legislative loophole was corrected by the Supreme Court in its resolution File No. 11 Tdo 1108/2004 of 30 September 2004, when it qualified the Ponzi scheme as a criminal offense of fraud pursuant to Section 250 of Act No. 140/1961 Coll., the Criminal Code, as amended (nowadays Section 209 of Act No. 40/2009 Coll., the Criminal Code, as amended).
4: Multi-Level Marketing
No legislation.
5: Prohibition on Products
There is no prohibition on product sales through direct sellers.
DS restrictions on weapons, drugs and dangerous products.
6: Credit Restrictions Country
The providing of consumer credit is regulated by Act No. 257/2016 Coll. Accordingly, the consumer credit can be provided to consumers, respectively to mediate it only entities to whom they have a license granted by the Czech National Bank. This Law is issued in accordance with EU legislation regarding the consumer credit.
7: Money Collections
No specific regulation of money collection and leasing. There are some tax specifics for leasing only.
8: Licenses
Every entrepreneur has to have a ‘business’ license. For direct sellers, a license permitting ‘purchase of products for further sale’ or ‘mediation in the field of product sale’ are applicable.
The status of each entrepreneur (including Direct Sellers) is defined by Act No. 455/1991 Coll., Small Trade Act.
Key criteria for the categorization of direct sellers:
The most common form of independent economic activity of natural persons / individuals is an activity carried out on the basis of a trade/business license. In such cases, these individuals are referred to – in general terms – as the Entrepreneurs (podnikatel) or the Economically independent active persons (osoba samostatně výdělečne činná); the former being used generally while the latter being used mainly in the social security and health insurance fields. Actual descriptive name used for such entrepreneurs (such as “distributor” or “direct seller”) has no impact on their status.
systematic activities,
carried out independently,
under the entrepreneur’s own name and his responsibility,
for the purpose of gaining profits.
9: Status of Direct Sellers
There are no specific laws or regulations.
The status of each entrepreneur (including Direct Sellers) is defined by Act No. 455/1991 Coll., Small Trade Act.
10: Earnings Claims
No information.
11:Taxes and Fees
No specific taxes are applicable for direct sellers. There are VAT laws and Income Tax laws beside other tax laws and regulations.
Income Tax
An entrepreneur must pay the income tax as the physical person. The income tax rate is 15% for the part of the tax base up to 36 times the average wage (the average wage for 2024 is CZK 43 967, i. e. 36 times the average wage is CZK 1 582 812) and 23 % for the part of the tax base exceeding 36 times the average wage.
There are no tax exemptions. Fee for obtaining a trading license is 1000 CZK. There is no separate statute for Direct Sellers.
VAT Thresholds:
326,000 CZK (€ 13 686): threshold for application of the special scheme for acquisitions by taxable persons not entitled to deduct input tax and by non-taxable legal persons.
2,000,000 CZK (€ 83 963): exemption for small enterprises.
12: Social Security
No information.
Contributions to be paid by direct seller/company:
An entrepreneur must be registered in, and must pay – based on his income – contributions to the social security system (National Social Security Office), which includes mandatory pension insurance, General Health Care Insurance (opt-out for private insurance is possible), which includes mandatory health insurance and contributions to the Sickness Benefit Fund. Contributions are calculated on the same basis as income tax (income minus provable expenses in the preceding accounting period). To be paid monthly and in advance by the direct seller himself. 28 % of the social security contributions are allocated to the Old-Age Pension Fund, 1.2% for state employment policy if the person participates in pension insurance; and 2,7 % of the assessment base for sickness insurance (nemocenské pojištění), if the given person participates in sickness insurance.
13: Flat tax
With effect from 1 January 2023, three flat-rate tax zones have been introduced according to the amount of income. All entrepreneurs with an annual income of up to CZK 1 million (under certain conditions up to CZK 1.5 million or even up to CZK 2 million) will fall into first zone. Entrepreneurs in the first zone will pay a monthly tax of CZK 7 498 in 2024. Entrepreneurs with an annual income of CZK 1 million to CZK 1.5 million (under certain conditions up to CZK 2 million) fall into the second zone. Entrepreneurs in the second zone will pay a monthly tax of CZK 16 745 in 2024. Entrepreneurs with an income of CZK 1.5 to 2 million belong to the 3rd zone. Entrepreneurs in the third zone will pay a monthly tax of CZK 27 139 in 2024. Flat tax is applicable for an entrepreneur:
- who is not a VAT payer;
- who is not a partner in a public partnership or a general partner in a limited partnership;
- who is not a debtor against whom insolvency proceedings have been initiated;
- who did not exceed the income for selected flat-rate tax zone in the tax period immediately preceding the relevant tax period;
- who has no income from employment and
- who, no later than 10 January of the relevant year, submits to the tax administrator a notification of entry into the flat-rate regime, in which he chooses a flat-rate tax zone.
Flat tax includes health insurance premium, social insurance premium and income tax.
14: Others
Civil Code – Act No. 89/2012 Coll.
Consumer Credit – Act No. 257/2016 Coll.
Consumer Protection – Act No. 634/1992 Coll.
The WFDSA International Guide to Direct Selling Legislation is a guide and is not exhaustive either in terms of subjects presented or for all areas of concern to direct selling companies. It is intended to cover general areas of concern. The Guide is not a substitute for legal counsel but only intended to alert you to the general nature of laws and regulations affecting the direct selling industry in a particular country. Consequently, before beginning an operation in any foreign country, it is strongly recommended that competent legal counsel be consulted. While every effort has been made to insure that the information contained in this Guide is accurate, the variety of sources used makes absolute verification difficult. Further, laws and regulations also can change from time to time without notice. Therefore, the WFDSA cannot be held liable for the information included in this publication.