Czech legal outlook and trends in 2024
As we stand at the intersection of law and innovation, this newsletter aims to provide you with an insightful overview of the evolving legal landscape and key trends that are shaping industries in the year ahead in the Czech law scene.
In this rapidly changing environment, legal professionals must navigate not only traditional legal challenges but also adapt to technological advancements, societal shifts, and global developments. From emerging regulatory frameworks to the integration of artificial intelligence (AI) in legal practice, we delve into key critical issues that will impact legal professionals and organisations throughout the coming year.
Digital economy
The new Czech law on cyber security, which transposes the NIS2 directive, may not be ready by the end of 2024.
It is already evident that adoption will not be until the very end of 2024 at the earliest, and in addition, entities still have an additional year from the date of entry into force to bring the organisation in question into compliance with the obligations enshrined in the new regulation.
It is a matter of ascertaining whether the regulation will apply to them at all (self-identification), followed by a quick registration on the NUKIB portal. This will be followed by the identification of the responsible persons and the aforementioned one year to take technical and organisational (procedural) security measures.
The European Union has agreed on key parameters of the Artificial Intelligence Act, which originally started to be discussed in the spring of 2021.
The final text will be ready in the coming months. The last step so far has been the trialogue (the EU Council, individual states, MEPs, and the European Commission). The AI Act will regulate both universal chatbots and all other types of artificial intelligence products and services, ranked according to their risk.
eDocuments should be operational as of mid-January 2024
eDocuments is a new project of the Digital and Information Agency that should be operational as of mid-January 2024. The aim is to replace plastic cards that people carry around in their wallets with a mobile app called eDocuments that will securely store all ID card data. These will be easily copied and transferred to other apps, for example when filling in an address in e-shops, or when an ID number to book flights is needed, or when required for contracts, or to set up various other services.
Corporate and commercial
An amendment to the Transformations Act
An amendment to the Transformations Act (Act No. 125/2008 Coll.) is expected to be adopted, which aims primarily to incorporate Directive 2019/2121 of the European Parliament and of the Council of 27 November 2019 into the Czech legal system. The amendment should, among other things, facilitate cross-border conversions, introduce a new form of division of a company by separation and simplify the transformation process (in relation to information obligations towards third parties or mandatory valuation of assets and liabilities by expert opinion).
Tax consolidation package
Many of the changes for 2024 were implemented by the government's consolidation package, which amends several tax and other related laws in order to reduce the structural deficit of the state budget and consolidate public finances. Reduced VAT rates are merged into one 12% rate, the corporate tax rate is increased by two percentage points from the current 19% to 21%, and there are increases in excise and other taxes. Taxpayers, on the other hand, will welcome the possibility to keep their accounts in foreign currencies (EUR, USD, and GBP) or to tax only at the realised exchange rate differences. At the same time, the limitation on the tax exemption for the sale of securities/shares has been postponed until 2025.
Employment
New annual leave for employees working under DPP/DPČ
In 2024, the recent amendment to the Labor code will continue to have a lasting impact, introducing, among other things, the entitlement to annual leave for employees working under DPP/DPČ agreements starting from January. In response to this amendment, many employers will embark on the digitalisation of labour law-related processes. Additionally, a significant amendment to the Act on employment will be introduced this year, aiming to tighten conditions for employment agencies and to expand the definition of illegal work. After two years, there will also be another increase in the minimum wage. This amendment to the Labor code is expected to introduce an automatic system for adjusting the minimum wage and should be prepared later in 2024.
Real estate and construction
New Building Act comes to force for listed buildings
On 1 January 2024, a new Building Act was adopted which comes into force for specific infrastructure constructions from January this year and will apply to planning and permitting of all buildings from July. The builder will be obliged to enter the project documentation for the planning permit into the electronic documentation register, and to do so through the newly created builder's portal. However, these and other public administration information systems are not yet available. The new Building Act no longer allows for an abbreviated procedure for making changes to Zoning Plans. Over 2024, it will also be decided whether an amendment to the Act on the Protection of Agricultural Land (registered under the House of Commons Document No. 579/0), which sets stricter conditions for the protection of the best quality agricultural land, will be adopted.
Litigation, restructuring and insolvency
Preventive restructuring introduced in the Czech Republic
On 23 September 2023, the Act on Preventive Restructuring came into force in the Czech Republic. The aim of the new Act is to enable entrepreneurs to solve financial difficulties at a time when they’re not yet in insolvency and when it’s realistic they can restore and maintain the effective operation of the entrepreneur's business enterprise. The first significant case where an entrepreneur is attempting a preventive restructuring is LIBERTY Ostrava and, in view of the difficult economic development of the last few years, a significant number of other cases and overall activity in this area can be expected in 2024.
Act on Mass Civil Proceedings and relating developments in other EU jurisdictions
An Act on Mass Civil Proceedings is due to be enacted in 2024. The general purpose of this Act is to introduce a framework that will comprehensively regulate collective enforcement around business-to-consumer relations. The Act should allow similar claims arising from business-to-consumer relationships to be dealt with in a single proceeding.
Similar developments will occur in several other European jurisdictions in 2024 and it is already clear that there will be visible differences between national frameworks in the area of collective redress. This will create several challenges for international businesses in particular. You can follow the details of the state of play in each jurisdiction on our Global Litigation Guide.
Energy
Community sharing of renewable energy
Most recently, a draft amendment to the Energy Act – Lex OZE II, which is expected to allow community sharing of energy generated from renewable sources, has passed the Chamber of Deputies and the Senate in late December and entered into force on 1 January 2024.
The amendment introduces new entities known as energy communities. Basically, the idea is that this community, which will be a legal entity based on voluntary and open participation, can bring together individuals, small and medium-sized enterprises, municipalities or other self-governing public entities and entities established by them to produce renewable energy and share it among members.
Sharing of electricity from renewable sources will be possible from 1 July 2024 through the public distribution network, and it will be ensured and coordinated by the Electricity Data Centre.
Banking, finance and capital markets
New payment services legislation in EU
In mid-2023 the European Commission published a proposal for a new draft of Payment Services Regulation (PSR) and third Payment Services Directive (PSD3) replacing the existing legal framework. The new package addresses emerging technologies and market trends, rapid growth of the market and shall enhance consumer protection, fraud prevention, and fair competition. This includes levelling of the playing field between banks and non-banking payment services providers. It is expected that final texts of the PSR and PSD3 might be agreed by late 2024.
Law on the non-performing loans market
New law on the non-performing loans market, transposing the EU Directive, shall set out the regulation of the management of non-performing loans. The draft law specifies that only certain entities can manage non-performing loans on a commercial basis. For all entities that are not exempt from the scope of the new law, the Czech National Bank’s license will be required. The draft law requires that non-performing loan managers will have established systems for administration, accounting, internal control, and anti-money laundering/counter-terrorist financing. The law is expected to become effective early 2024 with an interim provision allowing those with prior authorization to manage non-performing loans to continue until 29 June 2024, during which they must apply for the new license and comply with the new law.
Stricter Rules for Unlicensed Funds
An amendment to the Czech Investment Companies and Investment Funds Act, effective from 1 July 2024, will make life for the unlicensed funds according to Section 15 significantly harder. Key changes involve stricter identification for unlicensed managers, who will now be labelled as "venture capital firms", and prohibitions against misleading terms like "fund". There will be new obligations for investor information, detailing investment risks, and horizons. Investments in unlicensed entities will be limited to those with a minimum of EUR125,000, with exceptions for family and friend investments up to 20 people. Violations could lead to penalties and removal from the Czech National Bank register for 10 years.
New framework for market infrastructures using distributed ledger technology
An amendment to the Czech Capital Markets Act, effective from November 4, 2023, aligned Czech law with the EU Regulation as part of a pilot regime for market infrastructures using distributed ledger technology (DLT). This amendment introduced new licensing regimes for DLT-based market infrastructures, including DLT multilateral trading facilities, settlement systems, and trading settlement systems. It also revised the definition of a financial instrument to encompass those held on DLT, thereby clarifying that instruments issued using DLT are covered by investment services regulation.
ESG
Sustainable finance regulations
The increasing global trend of implementing ESG regulations in response to the impacts of climate change and other environmental and social concerns and threats will continue to affect the financial institutions and the debt finance market in the EU in 2024. Financial institutions must comply with new ESG disclosure requirements, including reporting on financed emissions by June 2024. Sustainable Finance Disclosure Regulation (SFDR) mandates disclosure of ESG indicators at both entity and product levels. Issuers of bonds must comply with the Green Bond Standard Regulation (GBSR) from 2024 if they wish to label their bonds as green. The standard establishes rules for labelling bonds as green in line with the EU Taxonomy Regulation (EU Taxonomy), promoting consistency, comparability, and transparency in the market. Starting in 2024, banks will be required to disclose the Green Asset Ratio (GAR) and Banking Book Taxonomy Alignment Ratio (BTAR). BTAR expands the range of GAR, including exposure to assets not covered by Non-Financial Reporting Directive (NFRD)/Corporate Sustainability Reporting Directive (CSRD), and must be reported by banks from June 2024 onward. Financial institutions covered by CSRD will need to incorporate European Sustainability Reporting Standards disclosure requirements into their reports in 2024.
As we conclude this edition of the Czech Legal Outlook and Trends for 2024, we invite you to stay connected with us for ongoing insights and updates.
If you would like more information on any of the trends discussed above or require assistance navigating the legal intricacies within your specific industry, please do not hesitate to contact us.
