In 2018, the OECD published guidelines on due diligence in business operations. Entrepreneurs are obliged to take responsible actions to identify, prevent, mitigate, and account for the effects of their economic activities in the supply chain and other business relationships. They should combine policies and management systems to effectively respond to real and potential threats related to their activities. Due diligence is also a requirement for Polish entrepreneurs, subject to sanctions provided for in the Criminal Fiscal Code and tax laws. Below, we have prepared a practical guide on how to verify and check the reliability of a Czech entrepreneur to protect yourself from liability for failing due diligence in choosing a contractor and your company from entering into cooperation with an unreliable partner.
Due diligence in contractor verification
In today’s times, starting a company is very easy. In many countries, you can do it without leaving your home, via the Internet. Therefore, one can never be sure who is really behind the created name and entry in the register until it is checked. Verification involves the commonly used practices in economic intelligence, primarily involving checking the credibility and current documentation of the contractor, including the National Court Register (KRS), Tax Identification Number (NIP), REGON, and the permits and certificates required for specific types of activities.
Verification can be done by obtaining information from the relevant individuals and institutions, such as registry courts, Social Insurance Institution (ZUS), tax authorities, or national and international chambers of commerce. It is worth delving into the history of the business and its owners, including reviews of the company, by searching the Internet, asking other entrepreneurs, and the contractor’s direct inquiries. It should be remembered that failure to exercise due diligence in selecting a contractor carries legal consequences, such as being accused of knowingly participating in irregularities and the resulting tax and legal sanctions.
Business cooperation with the Czech Republic
The Czech Republic has a strongly industrialized and open economy with a stable position in financial markets. Economic relations with Poland since May 1, 2004, when both countries joined the EU, are primarily governed by EU regulations. In addition, in bilateral relations, the following are essential: the Agreement between the Government of the Republic of Poland and the Government of the Czech Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, signed on September 13, 2011, in Warsaw (entered into force on January 1, 2013), and the Agreement between the Government of the Republic of Poland and the Government of the Czech Republic on the Promotion and Mutual Protection of Investments, signed on July 16, 1993, in Prague.
The Czech Republic is one of Poland’s most important economic partners. In 2021, the Czech Republic was the second-largest importer of Polish goods and services and the seventh-largest exporter to Poland. Bilateral trade turnover reached a value of 26 billion euros at that time – 17 billion euros of exports from Poland and 9 billion euros of imports from the Czech Republic. Poland was the third-largest exporter to the Czech market and the third-largest recipient of Czech products. The cumulative value of Polish direct investments in the Czech Republic at the end of 2020 exceeded 2.6 billion euros, and according to data from the Central Statistical Office (GUS), there were 700 entities with Czech capital in Poland at that time. Due to the membership of both countries in the EU, there are no barriers to the exchange of goods and services between them.
National and EU sanctions
For over a year now, Polish companies have been even more cautious when it comes to cooperation with foreign, including Czech, business partners. In connection with the outbreak of the war in Ukraine, the European Union imposed 11 packages of sanctions on Russia on June 23, 2023. Poland also imposes its additional sanctions. These include important individuals in Russia, as well as companies from Russia and Belarus. Trade in goods and services with Russian and Belarusian companies is prohibited. Polish entrepreneurs face a financial penalty of up to 20 million PLN and even up to 15 years of imprisonment for violating this ban. However, Russian and Belarusian entrepreneurs have learned to bypass international bans. They use, among other things, complicated holding structures established in other countries, where it is difficult to detect the real ownership structure.
Detailed information on the type of EU sanctions on economic transactions with Belarus and Russia can be found on the European Council’s website: https://www.consilium.europa.eu/. The Official Journal of the EU at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A02014R0269-20220721 contains a list of individuals and entities subject to sanctions. The Polish Ministry of Internal Affairs and Administration also maintains an up-to-date register of entities subject to sanctions, where you can check the contractor, their connections, the reasons for inclusion in the register, and the applied sanctions: https://www.gov.pl/web/mswia/lista-osob-i-podmiotow-objetych-sankcjami.
In the first step of checking a Czech company, you can see if it is listed in any of the above-mentioned registers. Another source of useful information is Regulation (EU) 2022/576 of April 8, 2022, amending Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia’s destabilizing actions in Ukraine.
Economic intelligence, or how to check a Czech contractor?
The verification of a contractor can be entrusted to a professional economic intelligence agency that deals with such orders on a daily basis. A private detective in Warsaw, Poznań, Wrocław, or other cities will know how to obtain the necessary verifying information about the current or future contractor.
The most important way to verify a Czech contractor and their potential connections with Belarus or Russia is to determine the actual beneficiary and then check if they are on the sanctions list maintained by the Polish Ministry of Internal Affairs and Administration. These determinations can be made in the Central Register of Ultimate Beneficial Owners kept by the Minister of Finance: https://crbr.podatki.gov.pl/adcrbr/#/wyszukaj.
A publicly accessible way to gather information about a contractor is to search the resources of the Internet. Verify the company, check if it has a website, what opinions there are about it, and perhaps you will come across some publication about it. If you do not want to do this yourself for certainty, you can entrust it to a detective agency specializing in professional economic intelligence. There are many more sources of information than just the World Wide Web. You can, for example, contact the Polish Embassy in Prague with a specific query about an entity or inquire if there have been complaints from other entrepreneurs, or perhaps according to the knowledge of the diplomatic mission, the Czech contractor has a bad reputation? Similar information can be provided by Polish-Czech chambers of commerce.
Direct inquiry to the contractor
In case of difficulties in determining the ownership structure of a business partner using available registers, another method of verification within economic intelligence activities is to directly contact them to confirm who the ultimate beneficial owner is. Of course, to corroborate the response, you can ask the Czech entrepreneur to provide documents confirming their declarations.
Polish and EU registers
In the Public Information Bulletin of the Ministry of Entrepreneurship and Technology, as the minister responsible for the economy, maintains a register of foreign entrepreneurs’ representations. If we find our contractor’s representation in this register, we can assume that they still exist and conduct business.
Another such register where you can check a contractor is the European VAT taxpayer register and the EORI register. Companies and individuals wishing to conduct business in the European Union must use an EORI number. This is an identification number required in all customs procedures. The VAT Information Exchange System (VIES), operated by the European Commission, allows checking whether a given entity is registered as performing intra-Community transactions. This is essential, among other things, to apply a 0% VAT rate to a specific transaction. If VIES does not confirm the registration of the contractor, you can request verification from the tax office of the country where it is headquartered. It is also worth checking whether the company has the necessary permits and certificates, if required in a particular country.
The Register of Insolvent Debtors allows you to check whether a particular contractor is listed on it. There are also economic information agencies that have detailed information about business activities. BIK, or the Credit Information Bureau, established by the Polish Bank Association, collects data on the credit history of bank customers, credit unions, and also para-banking loan companies.
Czech company registers
The Czech Ministry of Justice maintains a public register of business activities. More specifically, the register is maintained by registry courts, and it includes: associations, trade unions, international trade unions, employers’ organizations, individuals conducting business activities, partnership companies, limited partnerships, limited liability companies, joint-stock companies, cooperatives, state-owned enterprises, spin-off enterprises, non-profit organizations, foundations, funds, institutions, organizations funded by the state budget, co-ownership associations, European economic interest groups, entities owned by foreign entities, European cooperatives, European companies.
The register provides information such as the company name, registered office, type of activity, legal form, identification number, as well as the name and address of the authorized representative (proxy) of the company – or the company and the address of the registered office – are revealed. The register is available to the general public free of charge through the portal https://www.justice.cz/ or directly through the search engine https://or.justice.cz/ias/ui/rejstrik. Access to the register is unlimited. Anyone can use it and obtain extracts or extracts.
ARES is a database administered by the Czech Ministry of Finance and is an information system that allows you to search for information about economic entities registered in the Czech Republic. This database offers a search by company name or individual to identify information registered in administrative institutions in the country: http://wwwinfo.mfcr.cz/ares/ares_es.html.en.
FIRMY.CZ – this website is a directory of verified companies in the Czech Republic. The list of companies is regularly updated. Next to the companies, you can find institutions, current contacts, and user opinions about the companies. This site offers basic information about the company and links to the company’s websites: https://www.firmy.cz/.
KURZY.CZ – this website offers searches in the trade and business register. CR allows you to find any company, person, or other entity in public registers. You can search the company register by company identifier, name, persons involved, and registered addresses. BR provides basic information about the company – its registered office, statutory persons, and more. Additionally, BR provides access to a review of connections between companies and individuals with a time analysis of company and individual connections in the trade register: https://rejstrik-firem.kurzy.cz/.
It’s better to thoroughly check a contractor
Before making a transaction or entering into cooperation with a Czech contractor, it’s better to conduct economic intelligence and thoroughly verify them, especially to ensure they are not connected to Belarus or Russia. Violating bans on specific types of transactions with these countries and certain individuals and companies can result in a financial penalty. The penalty can amount to up to 20 million PLN and from 3 to 15 years of imprisonment. Additionally, due diligence in selecting a contractor is always a requirement when conducting business and is imposed on entrepreneurs as professional market participants.
Do you now know how to check a company from the Czech Republic? If not, or if you need more detailed information, we can help. Feel free to contact us.