What Is a Trade and What Is Not (Section 2 and Section 3)

Before you even arrange a trade licence, it is worth finding out whether your activity is a trade at all. The Trade Licensing Act precisely defines what it considers a trade – and in the very next section it lists a number of activities that do not fall under it. If you do something from the second group, you do not need any trade licence (and often cannot even obtain one).

What the Act Says

The key definition is found in Section 2 of Act No. 455/1991 Coll.:

"A trade is a systematic activity carried out independently, in one's own name, on one's own responsibility, for the purpose of making a profit and under the conditions laid down by this Act."

This single sentence yields five elements that must be met simultaneously: being systematic, being independent, acting in one's own name, one's own responsibility and the intention to make a profit.

The immediately following Section 3 delimits the opposite side – what is not a trade. It divides this into three subsections:

• Section 3(1) excludes, for example, activities reserved by law to the state or assigned to a legal person, "the exploitation of the results of intellectual creative activity protected by special acts by their originators or authors" (authorial and creative activity), the exercise of collective management of copyright and related rights, the restoration of cultural monuments that are works of fine art or works of artistic craftsmanship, and the carrying out of archaeological research.
• Section 3(2) exempts, "within the scope of special acts", the activity of a number of natural persons – liberal and regulated professions. These include, among others, doctors, dentists, pharmacists and non-medical healthcare professionals, natural healers, veterinarians, attorneys, notaries, patent attorneys and judicial enforcement officers, court interpreters and translators, auditors and tax advisers, authorised architects and engineers performing their activity as independent professionals, authorised inspectors or registered mediators.
• Section 3(3) exempts further areas regulated by special regulations – for example the activity of banks and financial-market institutions, the operation of games of chance, mining activity, energy operations subject to a licence, agriculture, maritime transport, the research and manufacture of medicinal products, education, expert-witness activity and also the renting out of real estate, flats and non-residential premises.

For completeness: the following Section 4 has been repealed.

Interpretation and Explanation

Let us interpret the five elements of Section 2 in practical terms, because it is precisely on these that it depends whether you are carrying out business "as a trade":

• Being systematic – the activity should be repeated or more lasting, not entirely incidental. This does not mean being continuous: a seasonal craft or a repeated commission meets the requirement of a systematic activity. A genuinely one-off and isolated act does not, in itself, usually establish a trade.
• Being independent – you decide how, where and when you do the work. This is what distinguishes a trade from employment, where you act according to the employer's instructions. The hidden performance of dependent work under the guise of a trade (the so-called "Švarcsystém") is therefore risky.
• In one's own name – you act under your own name (for a natural person usually the first name and surname), not in someone else's name.
• On one's own responsibility – you bear the business risk as well as responsibility for the outcome towards customers and third parties.
• For the purpose of making a profit – it is sufficient that you carry out the activity with the intention of profit; it is irrelevant whether you actually achieve a profit. By contrast, a purely non-profit or hobby activity does not meet this element.

The purpose of Section 3 is different. The state regulates a number of professions and fields more strictly and separately – through professional chambers, licences or special registers. That is why it exempts them from the general trade regime. For liberal professions (Section 3(2)) the wording "within the scope of special acts" is important: what is exempt is the professional activity governed by the relevant act, not necessarily every accompanying activity of the person concerned.

What to watch out for: classification under Section 3 does not mean "without rules". On the contrary – these activities have their own, often more demanding conditions (registration with a chamber, a licence from a regulator, registration of an agricultural entrepreneur). Exclusion from the Trade Licensing Act therefore does not mean freedom, but a different legal regime.

Practical Implications and Examples

• A freelance programmer repeatedly invoices clients in her own name, organises the work herself and bears the risk. She meets all five elements of Section 2 – this is a trade (an unqualified, free trade).
• An attorney provides legal services. He falls under Section 3(2)(c), is governed by the Advocacy Act and the Czech Bar Association – he does not need a trade licence, nor would one be issued to him for this activity.
• A writer or musician creating authorial works exploits the results of their own creative activity protected by the Copyright Act – under Section 3(1)(b) this is not a trade. Fees from authorial work are therefore dealt with outside the trade regime.
• The owner of a flat who rents it out is not carrying out business as a trade – the renting out of real estate, flats and non-residential premises is expressly exempted in Section 3(3)(ah). However, as soon as he added hotel or accommodation services, this would already be a different situation that needs to be assessed separately.
• A working farmer is registered as an agricultural entrepreneur, not as a trade-licence holder (Section 3(3)(e)). Likewise, the sale of unprocessed products from one's own small-scale growing and breeding activity is not a trade (letter f).
• A doctor running a practice provides healthcare services under special acts (Section 3(2)(a)) – outside the Trade Licensing Act.

Borderline cases arise when one person combines an exempt activity with an ordinary one (for example an architect who, alongside projects, also sells building materials). Only the part covered by the special act is exempt; the Trade Licensing Act may apply to the rest of the business.

Related Topics

If you have verified that your activity is a trade, follow up with practical steps. In the article How to Start a Trade you will find the entire procedure for notifying the Trade Licensing Office, the necessary documents, as well as the registrations with the tax office, the social security administration and the health insurance company.

Look up specific fields in the catalogue of trades – you will find out whether your field is among the unqualified (free), craft, regulated or licensed (concession) trades and what conditions are attached to it. The topic of Sections 2 and 3 is followed up in particular by explanations of the types of trades and of the general and special conditions for operating a trade, which we cover in separate articles.

For the exact wording, we always recommend consulting Act No. 455/1991 Coll. directly; this article serves for orientation and does not replace an individual legal assessment.