OSVČ vs. s.r.o.

Switching from OSVČ to s.r.o.: when and how to do it

Switching from a trade licence to a limited liability company (s.r.o.) makes sense when your profit grows, when the liability risk increases or when partners come on board. There is no "magic number" — as a rough guide, an s.r.o. starts to pay off at a profit above ~1.5–2 million Kč per year or when you reinvest the profit back into the company. You can perfectly well start as a self-employed person (OSVČ) and set up an s.r.o. later.

roughly above ~1.5–2 million Kč profit limited liability with an s.r.o. effective taxation of profit ≈ 32.85% you can switch at any time

Is an s.r.o. worth it for me? Cost of setting up an s.r.o.

Signals that it is time to switch to an s.r.o.

Your profit is growing above ~1.5–2 million Kč per year at a lower profit, OSVČ (especially with the flat-rate tax or lump-sum expense allowances) tends to be simpler and often cheaper too
You operate in a field with a high liability risk large liabilities, supplier credit, the risk of damage or employees — an OSVČ is liable with their entire personal assets, whereas a shareholder of an s.r.o. is in principle not liable once the contribution has been paid up (§ 132 et seq. of the Business Corporations Act, ZOK)
You are taking on shareholders or partners an s.r.o. allows for clear shares, articles of association and transferability — a trade licence is tied to a single person
You want to reinvest the profit into the company rather than pay it out undistributed profit stays in the company taxed at "only" 21% corporate income tax, with no withholding tax and no insurance contributions
You need a better image and large B2B contracts an s.r.o. is perceived as a more solid partner in tenders, by banks and by investors
You plan to sell the business one day a share in an s.r.o. can be transferred or sold; a trade licence cannot be sold, as it is inseparably bound to the person

Indicative effective taxation: s.r.o. vs. OSVČ

Form and method of taxation	Rate / effect	Note
OSVČ — personal income tax	15% / 23%	23% only on the part of the tax base above 1 762 812 Kč/year (36× the average wage); plus social and health insurance contributions on the profit
s.r.o. — corporate income tax on profit	21%	paid by the company; undistributed (reinvested) profit is not further taxed by withholding tax or insurance contributions
s.r.o. — payout of a profit share to a shareholder (individual)	15% withholding tax	the second level of taxation, only upon payout (§ 36 of the Income Tax Act, ZDP); no insurance contributions are paid on a profit share
s.r.o. — total taxation of distributed profit	≈ 32.85%	as a model: from 100 Kč of profit → 21% corporate income tax → from 79 Kč a further 15% withholding tax → ~67.15 Kč in hand

Model calculation for illustration. The specific advantage depends on the amount of profit, tax credits, the ratio of payout vs. reinvestment and the OSVČ regime (flat-rate tax / lump-sum expense allowances). For an OSVČ, social (29.2%) and health (13.5%) insurance contributions on the assessment base (55% of profit) are added to the 15% tax. For guidance on minimum OSVČ advance payments in 2026: social 5 720 Kč/month (January–June), 5 005 Kč/month after the amendment from July 2026, health 3 306 Kč/month throughout the year; flat-rate tax, band 1: 9 984 Kč/month, approx. 9 162 Kč/month after the amendment. Source: Income Tax Act No. 586/1992 Coll. (§ 21, § 36), ČSSZ (Czech Social Security Administration), VZP, the Tax Administration (Finanční správa) — verified for 2026.

You can perfectly well start as an OSVČ and set up an s.r.o. later

There is no need to make an "all-or-nothing" decision right at the start. Many entrepreneurs start cheaply and quickly as an OSVČ and only once the profit, the risk or the number of partners grows do they set up an s.r.o. and transfer their business into it. Because this is a YMYL decision with a real tax impact, we recommend doing a calculation with a tax adviser before switching, or via an online calculator — it will calculate the net income in both forms and the break-even point according to your ratio of income, expenses and how much money you actually need to pay out. You will find a detailed comparison on the OSVČ vs. s.r.o. page and sole trader taxes on OSVČ Taxes.

Frequently asked questions about switching from OSVČ to s.r.o.

From what level of profit is it worth switching from OSVČ to s.r.o.?

There is no single magic number. As a rough guide, an s.r.o. starts to pay off at a profit above roughly 1.5–2 million Kč per year, especially when you reinvest the profit into the company. Up to approximately 1–1.5 million Kč of profit, OSVČ (often with the flat-rate tax or lump-sum expense allowances) tends to be simpler and usually cheaper in terms of both contributions and administration. However, the ratio of income to expenses, the liability risk, the number of partners and how much money you actually need to pay out also play a role — a calculation with an adviser is worthwhile.

How do you switch from OSVČ to s.r.o. step by step?

A trade licence does not automatically turn into an s.r.o. — an s.r.o. is set up anew. You draw up articles of association at a notary (a notarial deed is mandatory), pay up the registered capital (a minimum of 1 Kč under § 142 ZOK), obtain a trade authorisation for the company and register the s.r.o. in the Commercial Register. The whole thing typically takes 2–3 weeks and costs roughly 6 000–11 000 Kč. You then transfer the business into the company, and you can suspend or cancel the original OSVČ trade licence (both acts are free of charge). The exact procedure and costs are described on the Cost of setting up an s.r.o. page.

What are the tax impacts of switching to an s.r.o.?

Instead of personal income tax (15% / 23%), an s.r.o. pays corporate income tax of 21% on profit. When a profit share is paid out to a shareholder who is an individual, an additional 15% withholding tax is deducted, so the total taxation of the distributed profit comes to ≈ 32.85% as a model. However, if you leave the profit in the company and reinvest it, you pay neither the second level of taxation (the withholding tax) nor insurance contributions on it. In addition, an s.r.o. keeps mandatory double-entry bookkeeping, so factor in the cost of an accountant too.

Can I have an OSVČ and an s.r.o. at the same time?

Yes. The law does not prohibit being both an OSVČ (a sole trader) and a shareholder or managing director of an s.r.o. at the same time. In practice, this is done, for example, by running part of the activity through the trade licence and part through the company. However, you then keep track of taxes, insurance contributions and payouts separately for each form, so it is advisable to discuss the set-up with a tax adviser.

Is a shareholder of an s.r.o. liable for the company's debts with their own assets?

Once they have paid up their contribution, a shareholder of an s.r.o. is in principle not liable for the company's debts with their personal assets (§ 132 et seq. ZOK) — this is the main advantage over an OSVČ, who is liable with their entire personal assets. Beware of the exceptions: a managing director may be liable for breaching the duty of due managerial care or in the event of the company's insolvency, and banks often require personal guarantees from the managing director or shareholder for loans, which partially neutralises the advantage of limited liability in practice.