In our practice, we often come across the question under what conditions a statutory executive, who is a third country national, can enter the territory of the Czech Republic and perform his/her function. The following article provides an answer to this question, as well as a summary of risks related to this issue from the perspective of Czech law.
Third-country nationals need a visa to enter the Schengen zone, unless they are specifically exempt from this requirement. The list of countries whose nationals are exempt from visa obligation was determined by Regulation (EU) 2018/1806 of the European Parliament and of the Council and includes approximately 60 countries to date. Moreover, if a foreigner resides in a Schengen state, which has a separate bilateral visa-free agreement with his/her country of origin, he/she can stay above the framework of the regulation under certain conditions. Generally, the exemption from the visa obligation does not relate to third-country nationals who want to perform profitable or gainful activities on the Czech territory, including statutory executives of corporations.
What are the conditions for the entry of statutory executives who are third-country nationals into the territory of the Czech Republic? The record of statutory executives in the Register of Companies does not require their personal presence on the Czech territory; the record can also be made when the foreign national is on the Czech territory based on visa-free travel. However, the statutory executive must be careful whether he/she enters the territory for the purpose of gainful activities or not. If the statutory executive, who is a foreign national, travels to the Czech Republic exclusively as a tourist, the mere existence of the entitlement to act as a statutory executive does not constitute a breach of visa-free travel.
The actual performance of activities as a statutory executive, however, performance constitutes a breach of visa-free travel and of the Act on the Residence of Foreigners. Pursuant to the case law of Czech courts, gainful activities also include activities from which the foreign national has no direct gain or other benefit. The important fact is that the activities of the business corporation on behalf of which the foreigner acts result in the generation of profit, even if it were in the future.
Even making preliminary arrangements on behalf of the business corporation related to the conclusion of contracts or cooperation with business partners, or other, albeit non-binding, aspects of business activities would probably be considered activities resulting in the generation of future profits. In this context, the Supreme Administrative Court stated in its judgements that business activities include not only activities that generate profit immediately, but also those leading to the generation of profit in the future.
A provable performance of activities as statutory executive as part of visa-free travel and the intention to perform gainful activities upon entering the Czech territory may result in sanctions in the form of administrative expulsion, i.e. the prohibition of entering EU member states for a designated period of time.
The first part of this article was dedicated to statutory executives and the performance of their function. In the following part, we will focus on the situation where the statutory executive does not perform only obligations related to his/her authorisation, but also other activities, seen from the perspective of the Act on the Residence of Foreigners, as well as the Employment Act.
In the case of a statutory executive, it is namely important to consider whether, in addition to his/her position, this person also provides other activities for the business entity. In this regard, Section 89 of the Employment Act defines the term “employment” and extends it in the case of a position of an associate, statutory body or member of the statutory body of a business entity.
The acts specifically state that if a statutory executive fulfils usual tasks on behalf of the company, arising from its business activities, he/she must have a work permit for this purpose.
What activities are considered to be performance of such usual tasks? Pursuant to the case law, these are activities that would otherwise be performed as part of employment. However, we would like to emphasise that the exercise of the statutory executive’s powers that lie in acting on behalf of the company, its business management and making strategic decisions does not fall within this range.
The aim of the lawmaker was to prevent circumventing the act through these forms of activities (by fulfilling tasks arising from the legal entity’s business activities) and performing work without an employment permit. It is not relevant whether the foreigner performs usual tasks arising from the legal entity’s activities or whether he/she performs work beyond that scope. This is how the state intends to prevent the formation of many business corporations where foreigners would work without a permit and the state would thus lose control over the regulation of the labour market. Therefore, this issue is reflected in the Employment Act, as well as the Act on the Residence of Foreigners and the applicable case law. Both these regulations imply the obligation for the statutory executive of a business entity to also have a work permit to perform activities that fall within the company’s business activities.
- While entering the Czech Republic as part of visa-free travel, statutory executives who are third country nationals should always bear in mind that they are entering the country for non-gainful activities. Travels of statutory executives for the purpose of performing gainful activities have several immigration-related solutions.
- On the other hand, foreigners who were granted a residence permit for business purposes on the Czech territory should bear in mind when performing activities as statutory executives that, under certain conditions, even the fulfilment of common tasks within the corporation’s business activities can be considered gainful activities for which the foreigner would need an employment permit.
- Failing to respect these rules may have serious consequences for the statutory executives. Foreigners who perform profitable or gainful activities without a residence/employment permit on the Czech territory face, among other sanctions, a penalty in the form of administrative expulsion from the EU for up to five years, which may have a negative impact on the company’s operations.
- Furthermore, the employer – a legal entity or an individual entrepreneur – who will enable the performance of illegal work, is violating law, which can result in a fine pursuant to the Employment Act amounting up to CZK 10,000,000, but no less than CZK 50,000. In addition, such employer will be marked as unreliable pursuant to Act on the Residence of Foreigners, which will result in the prohibition to employ foreigners over the period of four months.