Czech Republic

Bureau of Economic and Business Affairs
July 5, 2016

This is the basic text view. SWITCH NOW to the new, more interactive format.


Executive SummaryShare    

The Czech Republic is a medium-sized, open, export-driven economy. Around 80 percent of its GDP is comprised of exports – mostly from the automotive and engineering industries. Its strong dependence on foreign demand, especially from the Eurozone, of which it is not a member, was highlighted in the global financial crisis of the late 2000s. However, the Czech banking sector remained relatively healthy. After two years of economic contraction, the Czech economy emerged from recession in early 2013 and has enjoyed some of the highest GDP growth rates of the European Union – 2.3% and 4.3% in 2014 and 2015, respectively. Experts predict approximately 2.5 percent growth in 2016.

Since November 2013 the Czech National Bank (CNB) has intervened in the foreign exchange markets to prevent appreciation of the Czech Crown (CZK) beyond 27/Euro. The formal justification for this action has been to prevent deflation, though it has also had the benefit of making Czech exports more cost-competitive. As of April 2016 the Crown trades at approximately 24/dollar. The Czech crown is fully convertible and all international transfers of investment-related profits and royalties can be carried out freely without delay. While there has not been significant political momentum toward Euro accession in recent years, the current government under Prime Minister Sobotka has demonstrated a more positive approach to EU integration than any past government. CSSD, Sobotoka’s party and the coalition leader, expressed support in March 2015 for joining the Eurozone by 2020. President Zeman is also a strong supporter of Euro accession. The Czech government has met four of the five Maastrict criteria for adoption of the Euro, but decided in December 2015 not to seek to join the Exchange Rate Mechanism (ERM II) in 2016.

The Czech Republic fully complies with EU law and OECD standards for the equal treatment of foreign and domestic investors. Labor laws are comparable with most developed nations, but wages generally trail those in neighboring Western European countries. The U.S.-Czech Bilateral Investment Treaty from 1992 provides for international arbitration of investor–State disputes. Great strides have been taken since the fall of communism to open the market to competition and privatization, but the prosecution of anti-trust violations is still less than adequate. Corruption remains a problem. Czech Intellectual Property Rights (IPR) protections are still not optimal, but the legal framework for IPR protection has been tested and proven successful in punishing infringers. Other western concepts such as entrepreneurship and corporate social responsibility (CSR) are growing trends in the Czech business and NGO communities.

There are no general restrictions on foreign investment, although limits exist within certain sectors. The Czech Republic attracts a great deal of FDI for its size, and has taken strides to diversify its traditional investments in engineering into new fields of research, development and innovative technology. EU structural funding has enabled the country to open a number of world-class scientific and hi-tech centers. Companies from EU member states are the chief foreign investors in the Czech economy, but the government has signaled a desire to seek more export and investment opportunities from non-European regions, including the United States, China, and South Korea.

Table 1

Measure

Year

Index or Rank

Website Address

TI Corruption Perceptions index

2015

37 of 168

http://www.transparency.org/cpi2015

World Bank’s Doing Business Report “Ease of Doing Business”

2016

36 of 189

doingbusiness.org/rankings

Global Innovation Index

2015

24 of 143

globalinnovationindex.org/content/page/data-analysis

U.S. FDI in partner country ($M USD, stock positions)

2014

$7.247 billion

http://bea.gov/international/direct_investment_
multinational_companies_comprehensive_data.htm

World Bank GNI per capita

2014

$18,370

data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

1. Openness To, and Restrictions Upon, Foreign InvestmentShare    

Attitude toward Foreign Direct Investment

The Czech Republic is a recipient of substantial foreign direct investment (FDI). As a medium-sized, open, export-driven economy, the Czech Republic is strongly dependent on foreign demand, especially from the Eurozone. In 2014, more than 82 percent of Czech exports went to fellow EU states, with about 60 percent shipped to the Eurozone, and 32 percent to the Czech Republic's largest trading partner, Germany. The recent global economic crisis pulled the Czech Republic into its longest historical recession and highlighted its sensitivity to economic developments in the Eurozone. In early 2013, the economy finally emerged from recession, and has shown moderate growth since then. In 2015, GDP growth reached 4.3 percent.

2014 Czech per capita GDP was 84 percent of the EU average, ranking the Czech Republic 16th wealthiest EU member state. The 2014 economic output placed the Czech Republic not only above all fellow former communist states as well as economically weaker South-Western European countries, but also made it overtake Slovenia for the first time ever. The trade balance has been positive every year since 2005, and in 2014 and 2015 rose substantially, with surpluses of around USD 11.8 billion, and USD 11.94 billion, respectively. Exports comprise nearly 80 percent of the country’s GDP. The main export commodities are automobiles, machinery, and information and communications technology.

Over the past ten years, the Czech Republic has taken a wait-and-see approach regarding the country’s entry into the Eurozone. Recent economic difficulties in the Eurozone weakened public support for the country's adoption of the euro, and previous governments opposed setting a target date for accession. The current government, led by Prime Minister Bohuslav Sobotka (CSSD), has indicated its readiness to adopt the Fiscal Compact, a treaty committing signatories to limit their state budget deficits to 0.5 percent of GDP, and subsequently to adopt the euro. While there has not been significant political momentum toward euro accession in recent years, CSSD at its March 2015 conference expressed support for joining the Eurozone by 2020, though the government opted not to seek to join the Exchange Rate Mechanism (ERM II) in 2016.

Some unfinished elements in the economic transition, such as the slow pace of legislative and judicial reforms, have posed obstacles to investment, competitiveness, and company restructuring. The Czech government has harmonized its laws with EU legislation and the acquis communautaire. This effort involved positive reforms of the judicial system, civil administration, financial markets regulation, intellectual property rights protection, and in many other areas important to investors.

While there have been many success stories involving American and other foreign investors, a handful have experienced problems, mainly in heavily regulated sectors of the economy, such as in the media sector. The slow pace of the courts is often compounded by judges' lack of familiarity with commercial or intellectual property cases. In the 2016 World Bank’ Ease of Doing Business, the Czech Republic ranks 36th overall out of 189 economies (an improvement of eight positions from 2015), and 28th out of 189, in the category of Protecting Minority Investors.

Both foreign and domestic businesses voice concerns about corruption. Other long-term economic challenges include dealing with an aging population and diversifying the economy away from an over-reliance on manufacturing toward a more high-tech, services-based, knowledge economy.

Attitude Toward FDI

Since 1990, the Czech Republic has become one of the leading countries in the Central and Eastern European (CEE) region attracting most of incoming FDI. Though Poland was the leader by total volume of FDI gained, the Czech Republic and Hungary managed to achieve the highest FDI per capita. While in the early years massive volumes of FDI flowed primarily into the Czech automotive, real estate, and alternative energy sectors, in 2010, the Czech Republic, together with its fellow Visegrad Four countries (Slovakia, Hungary, Poland) attracted 70 percent of all FDI headed towards development of services and R&D projects in the CEE region. FDI inflow tripled in 2012 after a sharp drop-off during the economic crisis. 2014 FDI inflow data recorded a year-on-year increase of about 60 percent. The increased activity of foreign investors reflects a gradual recovery of the European market, driven mostly by the automotive industry.

CzechInvest, the government investment promotion agency, has adopted a new strategy to place the Czech Republic among Europe´s ten most attractive investment destinations. The strategy is based on five pillars: enhanced activity abroad; improved service for investors; better coordination of support for small and medium-sized enterprises; emphasis on the use of research and development; and general improvement in communication among FDI-related agencies and institutions. In 2015 CzechInvest negotiated 106 new investment projects in the Czech Republic worth CZK 45 billion (about $1.875 billion). The largest number and value of investments came from the United States, followed by Germany and Taiwan.

Investment Trends

Originally the Czech Republic attracted FDI mainly in the engineering industry. New, large automotive greenfield projects emerged in the northeast and central part of the country. These investments especially benefited from lower labor costs (relative to Western countries), the strong tradition of Czech engineering, as well as a central location.

The structure of FDI has changed in recent years, shifting from manufacturing to other high-technology sectors, such as information and communications technology. The Czech Republic aims to become a destination for investments with high value-added content. Therefore, the Czech Republic focuses on negotiations with investors from the areas of R&D and services, to which it can offer an optimal combination of favorable investment factors, such as a strategic location, and a highly qualified and innovative work force.

Other Investment Policy Reviews

The Czech government underwent an OECD investment policy review in 2001 in the process of joining the OECD. The World Bank's, Doing Business 2016 Economic Profile and the Economist Intelligence Unit likewise provide further detail on the Czech Republic's investment climate.

Laws/Regulations on Foreign Direct Investment

In 2012, the Czech Parliament passed a new Civil Code (effective January 1, 2014), modifications to the existing civil law, and a new regulation for corporations – an Act on Corporations (also effective January 1, 2014).

The Czech Ministry of Industry and Trade maintains a doing business website at www.businessinfo.cz, which aids foreign companies in establishing and managing a foreign-owned business in the Czech Republic, including how to navigate the legal requirements, licensing, and operating in the EU market.

Liability

Criminal liability – related offences are included in the new Criminal Code, Act No. 40/2009 Coll., which has been in effect since January 1, 2010. Penalties include imprisonment, a ban on the activity, asset forfeiture or fines.

Administrative liability covers administrative offenses committed by both individuals and legal entities (or individuals as entrepreneurs).

A new law on criminal responsibility of legal entities has been in force since January 1, 2012. It outlines a list of offenses that could be committed by legal entities. A legal entity is responsible for the behavior of its management, personnel and any bodies that fall under its control.

The latest statistics from the Supreme Public Prosecutor show that there were 227 prosecutions of legal entities in 2015. The most frequent crime was fraud – especially tax fraud – followed by extortion and environmental crimes. There were 115 convictions. The most frequent penalty was a fine (from CZK 10,000-50,000 (USD 400-2,000), as well as publishing of the penalty (on the Internet, in the press and on TV), and a ban on activities. In 13 cases the court decided to abolish the company.

Members of Parliament on March 23 approved an amendment to the law on criminal responsibility of legal entities. While it still requires approval by the Senate and the President, it would expand the range of illegal activities for which legal entities – and not just individuals - would face criminal liability.

Organizational Structure of Investments

Foreign investors can, as individuals or business entities, establish sole proprietorships, joint ventures and branch offices in the Czech Republic. In addition, the government recognizes joint-stock companies, limited liability companies, general commercial partnerships, limited commercial partnerships, partnerships limited by shares, and associations.

National Treatment

From a legal standpoint both foreign and domestic investors are treated equally. The government does not differentiate between foreign investors from different countries, and does not screen foreign investment projects other than in the banking, insurance and defense sectors. Upon accession to the Organization of Economic Cooperation and Development (OECD), the Czech government agreed to meet (with a small number of exceptions) OECD standards for equal treatment of foreign and domestic investors and implement limitations on special investment incentives. The U.S.-Czech Bilateral Investment Treaty contains specific guarantees of national treatment and Most Favored Nation treatment for U.S. investors in all areas of the economy other than insurance and real estate (see the section on the Bilateral Investment Treaty below).

Business Registration

Business Register (ObchodnI rejstrik) is a publicly accessible register that provides details on business entities, as specifically stated by related legislation. Such details include: name, address and registration number of the entity; description of its business activities; information on the entity's owners; and details on equity shares. Business Register is administered on a regional basis, by Business Register Courts.

An application for an entry into the Business Register can be submitted in a hard copy, via a direct entry by a Public Notary or electronically, subject to meeting online registration criteria required by law.

The Business Register is available at www.justice.cz.

Trade Register is an online information system that collects/provides information on entities running licensed business activities. www.zivnostensky-rejstrik.cz/.

The Ministry of Industry and Trade provides an electronic guide on doing licensed business, presenting step-by-step assistance, including links to related legislation and statistical data, and specifying authorities to deal with (e.g. as business registration, tax administration, social security, municipal authorities). www.mpo.cz/cz/podpora-podnikani/zivnost-podnikani and www.businessinfo.cz/

By the World Bank 2015 Doing Business Guide, the Czech Republic ranked 93rd in the "Starting a Business” category, 127th in dealing with construction permits, and 37th in registering property.

There exist two public agencies promoting investment and/or facilitating doing business. Both are managed by the Ministry of Industry and Trade.

CzechTrade supports development of international trade and cooperation between Czech and foreign entities. By means of supporting export activities, CzechTrade promotes increased competitiveness of Czech industry. More information is available at www.czechtradeoffices.com/about-czechtrade/.

CzechInvest focuses on attracting inward foreign investment as well as on promoting the Czech Republic abroad. CzechInvest acts as an intermediary between the EU and small (SMEs) and medium-sized enterprises (MSMEs) to ease implementation of EU structural funds (subsidies). More information is available at www.czechinvest.org/en/about-czechinvest.

Following the EC 2003/361 Recommendation, the size definition of a business entity is based on the number of employees, volume of annual turnover, and volume of assets.

An MSME employs less than 250 employees, its annual turnover does not exceed Euro 50 million, and the volume of its assets is less than Euro 43 million.

Small enterprises (SMEs) employ fewer than 50 persons with annual turnover as well as volume of assets do not exceed Euro 10 million.

Micro enterprises have fewer than 10 employees. Annual turnover and volume of assets are under Euro 2 million.

Useful information on facilitating doing MSME business is available at www.czechinvest.org/definice-msp.

Industrial Promotion

Industrial production, a key export component, has recovered from the economic downturn of the late 2000s. After a significant decline in 2010, it recorded moderate growth in 2010 and 2011, and stagnated again 2012 and 2013. 2014 industrial production gained almost nine percent, with the automotive industry accounting for a large part of this gain. The 2015 industrial output declined by 2.5 percent. In response to unfavorable economic conditions, the Czech government expanded its export strategy to include markets beyond Western Europe, and reduce its dependence on the automotive, heavy and general industrial equipment sectors.

While the export strategy still includes traditional export destinations in Western Europe, it focuses on twelve additional priority countries: Brazil, China, India, Iraq, Kazakhstan, Mexico, Russia, Serbia, Turkey, Ukraine, the United States, and Vietnam, in addition to another 25 countries of interest. The strategy characterizes chemicals or chemical products as new, promising export commodities.

In response to Russia's illegal annexation of Crimea in early 2014, the EU adopted economic sanctions against Russia, binding on all member states. This resulted in a decrease of approximately 30 percent in Czech exports to Russia in 2015.

The January 2016 implementation of the Joint Comprehensive Plan of Action (JCPOA) and the lifting of some economic sanctions against Iran, has prompted significant interest in the Iranian market by Czech exporters hopeful of revitalizing historically close business relations between the Czech Republic and Iran.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign individuals or entities can operate a business under the same conditions and to the same extent as Czech persons. Some areas, such as banking, financial services, insurance, media, or defense equipment have certain limitations or registration requirements, and foreign entities need to register their permanent branches in the Czech Commercial Register. Some professions, such as architects, physicians, lawyers and tax advisors require membership in the appropriate professional chamber. These licensing and membership requirements apply equally to foreign and domestic professionals.

As of early 2012, U.S. and other non-EU nationals can purchase real property, including agricultural land, in the Czech Republic without restrictions. Czech legal entities, including 100 percent foreign-owned subsidiaries, may own real estate without any limitations. The right of foreign and domestic private entities to establish and own business enterprises is guaranteed by law in the Czech Republic. Enterprises are permitted to engage in any legal activity with the previously noted limitations in some sensitive sectors. Laws on auditing, accounting and bankruptcy are in force. These laws include the use of international accounting standards (IAS) for consolidated corporate groups.

Privatization Program

According to the Ministry of Finance, as a result of several waves of privatization of formerly state-owned companies since 1989, almost 90 percent of the Czech economy is now in private hands. Privatization programs have been generally open to foreign investors. In fact, most major state-owned companies have been privatized with foreign participation. The government evaluates all investment offers for state enterprises. Many complainants have alleged non-transparent or unfair practices in connection with past or planned privatizations.

In early 2013, the Czech government approved the sale of a 44 percent stake in the national airline, Czech Airlines (CSA), to Korean Air. The Czech government sought a strong, non-European investor who would help CSA to further develop, and to expand the number of CSA flights to overseas destinations. The tender process met EU rules, and the final purchase conditions were subject to approval by the European Commission. The government had attempted, unsuccessfully, to privatize the airline in 2009. A local private carrier, Travel Service, acquired an additional 34 percent stake in CSA. Czech Aeroholding, an umbrella company which includes a national group of companies operating in air transport and related services, holds a minority stake of 19.74 percent, and the Czech Insurance Company (Ceska Pojistovna) owns 2.26 percent.

Screening of FDI

The government does not differentiate between foreign investors from different countries, and does not screen foreign investment projects other than in the banking, insurance and defense sectors.

Competition Law

The Antimonopoly Office (Urad pro ochranu hospodarske souteze) reviews both domestic and international transactions for competition-related concerns, including fair competition, public procurement, and concessions. An Act on the Protection of Economic Competition took effect in 2001, adopting antitrust rules consistent with EU competition policy related to restrictive agreements, abuse of a dominant market position, practices distorting competition, and merger control.

2. Conversion and Transfer PoliciesShare    

Foreign Exchange

The Czech crown is fully convertible. Imports or exports equal to or exceeding 10,000 euros (USD 13,000) in cash, travelers' checks, money orders, securities or commodities of high value (such as precious metals or stones) must be declared at the border.

The Ministry of Finance and Czech National Bank (CNB) administer the foreign exchange market. Foreign exchange authorities, the Ministry of Finance, and the CNB supervise compliance with foreign exchange regulations. Articles of Agreement (http://www.imf.org/External/Pubs/FT/AA/index.htm#art7)

Remittance Policies

All international transfers of investment-related profits and royalties can be carried out freely.

The U.S.-Czech Bilateral Investment Treaty guarantees repatriation of earnings from U.S. investments in the CR. However, a 15 percent withholding tax is charged on repatriation of profits from the Czech Republic. This tax is reduced under the terms of applicable double taxation treaties. For instance, under the U.S. treaty, the rate is five percent if the U.S. qualifying shareholder is a company controlling more than 10 percent of the Czech entity, and 15 percent in other cases. There are no administrative obstacles for removing capital. The law permits conversion into any currency. The average delay for remitting investment returns meets the international standard of three working days.

Similar to the central banks in most other developed economies, the CNB uses a managed floating exchange rate for the national currency, the Czech crown, and uses monetary policy for other purposes, such as stabilizing employment and prices.

3. Expropriation and CompensationShare    

The Embassy is aware of just one case of possible alleged expropriation of a U.S. foreign investment. Government acquisition of property is done only for public purposes in a non-discriminatory manner, and in full compliance with international law.

Potential investors should first ensure they have clear title to all land and property associated with potential projects. The process of tracing the history of property and land acquisition can be complex and time-consuming, but it is necessary to ensure clear title. Title insurance is still a relatively new concept in the Czech Republic. Investors participating in privatization of state-owned companies are protected from restitution claims through a binding contract signed with the government.

4. Dispute SettlementShare    

Legal System, Specialized Courts, Judicial Independence, Judgments of Foreign Courts

The Czech commercial code and civil code are largely based on the German legal system which follows a continental legal system where the principle areas of law and procedures are codified. The commercial code details rules pertaining to legal entities and is analogous to corporate law in the United States. The civil code deals primarily with contractual relationships among parties.

As of January 1, 2014 the Czech Commercial Code, Act No. 513/1991 Coll. (former Czech Commercial Code), ceased to exist; some areas which were regulated by the former Czech Commercial Code are newly governed by the new Czech Civil Code, Act. No. 89/2012 Coll, while other parts have been abolished. The new Czech Act on Business Corporations, Act No. 90/2012 Coll. (Corporations Act) has stepped in to govern those areas which are specifically concerned with trading companies and cooperatives.

Matters related to the Czech Commercial Register are governed by Act No. 304/2013 Coll., on public registers of legal entities and individuals. The new Czech Act on Business Corporations introduces substantial changes to Czech corporate law. Detailed provisions for mergers and time limits on decisions by the authorities on registration of companies are covered, as well as protection of creditors and minority shareholders.

The judiciary is independent, but decisions may vary from court to court. The reason for diverse legislative approaches may well be the fact that the new Civil Code does not only rewrite the system but also introduces new terminology. Consequently, the two substantive laws, the Penal Code and the Civil Code, have been adopted without a new procedural law to explain how the laws should be applied, which would allow courts to proceed according to a clearly outlined jurisdiction. Some observers ascribe the variances to the lack of a procedural law to delineate application of the Penal and Civil Codes.

Bankruptcy

The bankruptcy law addresses important structural impediments such as the slow and uneven performance of the courts, weakness of creditors' legal standing, and the lack of provisions for corporate restructuring. According to local legal experts, the law shortened court proceedings and made them much more transparent, gave a stronger position to creditors, and incorporated some elements designed to increase efficiency. The 2016 edition of the World Bank´s Doing Business Report ranked the Czech Republic 22nd (compared to 17th in 2015) for ease of resolving insolvency, placing it ahead of many fellow EU member states.

Investment Disputes

Post is aware of only one-- and still ongoing -- investment dispute during the last ten years. In 1993 the Czech Republic became a member state to the International Centre for Settlement of Investment Disputes (ICSID Convention). The 1993 U.S.-Czech Bilateral Investment Treaty contains provisions regarding the settling of disputes through international arbitration.

International Arbitration

ICSID Convention and New York Convention

The Czech Republic is a signatory and contracting state to the International Centre for Settlement of Investment Disputes (ICSID Convention) They have also ratified the convention on the Recognition and Enforcement of Arbitral Awards (1958 New York Convention). This convention obligates local courts to enforce a foreign arbitral award if it meets the legal criteria. Applications for enforcement of foreign judgments can be made to Czech courts and are determined in accordance with a bilateral recognition treaty, agreement or convention, if such does not exist, then in a manner which is consistent with Czech law. Judgments rendered in other EU countries are enforceable in accordance with applicable EU regulations.

Duration of Dispute Resolution – Local Courts

Legal proceedings for commercial disputes can last six years or longer for the most complex cases involving multiple appeals. However, many cases reportedly are resolved within one to three years.

5. Performance Requirements and Investment IncentivesShare    

WTO/TRIMS

The Czech Republic is a party to the Agreement on Trade-Related Investment Measures (TRIMS).

Investment Incentives

The Czech Republic offers incentives to foreign and domestic firms that invest in the manufacturing sector, technology, research and development centers, business support service centers, etc. Incentives are funded from the Czech Republic’s national budget as well as from European Union Structural Funds. The amendment to the Investment Incentives Act will make it possible to expand the number of eligible districts from four to 14. The purpose of the expansion is to encourage investors to implement projects in regions with the highest rates of unemployment.

For more information on investment incentives consult Financial Support Programs on CzechInvest’s website at http://www.czechinvest.org/en/financial-support-programs, or contact CzechInvest directly at +420 296 342 512, pobidky@czechinvest.org, or www.czechinvest.org.

Research and Development

In the past fifteen years, the Czech Republic’s expenditure in R&D has increased from less than 1 percent to nearly 2 percent of GDP, making it a regional R&D leader. While design, development & testing has generated the highest number of total jobs and greatest investment, R&D has the largest project size on average in terms of both investment and job creation within the Czech Republic. After the entry of the Czech Republic into the EU, the inflow of structural funds into the R&D sector accelerated the development of new science and technology parks. These include the Central European Institute of Technology in Brno, focusing on life sciences and advanced materials and technologies; the International Clinic Research Centre in Brno which is focused on cardiovascular and neurological diseases; the IT4Innovations in Ostrava, a super computer facility combining IT research and applications; and two science parks located close to the capital of Prague – the Biotechnology and Biomedicine Centre and the Extreme Light Infrastructure (ELI) Beamlines. ELI Beamlines is a high-powered laser system which will support cutting-edge research and innovations in medicine, biology, physics, and material sciences. The Lawrence Livermore National Laboratory in California provided the Czech Academy of Sciences (Institute of Physics) with an initial laser for about USD 46 million, out of a total project cost of USD 340 million.

In 2014, the U.S. company National Energetics, along with its Lithuanian partners, signed a deal to provide the Academy with another laser, valued at USD 48 million. Honeywell invested USD 10 million in 2015 in new labs at their R&D Center of Excellence in Brno, making it the largest Honeywell R&D Center in Europe. In December 2015, EPAM Systems, a provider of product development and software engineering solutions, opened a new delivery center in Prague. The center cost approximately USD 13 million and created 200 new jobs. In November 2015, IBM opened a new design studio in Prague, at an estimated cost of USD 5 million and creating approximately 100 jobs. In October 2015, automotive component manufacturer Lear relocated to a new, larger technology center in Plzen. Scheduled to commence operations in the first quarter of 2016, the 4700 square meter site will double capacity. The center will design and engineer plastic car components, foams, upholstery materials and wiring systems for car seats to be distributed globally. Overall, the software and IT sectors – which are closely tied to R&D – account for almost half of the projects in which U.S. firms invested in 2015. California, New Jersey, North Carolina, and New York produce the most companies that invest in the R&D sector in the Czech Republic.

Performance Requirements

Post is not aware of any performance requirements mandated by the Czech government for foreign investors, with the possible exception of those that receive investment incentives from the Czech government.

Data Storage

Data Storage is governed by EU standards.

6. Protection of Property RightsShare    

Real Property

Real estate (land and buildings) located in the Czech Republic must be registered in the Cadastral Register, which is maintained by the Cadastral Office. The Cadastral Register is the primary source of information on real estate (including related encumbrances, easements or liens). The Cadastral Register, containing information on plots of land and buildings, housing units and non-residential premises, is publicly available and information on a particular property can be obtained from the Cadastral Register. Transfer of ownership title to real estate (e.g., sale and purchase agreement) is effective from the date of execution of a written agreement and registration of the transfer of the ownership title in the Cadastral Register. The Czech Republic ranked 37th for ease of registering property in the 2016 World Bank Doing Business Index (from 31 in 2015).

Intellectual Property Rights

The Czech Republic is a signatory to the Bern, Paris, and Universal Copyright Conventions. In 2001, the government ratified the World Intellectual Property Organization (WIPO) Copyright Treaty and the WIPO Treaty on Performances and Phonograms. Domestic legislation protects all intellectual property rights, including patents, copyrights, trademarks, industrial designs, and utility models. Amendments to the trademark law and the copyright law have brought Czech law into compliance with relevant EU directives and WTO Trade-Related Aspects of Intellectual Property Rights (TRIPS) requirements. The civil procedure code provides for ex parte search and seizure in enforcement actions. Literary works enjoy copyright protection from 50 to 70 years. The customs service and the Czech Commercial Inspection have legal authority to seize counterfeit goods. A 2006 amendment to the Law on Civil Procedure made ex-parte search more accurate, clearer and easier to apply and enforce. The amendment also made it easier to define and recover losses caused to owners by piracy. The Criminal Code which came into effect January 1, 2010, increased maximum penalties for trademark, industrial rights and copyright violations from two to eight years.

Intellectual property rights (IPR) violations at markets on the borders of Germany and Austria were once an issue of greater concern, but since 2008, Czech authorities have made substantial efforts against physical markets and have adopted an acceptable legal framework for IPR protection. In recognition of this fact, USTR removed the Czech Republic from the Special 301 Watch List in 2011. While online piracy is a growing concern, the legal framework for IPR protection has been tested and proven successful in punishing infringers. The Embassy will continue to work with U.S. industry and Czech government officials to strengthen enforcement of intellectual property rights.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.

Resources for Rights Holders

The Embassy POC covering IPR issues in the Czech Republic:

Marko Velikonja
Senior Economic Officer
+420 257 022 000
velikonjamg@state.gov

American Chamber of Commerce (AmCham), address: Dusni 10, Prague 1, Postal Code: 110 00, phone: +420 222 329 430, fax: +420 222 329 433, http://www.amcham.cz/

Association for Foreign Investment, address: Stepanska 11, Prague 2, Postal Code: 120 00, phone: +420 224 911 750-1, http://afi.cz/

CzechInvest, the Investment and Business Development Agency, address: Stepanska 15, Prague 2, Postal Code: 120 00, phone: +420 296 342 500, fax: +420 296 342 502, www.czechinvest.org

Czech Chamber of Commerce, address: Freyova 27, Prague 9, Postal Code: 190 00, phone: +420 266 721 300, fax: +420 266 721 532, http://www.komoracz.eu/

Ministry of Industry and Trade of the Czech Republic, address: Na Františku 32, Prague 1, Postal Code: 110 15, phone: +420 224 851 111, fax: +420 224 811 089, www.mpo.cz

Commercial Register, address: Vyšehradská 16, Prague 2, Postal Code: 128 10, phone: +420 221 997 111, fax: +420 224 919 927, www.justice.cz

Trade Register, www.rzp.cz

Ministry of Finance of the Czech Republic, address: Letenská 15, Prague 1, Postal Code: 118 10, phone: +420 257 041 111, www.mfcr.cz

Czech National Bank, postal address: Na Prikope 28, Prague 1, Postal Code: 115 03, phone: +420 224 411 111, fax: +420 412 404, filing room address: Senovázna 3, Prague 1, Postal Code: 115 03, www.cnb.cz

Ministry of Foreign Affairs of the Czech Republic, Doing Business Guide including contact information for investors:
https://www.mzv.cz/beijing/cz/obchod_a_ekonomika/kdo_jsme_a_kde_nas_najdete/all_you_have_to_know_about_doing/index.html

7. Transparency of the Regulatory SystemShare    

Tax, labor, environment, health and safety, and other laws generally do not distort or impede investment. Policy frameworks are consistent with a market economy. All laws and regulations are published before they enter into force. Opportunities for prior consultation on pending regulations exist, and all interested parties, including foreign entities, can participate. A biannual governmental plan of legislative and non-legislative work is available on the Internet, along with information on draft laws and regulations (often only in the Czech language). Business associations, consumer groups and other non-governmental organizations, including the American Chamber of Commerce, can submit comments on laws and regulations.

A 2014 OECD Country Economic Survey notes that, since joining the EU, the Czech Republic has made progress in improving its inconsistent competition policy and removing bureaucratic barriers that inhibit competition. The competition framework is on par with OECD best practices, but successful prosecution of cartels has rarely happened. The OECD survey is available at: http://www.oecd.org/czech/economic-survey-czech-republic.htm.

8. Efficient Capital Markets and Portfolio InvestmentShare    

Money and Banking System, Hostile Takeovers

Large domestic banks belong to European banking groups. Most operate conservatively and concentrate almost exclusively on the domestic Czech market. As a result, Czech banks remained relatively healthy throughout recent global financial crisis. Results of regular banking sector stress tests, as conducted by the Czech National Bank (CNB), repeatedly confirm the outstanding state of the Czech banking sector, presenting a capital adequacy ratio exceeding 17 percent, on average, which is deemed sufficient resistance to potential shocks. Stress test conditions developed by the CNB present substantially stricter criteria than those set up by the European Central Bank (ECB). Results of the most recent stress test conducted by the CNB are available at https://www.cnb.cz/cs/financni_stabilita/zatezove_testy/. As of December 31, 2015, the total assets of commercial banks stood at CZK 5.44 trillion (approximately USD 225 billion), according to the CNB. Foreign investors have access to bank credit on the local market, and credit is generally allocated on market terms. Domestic household borrowing in foreign currencies is negligible. In 2002, banks established a mechanism for sharing credit histories of borrowers.

The issue of hostile takeovers is covered by the EU Directive 2004/25/EC on Takeover Bids. The copy of this document is available at:

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2004:142:0012:0023:EN:PDF

The Prague Stock Exchange (PSE) is small, with only 15 listed companies. The overall trade volume of stocks increased from CZK 153.5 billion (USD 6.1 billion) in 2014 to CZK 167.9 (USD 6.8 billion) in 2015, with an average daily trading volume of CZK 674.3 million (USD 27.3 million). The PSE index (PX) increased by one percent in 2015. The PX development trend reflected signs of very weak revitalization activity as well as slowly increasing liquidity on the PSE.

In March 2007, the PSE created the Prague Energy Exchange (PXE) to trade electricity in the Czech Republic and Slovakia and, later, Hungary. (The Exchange’s official name now is Power Exchange Central Europe) PXE's goal is to increase liquidity in the electricity market and create a standardized platform for trading energy.

A new securities law was adopted in 2001 to improve regulation of brokers and dealers. In 2006, supervision over banks, capital markets, insurance houses and pension funds were combined under the umbrella of the Czech National Bank http://www.cnb.cz/en/index.html.

9. Competition from State-Owned EnterprisesShare    

The Ministry of Finance is the administrator of the ownership rights of SOEs. Issues of potentially conflicting interests are covered by existing Act No. 159/2006 on Conflicts of Interest. Legislation on the civil service took effect January 1, 2015, and established measures to prevent political influence over public administration, including operation of SOEs.

Private enterprises are generally allowed to compete with public enterprises under the same terms and conditions with respect to access to markets, credit, government contracts and other business operations, although there are frequent accusations that large domestic companies – including both SOEs and private firms – use their political clout and connections to gain unfair advantage. SOEs purchase or supply goods or services from private sector/foreign firms. SOEs are subject to the same domestic accounting standards, rules and taxation policies as their private competitors, and do not afford any material advantages, compared to private entities. State-owned or majority state-owned companies are present in several (strategic) fields, including the energy, postal service, information & communication, and transport sectors. The Czech state also owns interests in two small banks, and in an insurance house. One of the banks and the insurance house specialize in export financing; their services are available to both private firms and SOEs.

SOEs are usually structured as joint-stock companies. They do not report directly to ministries but are managed by a Board of Directors (statutory body) and a Supervisory Board that generally includes representatives of the government and trade unions representing by law employees, both union and non-union. Like privately owned joint-stock companies, the SOEs are fully responsible for their obligations towards third parties although shareholders are not personally liable for a company's obligations. SOEs are required by law to publish an annual report and disclose their accounting books, and submit to an independent audit.

Private enterprises and SOEs carry out procurement in accordance with the Act on Public Procurement No 137/2006 (http://www.portal-vz.cz/getmedia/f93961f9-8ea1-41dc-852f-154e657e791e/137-2012-AJ-KZ-_2) which is fully harmonized with the existing EU legislation on Public Procurement. In harmony with the long-term efforts to secure single rules for public procurement purposes, the European Commission issued proposals to amend Directives 2004/17/EC on procurement in the water, energy, transport and postal services sectors (COM/2011/895 final) and 2004/18/EC on public works, supply and service contracts (COM/2011/0896 final), as well as for the adoption of a Directive on concession contracts (COM/2011/0897 final) in December 2011. New Directives were adopted by the European Parliament and the Council of the European Union on 26 February 2014. EU countries had until April 2016 to transpose the new rules into national law (except with regard to e-procurement where the deadline is October 2018). Details on updated legislation are available athttp://ec.europa.eu/growth/single-market/public-procurement/index_en.htm.

A list of some 50 state-owned or majority state-owned companies is available at: http://www.mfcr.cz/cs/verejny-sektor/hospodareni/majetek-statu/2016/majetkove-ucasti-ministerstva-financi-ke- 24337.

OECD Guidelines on Corporate Governance of SOEs

As an OECD member, the Czech Republic promotes the OECD Principles of Corporate Governance and the affiliated Guidelines on Corporate Governance for SOEs. SOEs are subject to the same legislation as private enterprises regarding their commercial activities. The Ministry of Finance administers the government's ownership of SOEs; http://www.mfcr.cz/en/.

Corporate Governance rules are covered by:

Act on Criminal Liability of Legal Entities
Act on Corporations
Civil Code
Act on Capital Markets
Act on Audit
Act on Banks
Money Laundry Act
Public Procurement Act

In 2004, an Administration and Management Code was developed based on the OECD Principles of Corporate Governance to set up standards of operation for business entities and their relation to shareholders, investors, creditors and auditors. As a result of numerous subsequent legislative updates, corporate governance rules are now in the process of being modified to reflect current trends in corporate administration and management, as well as to meet new rules (to be) adopted by the EU, such as on obligatory provision on data collection.

Information on Corporate Governance principles is available on the web sites of the Corporate Governance Institute http://www.governance.cz/cs/.

Courts act independently and are declared to be free from any interference. Post is not aware of any evidence of discriminatory conduct presented by courts with respect to favoritism toward a SOE.

Sovereign Wealth Funds

The Czech government does not operate any sovereign wealth fund.

10. Responsible Business ConductShare    

The concept of responsible business conduct (RBC) is fairly new in the Czech Republic. The government has successfully grasped the concept of corporate social responsibility (CSR) and it is in the process of understanding and defining RBC. Some principles of RBC are consistent with already long-effective laws protecting human rights, environment, labor relations, and financial accountability. In addition, the host country has a well-developed structure of trade unions and the private sector in particular, responds to societal expectations through voluntary implementation of their own CSR) programs.

In April 2014, the Czech government approved the National Action Plan for CSR. The document was drafted in cooperation with NGOs and private companies and presented by the Ministry of Industry and Trade. The major goal of the National Action Plan is to establish fundamental principles and to support and encourage CSR, highlighting that CSR should remain a voluntary policy. In 2015, CSR and the Sustainable Development Section of the Quality Council of the Czech Republic - an advisory and coordination body of the government - actively encouraged CSR in the Czech Republic through creation of a National Informational CSR Portal that provides businesses, NGOs, representatives of state administration, and the public with updates related to CSR in the Czech Republic. In addition, the Section participated in a number of public and expert forums, advocating for social responsibility and sustainable development, and it submitted an updated version of the National Action Plan (NAP) for CSR.

The updated NAP touches on the issues of public tenders and encourages businesses and state administration to consider potential long-term social and environmental impacts of their procurement decisions, instead of deciding strictly based on financial costs.

Post is not aware of any controversial instances of corporate impact on human rights.

The government strictly and effectively enforces legislation in the area of human rights, labor rights, consumer protection, and environmental protection to protect individuals from adverse business impacts. Domestic standards are generally very high and in many instances exceed EU-wide requirements. Negligence or failure to comply with this legislation results in serious consequences.

Shareholders are protected by developed legislation that clearly describes legal processes, organization structures, administration, management of all business components, including stakeholders.

Companies are not required to publicly disclose information about their RBC or CSR activities. However, they gladly promote their efforts, for example by applying for prestigious CSR awards.

Various local NGOs monitor and advise CSR programs, such as the Business Leaders Forum, Business for Society, the CSR Association, and the CSR Committee of the American Chamber of Commerce. Business for Society gives annual CSR awards to the “Top Responsible Company” in order to increase public awareness about CSR, promote and reward excellent CSR achievements, and to encourage entrepreneurship. The private sector competes for prizes in 12 various categories and the event enjoys strong media attention. Growing numbers of applicants, especially small and medium-sized Czech companies, indicate increasing attention these companies are paying to CSR.

The host government encourages local as well as foreign enterprises to follow generally accepted RBC principles on grounds of adherence to the OECD Guidelines for Multinational Enterprises (MNE) and to the United Nations Guiding Principles of Business and Human Rights. The OECD Guidelines for MNE are actively promoted by the National Contact Point and the United Nations Principles are being reviewed at the Office of the Government, with the goal to issue a separate national action plan to secure its implementation.

Since 2013, the host government has maintained a National Contact Point (NCP) for OECD MNE guidelines. The NCP working group consists of representatives of the government, employer organizations (Confederation of Industry and Trade), employee organizations (Czech-Moravian Confederation of Trade Unions), and NGOs (Frank Bold). It is supervised by the Ministry of Industry and Trade. In November, the NCP in cooperation with the Norwegian NCP organized an all-day seminar focused on the importance and mission of the OECD MNE guidelines. The goal was to introduce representatives of business, unions, and state administration to the text of the guidelines, to its objectives and to activities of the NCP. The Norwegian NCP presented their experience with practical implementation of the guidelines in Norway. In addition, the Czech NCP participates in the Economic Diplomacy Course for Czech diplomats and other employees, organized by the CzechTrade agency. The NCP closely and actively cooperates with other regional NCPs to share best practices, procedures and experience.

The host government adheres to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. At the moment, a joint EU directive, which should establish specific responsibility for the whole supply chain, has been submitted by the European Commission and is being negotiated in the European Parliament. The implementer of this agenda in the Czech Republic is the Ministry of Industry and Trade, which should transcribe the EU directive into national legislation.

The Czech Republic does not have any significant oil and natural gas resources and is dependent on purchasing these commodities from abroad. There are no special domestic transparency measures requiring the disclosure of payments made to governments for projects related to the commercial development of oil, natural gas, or minerals. Payments for extraction of minerals in the Czech Republic abide by the Mining Law, which clearly determines payments are processed for extracted minerals as well as for mined areas. International trade with oil, natural gas and minerals is not subject to any special legislation; it follows the general rules of international trade. The Czech Republic is not an EITI Complaint Country, nor an EITI candidate.

OECD Guidelines for Multinational Enterprises

The Czech Republic adheres to the OECD Guidelines for Multinational Enterprises, ensured by the Director of Multilateral and Common Trade Policy Department at the Ministry of Industry and Trade.

11. Political ViolenceShare    

The risk of political violence in the Czech Republic is extremely low. Two historic political changes – the Velvet Revolution, which ended the communist era in 1989, and the division of Czechoslovakia into the Czech Republic and Slovakia in 1993 – occurred without loss of life or significant violence.

12. CorruptionShare    

Current law criminalizes both payment and receipt of bribes, regardless of the perpetrator's nationality. Prison sentences for bribery or abuse of power can be as high as twelve years for officials, and police investigate bribery with tools such as wire-tapping. Corruption of public officials is prosecuted on the regional level to ensure that prosecutors have specialized knowledge and avoid bias; the government believes that regional prosecutors know the local environment and actors better that their colleagues on the national level. The special Organized Crime Police Unit (UOOZ) and the Unit for Combating Corruption and Serious Financial Criminality (UOKFK) are primarily responsible for investigating high-level corruption cases. Bribes are not tax deductible, and all anti-corruption laws apply equally to Czech and foreign investors. Criminal procedure law allows for the seizure of criminal proceeds paid or transferred to family members of corrupt officials, although their prosecutions depend on evidence.

The current government has proclaimed fighting corruption as one of its priorities, and to that end, has been working on anti-corruption legislation. It has passed an amendment to the law on public procurement, and a new law on the register of public tenders. In addition, the Government Legislative Council is reviewing a new law on the public prosecution service that envisages a more independent prosecutor. It then goes to the Cabinet for approval before submission to the Chamber of Deputies, perhaps as soon as the current spring 2016 session.

Two more anti-corruption bills are currently debated in the Chamber of Deputies: the financial disclosure bill and the bill on financing political parties.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

A law introducing criminal liability for legal entities came into effect on January 1, 2012. The government ratified the OECD Anti-Bribery Convention in January 2000 and the UN Convention Against Corruption (UNCAC) in January 2014. According to Transparency International (TI) reports, there is little or no enforcement of the OECD Convention in the Czech Republic. TI cites insufficient definition of foreign bribery offenses, jurisdictional limitations, lack of coordination between investigation and enforcement entities, inadequate whistleblower protection, and lack of awareness as the causes for this lack of enforcement.

The Czech Republic became a member of the Open Government Partnership in 2011, and in 2012 approved an Action Plan including the adoption of an Act on Civil Servants, which was intended to lead to a system allowing freer access to information and publication of data. Yet due to the 2013 collapse of the Necas Government, none of the goals have been fulfilled.

In 2013 a new anti-corruption initiative called Reconstruction of the State was launched. This confederation of nearly 20 locally-renowned anti-corruption organizations has worked towards strong anti-corruption reform in the Czech Republic and has successfully advocated for the adoption of six new pieces of anti-corruption legislation.

Despite widespread concern about corruption, U.S. companies have not been significantly deterred from investing in the Czech Republic. The most common allegations of corruption relate to public procurement and external pressures on the judiciary. An April 2012 procurement reform law lowered the threshold for application of procurement rules to contracts valued at one million Czech crowns (USD 50,000) for services and three million crowns (USD 150,000) for construction, although the Senate later amended it by raising the threshold by 10 percent. The law requires more than one bidder for all procurements and mandates that the tender be published. The law also requires bidders to disclose more of their ownership structure in the bidding process, but it contains some exceptions to that obligation. American businesses have also cited inconsistent competition policies as an investment obstacle.

An amendment to the Law on the Central Registry of Contracts was enacted in December 2015 and will take effect July 1, 2016. The amendment proposes to require all national, regional and local authorities and companies to make public all newly concluded contracts valued at CZK 50,000 (USD 2,000) or more.

Resources to Report Corruption

Contact at government agency responsible for combating corruption:

Eva Kyzourova
Department for Combating Corruption
Office of the Government
Vladislavova 4
11000 Praha 1
+420 224 002 412
sekretariat.brs@vlada.cz

Contact at watchdog organization:

David Ondracka
Director
Transparency International Czech Republic
Sokolovska 260/143
+420-224 240 895
ondracka@transparency.cz

13. Bilateral Investment AgreementsShare    

The Czech Republic and United States share a bilateral investment treaty (BIT). The former government of Czechoslovakia signed the original BIT with the United States in 1992, and the Czech Republic adopted this treaty in 1993, after the split with Slovakia. The Czechs amended the treaty in 2003, along with other new EU entrants which had U.S. BITs, following negotiations with the European Commission about conflicts within the EU acquis communautaire.

Several dozen other countries have signed and ratified investment agreements with the Czech Republic, and some are in the process of ratification. The Czech Republic has abrogated several treaties – mostly those with other/new EU member states, in accordance with the EU determination that, given the Commission's new investment competence under the Lisbon Treaty, investment treaties among member states are now inconsistent with EU legislation. The full list of agreements, including ratification dates, can be found on the Ministry of Finance website http://www.mfcr.cz/cs/legislativa/dohody-o-podpore-a-ochrane-investic/prehled-platnych-dohod-o-podpore-a-ochra.

Bilateral Taxation Treaties

A bilateral U.S.-Czech Convention on Avoidance of Double Taxation has been in force since 1993. In 2007 the U.S. and Czech governments signed a bilateral Totalization Agreement that exempts Americans working in the Czech Republic from paying into both the Czech and U.S. social security systems. The agreement entered into force on January 1, 2009. In 2013 the U.S. and Czech governments signed a Supplementary Totalization Agreement amending the original agreement to reflect new Czech legislation on health insurance. In 2014, the U.S. and the Czech Republic signed an Agreement on Improvement of International Tax Compliance and to Implement FATCA (the Foreign Account Tax Compliance Act).

14. OPIC and Other Investment Insurance ProgramsShare    

Finance programs of the Overseas Private Investment Corporation (OPIC), including investment insurance, have been available in the Czech Republic since 1991. Investors are urged to contact OPIC's offices in Washington directly for up-to-date information regarding availability of services and eligibility. The OPIC Info Line (202) 336-8799 offers general information 24 hours a day. Application forms and detailed information may be obtained from OPIC, 1100 New York Avenue, NW, Washington D.C. 20527. The Czech Republic is a member of the World Bank Group's Multilateral Investment Guarantee Agency (MIGA).

15. LaborShare    

A historically strong and well-developed machinery industry, one of key drivers of Czech exports, requires a wide range of technically qualified staff, including the entire spectrum of professions from manual workers to constructors/designers. The emerging strengthening of the electronics and information technology sectors is also creating demand for highly skilled workers.

The wide availability in the Czech Republic of an educated, relatively low-cost labor force on the doorstep of Western Europe has been a major attraction for foreign investors. While the wage gap continues to narrow, the income convergence process was slowed due to the recession, and Czech wages still trail significantly those of neighbors like Germany and Austria. In late 2015, wages started to grow slowly again. According to the Czech Statistical Office, 70 percent of Czechs from age 15-64 were employed in February 2015. According to Eurostat, the Czech unemployment rate (seasonally adjusted) was 4.5% in January 2016, second only to Germany among EU countries. However, unemployment rates vary significantly between regions. In September 2015 the unemployment rate was lowest in Prague (4.2 percent) and highest in the northwestern region of Ústí nad Labem (8.9 percent).

Freedom of Association and the Right to Collective Bargaining

Czech law guarantees workers’ rights to form and join independent unions of their choice without authorization or excessive requirements. It permits them to conduct their activities without interference. The right to freely associate covers both citizens and foreign workers. The law also provides for collective bargaining. It prohibits anti-union discrimination and does not recognize union activity as a valid reason for dismissal. Workers in most occupations have the legal right to strike if mediation efforts fail, and they generally exercise this right.

Strikes can be restricted or prohibited in essential service sectors such as hospitals, electricity/water supply services, air traffic control, the nuclear energy sector, and oil /natural gas sectors. Members of the armed forces, prosecutors, and judges may not form trade unions or strike. The scope for collective bargaining is limited for civil servants, whose wages are regulated by law. Only trade unions may legally represent workers, including non-members.

Prohibition of Child Labor and Minimum Age for Employment

The minimum age for employment is 15. Employment of children between the ages of 15 and 18 is subject to strict standards of safety, limitations on hours of work, and the requirement that work not interfere with education. Infringement of child labor rules is subject to fines up USD 83,000. The State Bureau for Labor Inspections (SBLI) effectively enforced these regulations. The SBLI has not reported any recent cases of child labor law violations.

Acceptable Conditions of Work

The law provides for a 40-hour workweek, two days of rest per week, and a break of at least 30 minutes during a standard eight-hour workday. Employees are entitled to at least 20 days of paid annual leave. Employers may require up to eight hours per week of overtime to meet increased demand but not more than 150 hours of overtime in a calendar year. Additional overtime is subject to employee consent. The provisions of the labor code govern premium pay for overtime, which is equal to at least 125 percent of the average earnings.

The Ministry of Labor and Social Affairs establishes and enforces minimum wage standards. During the year the national minimum wage increased from USD 350 to USD 380 per month (Note: The wage increased from CZK 8,500 to 9,200 per month, but the dollar value has declined due to depreciation of the Czech Crown against the U.S. Dollar). By comparison, the minimum subsistence cost, defined as the minimum amount needed to satisfy the basic needs of a working-age adult for a month, was USD 92. Enforcement of the minimum wage was one of the primary objectives of SBLI inspections.

The government sets occupational health and safety standards. The labor code obliges an employer to provide safety and health protection in the workplace, maintain a safe and healthy work environment, and prevent health and safety risks.

16. Foreign Trade Zones/Free Ports/Trade FacilitationShare    

Both Czech and EU laws permit foreign investors involved in joint ventures to take advantage of commercial or industrial customs-free zones into which goods may be imported and later exported without depositing customs duty. Free zone treatment applies to both non-Community and Community goods, and duties need to be paid only in the event that the goods brought into the free zone are introduced into the local economy. However, since the Czech Republic has been part of the single customs territory of the European Community, and offers various exemptions on customs tariffs, the use of these 11 free-trade zones has declined.

17. Foreign Direct Investment and Foreign Portfolio Investment StatisticsShare    

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

 

Host Country Statistical source*

USG or international statistical source

USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other

Economic Data

Year

Amount

Year

Amount

 

Host Country Gross Domestic Product (GDP) ($M USD)

2015

$181.8 billion

2014

$205.3 billion

http://data.worldbank.org/country/czech-republic

Foreign Direct Investment

Host Country Statistical source*

USG or international statistical source

USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other

U.S. FDI in partner country ($M USD, stock positions)

2014

$4.388 billion

2014

$7.247 billion

http://bea.gov/international/direct_investment_
multinational_companies_comprehensive_data.htm

Host country’s FDI in the United States ($M USD, stock positions)

2014

$38.1 million

2014

$93 million

http://bea.gov/international/direct_investment_
multinational_companies_comprehensive_data.htm

Total inbound stock of FDI as % host GDP

2014

3.2%

2014

3.53%

World Bank

*Source: Czech National Bank

Czech GDP grew approximately 4.3 percent in 2015, expressed in Czech Crowns. However, in 2014 the average exchange rate was 20.75/USD, and in 2015 24.6, so Czech GDP declined when expressed in USD.

Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data – 2014

From Top Five Sources/To Top Five Destinations (US Dollars, Millions)

Inward Direct Investment

Outward Direct Investment

Total Inward

122,081

100%

Total Outward

17,494

100%

Netherlands

31,268

26%

Netherlands

6,966

40%

Austria

16,938

14%

Slovakia

2,872

16%

Germany

15,491

13%

Germany

1,064

6%

Luxembourg

14,826

12%

Jersey

1,064

4%

France

6,782

6%

Bulgaria

552

3%

"0" reflects amounts rounded to +/- USD 500,000.

The IMF data differ significantly from the statistics from the Czech National Bank, which ranks the highest 2014 FDI inflows as coming from Germany ($3.9 billion), Cyprus ($1.6 billion), Luxembourg ($1.55 billion), France ($1.14 billion), and Poland ($618 million).

The Czech Statistical Office ranks the top five FDI destination countries as Germany ($496 million), Croatia ($275 million), Luxembourg ($136 million), Slovakia ($117 million), and Liechtenstein ($72.9 million). https://www.cnb.cz/en/statistics/bop_stat/fdi/fdi.html

The top sources of and destinations of Czech foreign direct investment represent a combination of major EU trading partners and favored tax havens. The leading country for both inward and outward direct investment flows is the Netherlands. In the early 1990s, it became a popular place for corporate registration for domestic and foreign businesses active in the Czech Republic. In past years, the main rationale for registering a business in the Netherlands related to favorable corporate income taxes, stimulating rapid development of offshore corporate structures in the Czech Republic. While the tax haven effect has dissipated (corporate income tax rates in the Czech Republic and Netherlands are nearly equal), the Netherlands remains a popular country for large corporations. Luxembourg attracts Czech businesses for the same reason. In 2013, 4,500 out of 12,000 Czech companies registered abroad resided in the Netherlands. Among the other FDI partner countries, Cyprus offers one of the lowest corporate income tax rates in the EU (currently 12.5 percent), and tax exemption of dividends. Nevertheless, all corporations are required to have an independent audit of their accounting.

These statistical distortions should dissipate in future years with the global adoption of the recently revised OECD Benchmark Definition for FDI, which is designed to discount investment flows from special purpose entities.

Table 4: Sources of Portfolio Investment

Portfolio Investment Assets – 2014

Top Five Partners (Millions, US Dollars)

Total

Equity Securities

Total Debt Securities

All Countries

29,221

100%

All Countries

13,308

100%

All Countries

15,913

100%

Austria

4,837

17%

Luxembourg

3,587

27%

Slovakia

3,219

20%

Luxembourg

4,286

15%

Belgium

2,606

20%

Austria

2,842

18%

Slovakia

3,493

12%

Austria

1,996

15%

Netherlands

1,610

10%

Belgium

2,731

9%

United States

1,477

11%

Poland

1,429

9%

United States

2,576

9%

Ireland

679

5%

France

1,162

7%

 

18. Contact for More InformationShare    

Marko Velikonja
Senior Economic Officer
Trziste 15, 118 01 Prague 1
+420 257 022 000
velikonjamg@state.gov