Increase in EUR Financing in the Czech Republic/Interest Rates

In recent years in the Czech Republic, it has been possible to observe a trend in the field of external financing, where there has been an increase in the volume of external financing of Czech companies by banks in foreign currencies, in particular in euros (EUR).

According to data from the Report on Financial Market Developments in 2024 prepared by the Ministry of Finance of the Czech Republic, from the end of 2019 to the end of 2024, the share of foreign currency loans to non-financial corporations increased by 19.1 percentage points, and in 2023 the share of foreign currency loans to non-financial corporations surpassed loans provided in Czech crowns. In 2024, the year-on-year increase in the share of foreign currency loans was 1.3 percentage points, reaching 52.5%.

This is a consequence of the increase in interest rates by the Czech National Bank (CNB) due to high inflation (in 2022, the local interest rate climbed as high as 7%). The euro-denominated loans thus became significantly cheaper for Czech companies, leading to a sharp increase in the volume of euro financing in the Czech Republic by the banks. This high interest rate persisted until December 2023. Since then, there has been a gradual decrease in the local interest rate set by the Czech National Bank (CNB) to the current value of 3.50% (as of the date of publication of this guide), while the European Central Bank (ECB) main refinancing rate is 2.15% (as of the date of publication).

The advantage of euro-denominated loans for Czech companies thus continues to be lower interest rates, although this difference is gradually decreasing.

Nevertheless, even with potentially more favourable interest rates, external financing in euros (EUR) is not suitable for all companies and brings certain risks for Czech companies. The greatest of these is currency risk. Euro-denominated loan financing is not suitable for companies without income in euros. In view of the potential weakening of the Czech koruna (CZK) against the euro (EUR), this could lead to a significant increase in the cost of the loan, and such unpredictable fluctuations can significantly affect the cash flow of the Czech borrowing company. Although currency risk can be mitigated through appropriate hedging, the associated costs may, to a certain extent, offset the benefit of lower interest rates on euro-denominated loans.

Therefore, it can be concluded that Czech companies that have business partners in the eurozone, export to the eurozone and generate income in EUR may benefit from euro-denominated financing. 

Alternative Possibilities of Financing Focused on Intra-Group Financing

The demand for corporate bank financing among Czech companies increased significantly in 2024. According to a survey by the Czech National Bank (CNB), presented in the Bank Lending Survey I/2025, the largest increase in demand for loans from non-financial corporations since 2021 was recorded in Q4 2024.

However, access to bank financing remains challenging for specific segments, particularly start-ups and small enterprises. In other cases, bank financing may not be advantageous for a company due to its rigidity, longer approval process and associated higher costs.

In recent years, the Czech financial market has thus seen a shift away from traditional corporate bank financing towards alternative forms of financing, such as crowdfunding (some crowdfunding companies on the Czech market are indirectly owned by banks), private equity or venture capital.

Another alternative is intra-group financing. According to the Czech National Bank, as stated in its Financial Stability Report (Autumn 2024), there was a sharp year-on-year increase of 24% in intercompany debt in the first half of 2024.

In the Czech market, intra-group financing is particularly relevant due to the high proportion of foreign owners of Czech companies, which are therefore often integrated into large multinational groups. As a result, intra-group financing represents one of the most commonly used forms of financing within corporate groups, as it can be adapted to the needs of the company.

Among the advantages of intra-group loans is faster processing, as companies within the group are not required to conduct legal due diligence or the KYC processes mandated by banks, nor do they need to engage in protracted negotiations regarding loan terms with financial institutions. Compared to bank financing, there are also cost savings on fees such as arrangement fees or commitment fees, which the company would otherwise have to pay to the bank. Moreover, borrowers in intra-group financing do not have to provide a wide range of security or extensive representations and warranties.

On the other hand, companies using intra-group financing are limited by the need to comply with transfer pricing rules (the arm’s length principle must be fulfilled) and the thin capitalisation rule.

Czech National Development Bank Launches Affordable Housing Programme

This spring, the Czech National Development Bank, in co-operation with the Ministry for Regional Development, launched the Affordable Rental Housing Programme. Within a broader framework, this initiative is part of the Czech Republic's National Recovery Plan, which is partially financed by the European Union through the Recovery and Resilience Facility (RRF). The European Commission has approved the programme as compatible with EU state aid rules, specifically under Article 107(3)(c) of the Treaty on the Functioning of the European Union (TFEU).

The programme addresses the country’s worsening housing situation. According to a regulatory impact assessment conducted by the Ministry for Regional Development, at least 620,000 households – representing over one million residents – face housing costs exceeding 40% of their disposable income. This accounts for nearly 10% of the Czech Republic’s population. Given this fact, the overarching aim of the programme is to improve the availability of rental housing in the Czech Republic by supporting the construction, renovation or acquisition of rental apartments and apartment buildings. This initiative is therefore expected to provide targeted support to households facing challenges with housing affordability.

Financing and key parameters

A total of CZK2.25 billion (approximately EUR92.5 million) has been allocated to the programme. Funding will be distributed to applicants with eligible projects in the form of subsidised loans, covering up to 80% of the overall eligible project expenditure. The main parameters of these loans are:

• loan size – CZK100 million to CZK1.2 billion (approximately EUR4–49 million);

• interest rate – fixed for the entire repayment period, set at the EU base rate for the Czech Republic, with a minimum of 1% and a maximum of 2%; and
• repayment period – 20–25 years.

Applicants must contribute their own funds and/or secure a senior loan to cover the remaining 20% of the project expenditure.

EU law requirements

In contrast to favourable financing, the applicants must comply with a wide range of obligations arising under EU and national legislation. These include:

• following the principle of “do no significant harm” in line with environmental standards;
• complying with periodic reporting requirements;
• meeting publicity obligations regarding EU financing; and
• avoiding any overlapping public support for the same eligible expenses.

To ensure compliance, beneficiaries must allow access to their project sites and headquarters for inspections by the national authorities, the European Commission and other authorised bodies.

Property-related obligations

Applicants benefiting from the subsidised loan must also fulfil a number of obligations that directly affect the properties developed under the programme, including:

• ensuring tenant eligibility criteria (eg, tenants must not already own apartments and must fall within a prescribed income category);
• concluding lease agreements for fixed terms of one to two years;
• setting rent at a maximum of 90% of the market value for comparable apartments in the area;
• limiting rent increases to the annual rate of inflation; and
• retaining ownership of properties developed under the programme, in which the rental apartments are located.

In order to achieve project objectives, beneficiaries must adhere to these obligations for at least 20 years from the start of the apartment lease. These obligations are therefore to some extent independent of the repayment of the loan. While this long-term commitment secures affordability, investors may adjust their exit strategy starting on the third anniversary of the lease of the last apartment, subject to approval by the Czech National Development Bank for any proposed transfer.

Conclusion

The programme has the potential to improve housing affordability in the Czech Republic. For developers and investors, it offers access to long-term, low-interest financing under favourable conditions. Last but not least, its major advantage is that any legal entity established in the European Union that meets the programme’s criteria may apply.

However, the applicants must carefully assess the compliance and long-term operational obligations before committing, as the rent caps, tenant eligibility rules and the 20-year affordability requirements directly impact project returns and asset management strategies.

Sanctions for Failing to Register the Beneficial Owner (UBO) Suspended Following Decision by Czech Supreme Court

On 25 August 2025, the Supreme Court of the Czech Republic ruled that the failure to register UBOs in the Czech Beneficial Ownership Register, or to keep the data up to date, cannot be penalised with fines imposed by administrative authorities. This is because the Czech Act on the Registration of Beneficial Owners (the “Czech UBO Act”) does not correctly implement the EU Anti-Money Laundering Directive (the “AML Directive”).

The circumstances leading to this decsion

This follows a 2022 decision by the Court of Justice of the European Union, which ruled that a provision of the AML Directive granting the general public unrestricted access to beneficial ownership register data interfered with UBOs’ rights to private life and data protection (under Articles 7 and 8 of the Charter of Fundamental Rights of the European Union, respectively). The Court argued that, while a company’s failure to comply with the registration obligation does interfere with the legitimate interests of state authorities engaged in combating money laundering, these interests alone cannot justify the impermissible interference with the constitutionally protected rights of the company’s beneficial owners.

The relevant provision of the AML Directive, which granted unrestricted access to data from the beneficial ownership register to the general public, has consequently been amended by a new directive, requiring any person seeking access to demonstrate a legitimate interest. However, the Czech legislator has not implemented this change in the Czech UBO Act. Consequently, anyone can still access the Czech Beneficial Ownership Register via the relevant website and obtain information about UBOs, including their name, country of residence, year and month of birth, nationality and position within the registering entity. This situation led to a dispute that was decided by the aforementioned Czech Supreme Court ruling.

While the Czech UBO Act is awaiting amendment, the relevant entity is still obliged to register the UBO, but sanctions to enforce this obligation are excluded. It could be argued that the same should apply to private law sanctions. These can, under certain conditions, consist of the relevant person being unable to exercise rights in the company’s supreme bodies or receive any share of profits, equity or liquidation proceeds.

Implications for financing

In several cases it was discovered that a Czech company that should have provided security for a facility had failed to fulfil its obligation to keep the UBO registration in the Czech Beneficial Ownership Register up to date. While it is easy to verify whether a company has registered its UBO at all, it may be more difficult to discover whether the registered information is up to date, despite what the company’s management may believe.

This could jeopardise transaction deadlines, since it becomes necessary to update the UBO registration. Otherwise, the Czech company will (under certain conditions) be unable to adopt corporate resolutions approving the provision of security.

Where to next?

Unfortunately, the Czech Supreme Court decision did not specifically address whether the private law sanctions mentioned above should also be suspended until the Czech AML Act is appropriately amended. This would seem consistent with the grounds for the decision, but some, especially those on the more conservative side, may prefer to wait for a specific court decision to confirm this. However, the Czech AML Act should be amended by 27 July 2027 at the latest to comply with the new European AML Package.