Reflex Capital → Blog → Escape to tax havens
Almost every successful startup that is created in the Czech Republic ends up in another jurisdiction. Most often, ownership is transferred to a holding company in the USA, the Netherlands or elsewhere. In the startup community, this is called a “flip of ownership” or “flip-up” for short.
Journalists and, under their influence, the public consider it an escape to tax havens: rogue entrepreneurs first grab assets in the Czech Republic and then take them abroad to save on taxes. Bullshit. First, neither the USA nor the Netherlands are exactly tax havens, most startups do not pay much in income tax until the exit, and their owners pay taxes according to double taxation treaties according to their tax residence, i.e. in the Czech Republic. Ah, but why are these startups escaping from this earthly paradise, as the Czech anthem calls it?
Let’s start with the legal framework of business. The legislator who once invented the limited liability company probably had in mind a family business or a sole proprietor who wants to give his business a more polished form or has partners with whom he wants to define the future distribution of profits in advance. In such cases, a limited liability company may work quite well, but for a technology startup it will sooner or later become a nightmare. At the latest, when it is necessary to explain to an investor from the USA that he will increase the share capital by USD 13.37 in Czech crowns and will invest the remaining USD 1,999,986.63 of the two-million-dollar investment into the company as a voluntary contribution outside the registered capital, and in return will receive one share, which he will then have to divide through entries in the commercial register if he wants to sell part of his ownership. And in the case of joint-stock companies, the overly restrictive legislation still reflects the trauma of the 1990s, when the legislation reacted always too late to how the emerging oligarchy managed to cheaply get rid of small shareholders who had acquired their shares in coupon privatization.
The change in tax rules for ESOPs is being hailed as a phenomenal success. Everyone is patting themselves on the back enthusiastically: “We did it.” After long years of effort and several botched amendments … yet another legislative travesty has emerged, which almost no one uses and will ever use. Just read what the lawyer wrote about it: “The company must notify the provision of the option and its parameters within the specified period – within the period for submitting the employer’s unified monthly report for the month in which the qualified employee was provided with a qualified employee option, the date of provision of the qualified employee option, to which the tax regime specified in Section 10, paragraph 1, letter q) of the Income Tax Act applies, to the qualified employee, the agreed option price and the fair market value of the qualified share determined on the date of provision of the qualified employee option, and the identification data of the qualified employee. Compliance with the stated conditions must be ensured throughout the duration of the program, i.e. from the granting of the option until the sale of the shares. Any violation or failure to comply with even a single condition will cause the option program to cease to be considered “qualified” and all income of the employee from such an option will be retrospectively assessed as income from dependent activity. This means the obligation to pay additional tax and insurance premiums. The impact can occur both on the employee’s side (additional income tax) and on the employer’s side (adjudicated contributions and penalties). It is therefore necessary to continuously monitor the fulfillment of all conditions. The risk may arise, for example, when an employee changes his/her job, goes on maternity or parental leave, or is temporarily assigned to another company, when the minimum wage condition or the required twelve-month period of work may be jeopardized”. Can anyone imagine a budding startup wanting to do something like this? And, to make it not so simple, according to the current legislation, startups can choose one of three options for ESOP (standard regime, deferred taxation, qualified ESOP), none of which is worth anything.
If some qualified employee eventually exchanges his/her qualified employee options for shares and the company works its way to the desired exit, the poor qualified employee is not subject to the tax exemption based on the time test and his/her income from the sale of shares is subject to income tax. Why on the earth? These people often “invest” several million crowns in a startup, even though, with their abilities, they could receive a salary twice as high in a multinational corporation or an established company. Anyone can easily calculate how big the difference is if someone works in a startup for 4 or 5 years for a salary that is, for example, 60 thousand CZK lower than they could have elsewhere. Why is inequality being introduced where shareholders who invest money in a company pay no income tax, while shareholders who save the same amount of money from the company must pay tax?
And then there is the taxation of labor. The so called “Švarc system” is illegal and must be eradicated. Why don’t the legislators and bureaucrats who have a guaranteed income from taxpayers’ money try to build a startup themselves. They might be surprised to find out that it takes money. A startup basically has two options to get them. One is called “friends & family”, the other is “angel investor”. In both variants, someone invests already taxed money with a high probability of losing it and not being able to write off even a part of such loss from the tax base (which is common in many countries). And at the same time, he will have to watch as the state siphons off roughly a quarter of the money invested in income tax and social and health insurance contributions for employees, because basically the only major expense in a startup is payroll. Every political party boasts before the elections how much they care about supporting innovation, new technologies, and the entrepreneurship that creates intellectual property, but no government has thought about considered whether it might be absurd to shorten the runway of every startup by a quarter just when it is trying to get on its feet.
It makes you think… what if someone finally looked at how flexible a legal form is, for example, a Dutch B.V. company, or how easy an ESOP can be created there? Or how do tax systems in France or the UK support angel investing? Or if the differences in ISO and NSO taxation are not actually an incentive for people in the US to want to be employees rather than contractors?
A few years ago, I came across a draft document for the Czech government, which proposed establishing an investment fund to support startups from state funds and managing it together with a renowned VC selected in a tender. The document explicitly stated that it was recommended to locate the fund’s headquarters in Luxembourg, the Netherlands or Malta, because Czech legislation is not suitable for this type of business. So…
May 28th, 2026 • Eduard Míka
Almost every successful startup that is created in the Czech Republic ends up in another jurisdiction. Most often, ownership is transferred to a holding company in the USA, the Netherlands or elsewhere. In the startup community, this is called a “flip of ownership” or “flip-up” for short.
December 15th, 2025 • Ondřej Fryc
Recently, I spotted a founder on social media lamenting that the majority of VC funds he contacted didn’t even reply to the email where he introduced his project. Underneath, there were plenty of comments about how typical this is—that VCs whine about having nothing to invest in, yet they don’t reply to emails. Ugh.
November 26th, 2024 • Zdena Macháčková
April 29th, 2024 • Ondřej Fryc
I’m not gonna pretend anything, I was trapped too. It felt good to have our company and myself in the media! It boosted my ego, which grew. There are some people who don’t have that, but I see it in most founders around the age of 30 and let’s be honest – everyone is a bit of a narcissist.
