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Major legislative changes effective as of 1 January 2012

Summary of the most substantial legislative changes to take effect in 2012. The changes will have an impact on commercial law, corporate law (including criminal liability of corporations), labour law, tax, real estate, administrative justice, electronic communications, and a number of other areas and industries.

ACTS EFFECTIVE AS OF 1 JANUARY 2012

1. COMMERCIAL LAW, CORPORATE LAW

Amendment to the Commercial Code

(Act No. 351/2011 Coll. amending Act No. 513/1991 Coll., the Commercial Code, as amended, and other related legislation)

  • The amendment to the Commercial Code simplifies and imposes detailed rules for a number of legal institutes; it therefore consists of a great deal of partial changes.
  • Parties to a contract will be free to agree to restrict or even waive the right to damages before the damage exists, i.e. before the relevant obligation is breached.
  • The new provisions of Section 66d (delegating business management), in response to another situation which gave rise to difficulties in practice, can be considered a breakthrough. The so-called parallel exercise of offices (dual mandate) is permitted. Statutory body members can thus be employed as managers and vice versa. A company’s business can be managed by a company employee.
  • Other changes: the duty to prove and document the legal grounds for using the registered office or, where applicable, the place of business as per Section  2(3) and Section 37(2); changes to the rules relative to the Commercial Register and Collection of Documents (such as termination of the duty to deposit the statutory bodies’ specimen signatures in the Collection of Documents, a new duty to register the date of birth - birth registration numbers will no longer be available in the public section of the Commercial Register); change to the duty to valuate contributions in kind; simplified financial assistance for limited liability and joint-stock companies; change to the rules applicable to the decisive day for attending the general meeting imposed in Section 184(3); alleviated requirements for asset transactions between related parties as per Section 196a.

Transformation of Corporations Made Easy

Act No. 355/2011 Coll., which amends Act No. 125/2008 Coll., on transformations of corporations and cooperatives, as amended, and related legislation)

  • In addition to remedying defects and incorrectly transferred or application-unclear provisions, the amendment adds a number of missing issues and procedures, and simplifies those that were too complex.
  • The amendment includes new EU legislation requirements that introduce alleviation in respect of reporting duties. The most substantial changes include, without limitation:

(a) decisive date rules – a day in the future can newly be defined as the decisive day;

(b) admissibility of the concurrent exercise of a merger and change of legal form of a company (two subsequent steps were required previously);

(c) forms of cross-border transformations have been extended; a registered office can be moved abroad and vice versa;

(d) under certain circumstances, mandatory information can be made available on the company’s Web site only, while a mere link thereto that is disclosed and made available in the Commercial Register will suffice;

(e) rights of shareholders in limited liability companies and creditors have been extended and amplified; for example, shares or shareholdings will newly have to be purchased from parties which disagreed with the transformation, subject to predetermined terms and conditions.

  • The amendment also contains changes to several other pieces of legislation resulting from the amended Transformations Act, including, without limitation, accounting and tax consequences in the Accounting Act and the Income Tax Act, and the amendment to the Commercial Code that makes it possible for one party (even a natural person) alone to found a joint-stock company.

Registration in the Commercial Register

(Decree No. 414/2011 Coll., on the requirements for applications for the registration in the Commercial Register)

  • The new Decree does not contain any particular application form; instead, it lists requirements the application has to meet and comply with, which should facilitate the implementation of necessary changes and make them more flexible.
  • Significant changes relate to the list of documents to be submitted if a registration of transformation in the Commercial Register is sought.
  • Registration of European Companies (SE) and European Cooperative Societies (SCE) is subject to a separate application form and a list of documents to be attached thereto.
  • Private businesses will welcome the change in the method of proving one has a clean criminal record – extracts from the criminal record are no longer required since the registration courts shall obtain the extracts themselves.

2. LABOUR LAW

Amendment to the Labour Code, Issues Not to Be Missed

(Act No. 365/2011 Coll., amending Act No. 262/2006 Coll., the Labour Code, as amended, and other related legislation)

  • The major and extensive amendment extends supportive application of the Civil Code to the Labour Code, amplifies the autonomy of the parties’ will, and changes the rules applicable to the invalidity of legal acts.
  • Employment has been redefined and rules applicable to employment agreements have changed – employment agreements, including any amendments thereto, must be made in writing;
  • A trial period can last no more than 3 consecutive months (6 months for managers);
  • The limit of work that can be carried out under a work agreement has been doubled;
  • The definite term of employment has been extended from 2 to 3 years and can be entered into even repeatedly;
  • Severance pay has been differentiated as per the length of employment;
  • New grounds for notice – especially gross breach of sickness leave requirements; and
  • Changes to overtime work, wages, reimbursement of costs, vacation and other issues.

3. TAX

Real Estate Tax News

(Act No. 212/2011 Coll., amending Act No. 338/1992 Coll., the Real Estate Tax Act, as amended)

  • The tax on land tracts with improved surface, i.e. land tracts reinforced with a horizontal surface structure (so-called “surface structure”), used for business.
  • The existing tax on buildings is to be replaced by tax on land with a special tax rate – CZK 1/m² for primary agricultural production, forestry and fishery, and CZK 5/m² for other businesses (the rates are lower than the previous tax on buildings).
  • The change results primarily from the case-law of the Supreme Administrative Court, which does not recognize improved areas as independent pieces of real estate; this applies especially to roads. As a result, a loss of tax revenue was imminent for municipalities.

Higher VAT

(Act No. 370/2011 Coll., amending Act No. 235/2004 Coll., the Value Added Tax Act, as amended, and other related legislation)

  • The lower VAT rate shall increase to 14% as of January 2011; both VAT rates should unify at the rate of 17.5% effective as of 1 January 2013.
  • For families with children, the VAT increase shall be offset by a tax benefit in the amount of CZK 1,800 per dependant child or, as the case may be, a tax bonus as per the Income Tax Act.
  • The Amendment imposes requirements for a corrective tax document and tax security.

4. REAL ESTATE AND THE CADASTRAL REGISTER

New Application for Registration Form

(Act No. 349/2011 Coll., amending Act No. 265/1992 Coll., on registrations of title and other rights to real estate, as amended, and Act No. 634/2004 Coll., the Administrative Fees Act, as amended)

  • Application forms for registration have been introduced, which constitutes a substantial change. However, the 2011 procedure shall apply for a temporary period of one year.
  • The list of mandatory schedules has changed – for instance, corporations are no longer required to attach an extract from the Commercial Register, or similar register, if the information is available on a remote access basis.
  • Rules applicable to remedies have changed: the lawsuit referred to in the Fifth Section of the Civil Procedure Code is to be the only remedy available.
  • The so-called dispute notes constitute a brand new institute. The land registration authority shall register a dispute note if a lawsuit is filed to determine that the real estate is owned by a party other than registered as the owner in the cadastral register, or that the act in law to be registered is null and void or cancelled.
  • The related amendment to the Act on Administrative Fees and Charges doubles the amount of the fee for filing an application for registration (the fee is CZK 1,000 per application).

5. CRIMINAL LIABILITY OF CORPORATIONS

Corporations in the Czech Republic to Incur Criminal Liability as of 2012

(Act No. 418/2011 Coll., on criminal liability of and proceedings against legal entities)

  • The new Act will impact legal entities that have their registered office, plant, branch office, assets, or that operate business, in the Czech Republic and then commit one or several listed crimes.
  • A legal entity shall be deemed to have committed a crime if a member of its statutory body, an individual authorized to act on its behalf, an individual in charge of and responsible for managing or supervising its operations, or an individual substantially controlling its management, including, under specific conditions, employees of such legal entity, commits the crime on its behalf, in its interest, or as part of its operations.
  • The criminal liability transfers to the legal successor.
  • Types of penalties: termination of the legal entity; forfeiture of assets, property, things or other property-related values; a fine, ban on operations; ban on bidding for public contracts, tenders and concession proceedings; ban on accepting aid and subsidies; making the judgment available to the public. The bans referred to above may be imposed for 1 – 20 years.

6. ADMINISTRATIVE COURT PROCEDURE

Protection against Illegal Tax Inspections Made Simpler

(Act No. 303/2011 Coll., amending Act No. 150/2002 Coll., the Code of Civil Procedure, as amended, and some other legislation)

  • The broad amendment renders administrative court proceedings simpler; principally it reduces the duration thereof.
  • Parties will be able to request that already-completed acts by administrative authorities, including tax inspections, be declared illegal.
  • Territorial jurisdiction of Regional Courts will change; it will newly depend on where the first instance administrative authority has its registered office, including the health and social security insurance agenda.
  • The deemed registered office of an administrative authority on the territory of jurisdiction has been introduced (this applies especially to Central Bohemia authorities with their registered offices in Prague – this shall primarily help avoid overburdening the Municipal Court in Prague with administrative lawsuits).
  • Preservation of deadlines shall no longer apply to lawsuits filed with the sued administrative authority.
  • Proceedings on cassation complaints shall not take place before the Supreme Administrative Court, including the filing thereof (however, if – as before – the complainant files the complaint with the court of first instance, the deadline shall be preserved).
  • The Supreme Administrative Court will have the power to decide on the merits of the case (i.e. it will have the power to overturn not only the decision by the Regional Court against which the complaint has been filed, but also overturn, or render insignificant, the decision of the administrative authority which was challenged in the proceedings before the Regional Court).
  • The decision-making on objections of bias has changed – it will newly be analogical to that applicable in the civil court proceedings.
  • Proceedings to terminate measures of a general nature – the merit-based jurisdiction has been transferred from the Supreme Administrative Court to the Regional Courts; the deadline for challenging measures of a general nature is to be 3 years.

7. ELECTRONIC COMMUNICATIONS

Digital Dividend

(Act No. 468/2011 Coll.,amending Act No. 127/2005 Coll., the Electronic Communications Act, Act No. 101/2000 Coll., the Personal Data Protection Act, and other legislation)

  • The extensive amendment transposes EU legislation. 
  • The amendment applies to the so-called digital dividend – allocation of frequencies in the bandwidth of 790–862 MHz (originally allocated to analogue television broadcasting) for the provision of access to high speed communications services, especially via mobile services.
  • The amendment covers the definition of the terms and expressions, targets, and principles of the regulation; the following issues have changed: the notification of and certificate on electronic communications business; administration of the radio spectrum and the use of frequencies; the contents of universal service; the requirements for agreements on the provision of publically available electronic communications services, and the connection to the public communications network and disclosure of information.
  • There are innovations in how the prices shall be charged and settled, including defect claims, the possibility of imposing the measure of a “functional separation” as an ultimate remedy, personal and other data protection, new delinquency rules, etc.

8. ENVIRONMENT AND MINING

Underground Structure and Facility Supervision Rules Have Changed

(Act No. 184/2011 Coll., amending Act No. 61/1988 Coll., the Mining Act, as amended)

  • The amendment shall improve the ultimate supervision of the safety of underground structures and facilities.
  • To avoid duplicate rules and procedures, underground facilities that also constitute water works shall no longer be subject to the Mining Act (they shall continue to be subject to the Water Act).
  • The state mining authorities shall maintain comprehensive records of underground facilities.
  • Mining inspectors will have the right to enter underground facilities; the amendment also imposes a reporting duty and the duty to ensure mine emergency and rescue services.
  • The Act sets forth the parameters for building new underground facilities, the institute of a mining construction designer, and their responsibilities.
  • Penalties have been stipulated in greater detail.
  • The Act ceases the operations of the District Mining Authority in Příbram.
  • Errors and insufficiencies in the rules applicable to handling explosives have been removed.

Method of Environmental Damage Risk Assessment Has Changed

(Governmental Regulation No. 295/2011 Coll., on the method of environmental damage risk assessment and detailed conditions on the funding)

  • The new governmental regulation implements the provisions of the Environmental Damage Avoidance and Removal Act.
  • There are two alternatives of how to assess the risks – screening, detailed assessment, plus the requirements thereon.
  • Basic environmental damage risk assessment is to suffice for operators registered with the EMAS and operators who have an environmental management system certified under ISO 14 000.
  • The regulation defines the criteria for reviewing the adequacy of funds (whether the available funds are adequate to the assessed risk) and details for the funding of preventative and remedial measures.

9. SOCIAL AND EMPLOYMENT ISSUES

Social Security and Related Changes

(Act No. 364/2011 Coll., amending certain acts in connection with economic measures falling within the powers of the Ministry of Labour and Social Affairs)

  • The Act is practically identical to Act No. 347/2010 Coll., which was abolished by the Constitutional Court as of 31 December 2011. The most important deviation is the compensation for unpaid severance pay upon the termination of employment where there is no right to unemployment benefits as well.
  • As far as sickness insurance is concerned, the daily sickness allowance amounts to 60% of the assessment base. The right to the sickness allowance is not established before the 22nd calendar day of the sickness leave. In the first 21 days of the sickness leave, the sick employee shall receive wage compensation in the amount of 60% of his/her average salary. These rules should apply until 2013. At the same time, the deduction of one half of the wage compensation for employers has been cancelled (small businesses with up to 25 employees are subject to slightly different rules).
  • Social security insurance and contribution to the state employment policy – the rate continues to amount to 25% for employers (of which sickness insurance amounts to 2.3%, pension insurance 21.5%, and the contribution to the state employment policy to 1.2%) and 6.5% for employees. Private businesses (private proprietors) will be subject to a higher sickness insurance rate – raised from 1.4% to 2.3%. The base for calculating the sickness and social security insurance is subject to a cap in the amount of 48 times the average salary. Health insurance rates remain at the 2011 level and the maximum base for the payment of insurance premiums shall continue to be 72 times the average salary.
  • Pursuant to the Labour Code, it shall continue that agreements on work must be made in writing.

Changes to Sickness and Pension Insurance Adopted at the End of 2011

(Act No. 470/2011 Coll., amending Act No. 187/2006 Coll., the Sickness Insurance Act; Act No. 155/1995 Coll., the Pension Sickness Insurance Act; Act No. 586/1992 Coll., the Income Tax Act; and other legislation)

  • The most recent amendment to the Sickness Insurance Act expands and unifies the group of individuals subject to the sickness and pension insurance in the category of employees – such as to shareholders and executives of limited liability companies and to the members of collective bodies of joint-stock companies.
  • Further changes apply to the terms and conditions for the entitlement to receive sickness allowances, the calculation and payment thereof, the duties of employers relative to the sickness insurance, and rules applicable to delinquency.

New Definition of Illegal Work

(Act No. 367/2011 Coll., amending Act No. 435/2004 Coll., the Employment Act, as amended, and other related legislation)

  • Dependant work performed outside employment shall be newly deemed to constitute illegal work.
  • The changes will have an impact on headhunting and the employment of handicapped and retrained individuals.
  • Labour Inspectorates are to be the authorities in charge of and responsible for employment-related inspections.
  • Penalties (fines for minor offences) have been increased to facilitate punishment.
  • The failure to discharge the duties imposed in Section 87 constitutes a minor offence.

Strict Punishment for Employment of Illegal Aliens from Third Countries

(Act No. 1/2012 Coll., amending Act No. 435/2004 Coll., the Employment Act, as amended, and other related legislation)

  • In addition to discharging their reporting duties regarding the employment of aliens, employers will be required to maintain documents on residential permits for such employees for 3 years following the termination of their employment.
  • Fines for the failure to discharge one’s duties in this respect have been added.
  • Principal contractors or, where applicable, other agents are required to guarantee the payment of the fines imposed on subcontractors, provided that they were aware of the illegal employment of the alien.
  • Fined employers shall be stripped of the right to receive subsidies or state aid for three years.
  • Pursuant to the simultaneous amendment to the Public Contract Act, bidders who were fined for the failure to obey the ban on illegal employment of aliens shall be deemed to have failed to comply with the qualification requirements.

10. LOTTERIES

Municipalities to Receive More Powers to Regulate Gambling

(Act No. 300/2011 Coll., amending Act No. 202/1990 Coll., the Lottery Act, as amended, and other related legislation and the draft Act on the amendment to legislation related to the establishment of a single collection point and other changes to tax and insurance legislation – the tax reform)

  • The rules applicable to interactive video lottery terminals (IVLT).
  • The amendment expands the powers of municipalities to regulate or, as the case may be, impose an overall ban on card games, casinos, lotteries and similar games played via technical devices operated by the gambler, IVLTs, lotteries and other similar games of fortune subject to the license granted as per Section 50(3); as regards already permitted games, the municipalities shall be free to use the said powers following three years after the effective date of the amendment.
  • Fees for IVLTs and local gambling systems have been added.
  • The amendment applies to other types of betting games – card tournaments.
  • The requirements for operators have been made stricter – by means of expanding the types of games that are subject to the minimum required capital of CZK 100 million; in addition, the capital must be paid up solely by cash contributions. The transparency of the ownership structure has been increased. Not only lottery operators but also their owners which are joint-stock companies cannot have bearer shares.
  • The amendment has also substantially increased the upper threshold of fines, such as those for the unauthorized operation of games falling within the jurisdiction of the Ministry of Finance, from CZK 0.5 million to CZK 10 million.
  • Rules have been established for local lottery systems.
  • The legal rules applicable to lotteries will be subject to the tax reform as well (Act No. 458/2011 Coll., on the amendment to legislation related to the establishment of a single collection point and other changes to tax and insurance legislation), especially the 4th Part of the Act, which took effect on 1 January 2012. The original levy on revenue shall be replaced by a levy on lotteries and similar games which, by nature, is close to tax, including the duty to pay quarterly advances. Tax authorities are the bodies in charge of administering the levy. Levy returns have to be filed within two months following the expiry of the levy period. The levy rate is uniform in the amount of 20% for all types of lotteries and games. Regarding slot machines and other technical devices, 80% and 20% of the levy go to the municipality and the state budget, respectively. The breakdown for other types of lotteries is 30% to the municipality and 70% to the state budget.

11. CONSTRUCTION SAVING SCHEMES

State Support of Construction Saving Schemes Has Been Reduced

(Act No. 353/2011 Coll., amending Act No. 96/1993 Coll., on construction saving schemes and the state support thereof and on supplementing the Czech National Council’s Act No. 586/1992 Coll., the Income Tax Act, as amended by Czech National Council’s Act No. 35/1993 Coll., as amended, and Act No. 586/1992 Coll., the Income Tax Act, as amended)

  • The Act referred to above is a resubmitted bill approved last year as Act No. 348/2010 Coll. in the state of legislative emergency which was challenged by the Constitutional Court. The 50% tax on the state support has been understandably omitted since it was abolished by the Constitutional Court. The wording of both bills is otherwise identical.
  • The state support of construction saving schemes has been reduced to 10%, i.e. no more than CZK 2,000. The support is exempt from income tax, while the interest is subject to a 15% withholding tax.

12. TRANSPORT

Time Fees and Tolls to Increase

(Governmental Regulation No. 354/2011 Coll., amending Governmental Regulation No. 484/2006 Coll., on the amount of time fees and toll rates for using public roads, as amended)

  • The Governmental Regulation has increased (as of 1 January 2012) both time fees and toll rates for vehicles over 3.5 tonnes.
  • The increase shall not apply to categories M2 and M3 (buses) and vehicles of the emission class V and higher, which continue to be subject to the existing rates. The increase for emission classes 0 – IV shall amount to 25%. The Friday 3 – 9 pm rates continue to be differentiated.

13. EXPERTS AND INTERPRETERS

Experts Subject to Stricter Rules

(Act No. 444/2011 Coll., amending Act No. 36/1967 Coll., on experts and interpreters)

  • Greater supervisory authority is to be established to supervise experts and interpreters to ensure the results of their activities are more reliable.
  • Experts and interpreters are to be subject to a new clean criminal record requirement (no conviction for criminal intent or criminal negligence associated with their activities).
  • Experts and interpreters are to be bound by the confidentiality duty even after they have discontinued their activities.
  • The rules applicable to the suspension or termination of the right to carry out the activities of an expert/interpreter have changed.
  • Minor offences have been defined.

14. CRIMINAL LAW

Registration of Convictions in Another EU Member State in the Criminal Register

(Act No. 357/2011 Coll., amending Act No. 269/1994 Coll., Criminal Register Act, as amended, and some other legislation)

  • Conviction in another EU Member State is to be newly perceived as conviction by a Czech court subject to, however, punishability in both countries, which is to be reviewed by authorities involved in the criminal proceedings (the police, prosecutors, courts enforced).
  • The amendment will further allow for an “automatic” (no prior review of the punishability in each country) registration of the information about the Czech citizen’s conviction in another EU Member State in the Criminal Register. However, the notified decision will only be available in copies of records, not in the extracts therefrom.

15. CHANGES TO THE CRIMINAL PROCEDURE CODE

(Act No. 459/2011 Coll., amending Act No. 141/1961 Coll., as amended)

  • The frequency of detention review has been reduced – the charged parties can reapply for review no sooner than 30 days after the previous decision takes legal force.
  • Protests by state attorneys against a release from detention upon a freeing judgment shall no longer have a suspensory effect.
  • Charged parties will have the right to personal interrogation in custody proceedings.
  • Defence counsel can no longer be waived in certain particular cases of necessary defence.
  • The amendment has introduced some further restrictions for how to justify decisions and grants approval of the use of videoconferences as a means of interrogation.
  • The rules for wiretapping have changed, including extended admissibility, to the level identical to the one applicable prior to the new Criminal Code (wiretapping will be admissible for crimes subject to the upper level of the penalty of imprisonment of at least 8 years, and for crimes of corruption and other listed crimes); similar rules shall apply to using an agent.
  • Rules regarding search warrants have changed.
  • Reduced pre-trial proceedings will be admissible for crimes subject to the penalty of imprisonment of up to five years.

ACTS TO TAKE EFFECT IN THE COURSE OF 2012

16. ARBITRATION AND CONSUMERS

Greater Consumer Protection in Arbitration Proceedings (as of 1 April 2012)

(Amendment to Act No. 216/1994 Coll., the Arbitration Act)

  • The amendment is to introduce substantial changes for arbitration in general and particular changes for consumer disputes.
  • General changes: the application of arbitration is to extend to property-related disputes where so permitted by special law (such as electronic communications, where the administrative authority is in charge of decision making); there will be a new alternative allowing the arbitrator to be appointed by a third party; an arbitrator’s clean criminal record is to be deemed to be evidence of his/her not having been convicted of any crime; the definition of the permanent arbitration court is to be rendered stricter – the only permanent arbitration courts are those established or admitted by a special law; in addition, there is a ban on using a misleading name (giving rise to the notion that a non-permanent arbitration court is a permanent one).
  • Consumer disputes: arbitration clauses will be allowed to exist as an independent document only and will be subject to mandatory requirements. Suppliers will have a prior duty to instruct consumers as to the consequences of entering into the arbitration agreement; the arbitrator will have to be an individual with a university degree registered in a list administered by the Ministry of Justice. There will be a new mandatory justification of the award and the instruction on how to have it reviewed. If the consumer files a petition with the court to cancel and terminate the arbitration award, the court will review some particulars ex officio, including the grounds for postponing the enforcement; the grounds for suspending a distraint procedure shall expand even if the deadline for review has expired with no action.

17. HEALTH CARE REFORM (AS OF 1 APRIL 2012)

Act No. 369/2011 Coll.:

  • Act No. 369/2011 Coll. amending Act No. 48/1997 Coll., the Public Health Insurance Act amending and supplementing some other acts, as amended, and some further legislation.
  • The amendment features terminological and similar changes necessary to ensure that the Act is in line with the draft bill on health care services. Section 13(2) defines reimbursed services; Section 18 et seq. defines the terms and conditions for the provision thereof; Section 32(6) mitigates the ban on granting bonuses and discounts in pharmacies. New Schedules 1 – 3 apply to medical and therapeutic services, pharmaceuticals, and health care means and devices. Legislation applicable to health insurers is to be amended.

Health Care Services Act (No. 372/2011 Coll.)

  • New code applicable to and governing the basic terms and conditions for the provision of health care services.
  • Defines the position of providers of health care services and the state and the rights and obligations of patients; it is to introduce new terminology.
  • The Act distinguishes between health care and health care services; health care facilities themselves will not enjoy legal personality as per the new definition. Instead, the providers of health care services will be the bearers of the legal personality.
  • There are rules applicable to how to file and deal with complaints against the procedure applied in providing health care services.
  • Re-registration is required for both the existing private and state health care facilities.

Act No. 373/2011 Coll., on specific health care services and Act No. 374/2011 Coll., on health care rescue and emergency services

  • Independent rules apply both to so-called specific health care services (such as assisted reproduction, sterilization, sex reassignment, etc.) and the terms and conditions for the provision of health care rescue and emergency services to persons suffering from a major health disease or to persons in direct threat of death.

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