The Ministry of Finance of the Czech Republic, the Ministry of Labour and Social Affairs, and the Ministry of the Interior, together with other state authorities, signed a memorandum of cooperation on 18 March 2026 aimed at combating illegal work, titled "KOBRA 26". The objective of the memorandum is to reduce illegal work and related financial leakages, particularly in the area of social security contributions, limit the abuse of social benefits, and improve the business environment.

Although, according to the Minister of Finance, the memorandum is not primarily intended to target the so-called "švarc system" (i.e. cooperation with self-employed individuals in lieu of an employment relationship), it cannot be ruled out that the relevant state authorities will nevertheless investigate such arrangements within the framework of KOBRA 26.

In practice, this cooperation may lead to a significant increase in inspections, as it envisages closer coordination between the tax authorities, customs administration, the Financial Analytical Office, the Police of the Czech Republic, the Labour Inspectorate and the Czech Social Security Administration. The cooperation is to take place mainly through information sharing and joint working groups.

At this stage, employers are advised to review their cooperation models with self-employed individuals, the structure of subcontracting relationships, and documentation relating to cross-border employment. However, any changes should be implemented cautiously and gradually.

Allowing the performance of illegal work may result in fines of up to CZK 10 million for legal entities and self-employed individuals, and may also lead to a ban on activity of up to two years.

Authors: Helena Hailichová and Stanislav Mitrofan