The Czech Republic is a medium-sized, open economy with 71 percent of its GDP based on exports, mostly from the automotive and engineering industries. According to the Czech Statistical Office, most of the country’s exports go to the European Union (EU), with 32.4 percent going to Germany alone. The United States is the Czech Republic’s second largest non-EU export destination, following the United Kingdom. While the Czech GDP dropped by 5.6 percent due to the economic impact of COVID-19 in 2020, it rebounded in 2021 to 3.3 percent according to the Czech Statistical Office. The Ministry of Finance forecasts 3.1 percent growth for 2022.
The “Bill on Screening of Foreign Investments” entered into force May 1, 2021. The law gives the government the ability to screen greenfield investments and acquisitions by non-EU investors.
The Czech Republic has taken strides to diversify its traditional investments in engineering into new fields of research and development (R&D) and innovative technologies. EU structural funding has enabled the country to open a number of world-class scientific and high-tech centers. EU member states are the largest investors in the Czech Republic.
The United States announced on February 15, 2020 plans to provide up to USD 1 billion in financing through the Development Finance Corporation (DFC) to the Three Seas Initiative Investment Fund, the dedicated investment vehicle for the Three Seas Initiative and its participating Central and Eastern European countries. The Three Seas Initiative seeks to reinforce security and economic growth in the region through the development of energy, transportation, and digital infrastructure. In December 2020 the DFC approved the first tranche of U.S. financial support for the Three Seas Initiative Investment Fund amounting to USD 300 million.
The European Bank for Reconstruction and Development (EBRD) agreed March 24, 2021, to a request from the Czech cabinet to return as an investor to the Czech Republic after a 13-year pause to help mitigate the impact of the COVID-19 pandemic on the economy. The EBRD’s investments in the Czech Republic primarily focus on private sector assistance and should reach EUR 100 – 200 million annually (USD109-218 million). The EBRD plans to be involved in investment projects in the Czech Republic temporarily (maximum five years).
The continued economic fallout from COVID-19 resulted in the Czech Republic’s highest historic state budget deficit of 419.7 billion crowns (USD 18.2 billion) in 2021. In 2021, the Czech Republic appropriated approximately USD17 billion for the COVID-19 response, including USD7.7 billion in direct support, USD 6.7 billion in healthcare and social services expenses, and USD2.3 billion in loan guarantees.
The Czech Republic has adopted environmental strategies and policies to address the climate crisis. Public procurement policies include environmental considerations, and the government provides subsidies to companies for using modern low-carbon technologies, renewables, and resource-effective processes.
There are no significant risks to doing business responsibly in areas such as labor and human rights in the Czech Republic.
The Czech Republic fully complies with EU and the Organization for Economic Cooperation and Development (OECD) standards for labor laws and equal treatment of foreign and domestic investors. Wages continue to trail those in neighboring Western European countries (Czech wages are roughly one-third of comparable German wages). While wage growth slowed in 2020 following the coronavirus pandemic, resulting in a 3.1 percent year-on-year increase, wages rose by 6.1 percent in 2021, according to the Czech Statistical Office. As of the fourth quarter of 2021, wages grew primarily in the real estate, accommodation, and hospitality sectors. As of January 2022, the unemployment rate remained the lowest in the EU, at only 2.3 percent.
|TI Corruption Perceptions Index||2021||49 of 180||http://www.transparency.org/research/cpi/overview|
|Global Innovation Index||2021||24 of 132||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2020||5,629||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2020||22,070||https://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
2. Bilateral Investment Agreements and Taxation Treaties
The Czech Republic and the United States have shared a bilateral investment treaty (BIT) for decades. The government of Czechoslovakia signed the original BIT with the United States in 1992, and the Czech Republic adopted this treaty in 1993, after the breakup of Czechoslovakia. The Czechs amended the treaty in 2003, along with other new EU entrants that had U.S. BITs, following negotiations with the European Commission about conflicts within the EU acquis communautaire.
Several dozen countries have signed and ratified investment agreements with the Czech Republic, and some are in the process of ratification. The full list of agreements, including ratification dates, can be found on the Ministry of Finance website in Czech language only at: http://www.mfcr.cz/cs/legislativa/dohody-o-podpore-a-ochrane-investic/prehled-platnych-dohod-o-podpore-a-ochra. The list of all BITs between the Czech Republic and other countries is available in English at: https://investmentpolicy.unctad.org/international-investment-agreements/countries/55/czechia.
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 took effect 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 United States and the Czech Republic signed an Agreement on Improvement of International Tax Compliance and to implement the U.S. Foreign Account Tax Compliance Act (FATCA).
The Czech Republic is a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting and a party to the Inclusive Framework’s October 2021 deal on the two-pillar solution to global tax challenges, including a global minimum corporate tax.
7. State-Owned Enterprises
The Ministry of Finance administers state ownership policies. State-owned enterprises (SOEs) are structured as joint-stock companies, state enterprises, national enterprises, limited liability companies, and limited partnerships. SOEs are owned by the individual ministries but are managed according to their business organizational structure as defined by law and are required to publish an annual report, disclose their accounting books, and submit to an independent audit. Potential conflicts of interest are covered by existing Act No. 159/2006 on Conflicts of Interest, and Act No. 14/2017 on Amendments to the Act on Conflict of Interest. Legislation on the civil service, which took effect January 1, 2015, 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. SOEs purchase or supply goods and services from private sector and foreign firms. SOEs are subject to the same domestic accounting standards, rules, and taxation policies as their private competitors, and are not given any material advantages compared to private entities. State-owned or majority state-owned companies are present in several (strategic) sectors, including the energy, postal service, information and communication, and transport sectors.
The Czech Republic has 52 wholly owned SOEs and three majority owned SOEs (excluding those in liquidation). Wholly owned SOEs employ roughly 78,000 people and own more than CZK487 billion (approximately USD21.1 billion) in assets. A list of all companies with a percentage of state ownership is available in Czech at: https://www.komora.cz/legislation/167-19-strategie-vlastnicke-politiky-statu-t-20-12-2019/.
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.
8. Responsible Business Conduct
The concept of responsible business conduct (RBC) is now widely understood, and every year is implemented by more companies in the Czech Republic. As an adherent to the OECD Guidelines for Multinational Enterprises (MNE) and to the United Nations Guiding Principles of Business and Human Rights, the government promotes corporate social responsibility (CSR) and encourages local as well as foreign enterprises to adopt a ‘due diligence’ approach to RBC principles. The Czech National Contact Point (NCP) has operated since 2013 at MOIT: https://www.mpo.cz/dokument75865.html. 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. The NCP closely and actively cooperates with other regional NCPs to share best practices, procedures, and experience.
In conjunction with the UN Commission on Business and Human Rights, in 2019 the Czech government approved a National Action Plan (NAP) for CSR for the years 2019-2023. The major goal of the NAP is to establish fundamental principles and to motivate businesses and public administration to voluntarily implement specific CSR projects. In 2015, the Sustainable Development Section of the Quality Council of the Czech Republic created 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.
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. Negligence or failure to comply with this legislation results in serious consequences.
Shareholders are protected by legislation that clearly describes legal processes, organizational structures, administration, and management of all business components, including stakeholders.
Companies are not required to publicly disclose information about their RBC or CSR activities. Various local NGOs monitor and advise CSR programs, such as the Association for Corporate Social Responsibility, the Business Leaders Forum, and Business for Society. The Association for CSR is the host entity in the Czech Republic for the UN Global Compact, a UN strategic policy initiative for businesses that are committed to aligning their operations and strategies with 10 universally accepted principles in the areas of human rights, labor, environment, and anti-corruption.
Payments for extraction of minerals in the Czech Republic abide by the Mining Law, which requires that 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 Extractive Industries Transparency Initiative (EITI)-compliant country or an EITI candidate. The Czech government adheres to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. MOIT is responsible for implementation and compliance.
The Czech Republic joined The Montreux Document on Private Military and Security Companies on November 14, 2013.
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 12 years for officials. There have been several successful cases prosecuting corruption, though some experts have noted proceedings can be lengthy and subject to delays. The National Center for Organized Crime (NCOZ) is primarily responsible for investigating high-level corruption cases, however some experts have raised concerns about cumbersome procedural requirements. Anti-corruption laws authorize seizures of proceeds or instruments of crime and apply equally to Czech and foreign investors.
Czech law obliges legislators, members of the cabinet, and other selected public officials to declare their assets annually. Summarized declarations are available online and complete declarations are available upon request from the Ministry of Justice, which can impose penalties of up to CZK50,000 (approximately USD2,170) for non-compliance. The law also requires judges, prosecutors and directors of research institutions to disclose their assets, however their declarations are not publicly available for security reasons.
In addition to the financial disclosure law, the government regulates political parties financing, public procurements, and the register of public contracts. The law on the register of public contracts requires all national, regional, and local authorities as well as private companies to make publicly available all newly concluded contracts (including subsidies and repayable financial assistance) valued at CZK50,000 (USD2,170) or more within 30 days; noncompliance renders contracts null and void. Additionally, as of November 2019, major state-owned companies are required to publish all contracts, except in limited circumstances. The Registry of Contracts has a website in Czech only at: https://smlouvy.gov.cz/.
Public procurement law requires every contracting authority to post winning contracts on its website within 15 working days of signing. Subject to limited exceptions, the law mandates more than one bidder for all public procurements and requires bidders to disclose their ownership structure prior to bidding. In addition to general conflict-of-interest law, the procurement law also addresses some conflict-of-interest issues related to government procurements. The Council of Europe’s Group of States Against Corruption (GRECO) evaluation report listed missing whistleblower protection and regulation of lobbying as problematic.
The “Beneficial Ownership Bill” came into force in June 1, 2021. The law is a part of a transposition of an EU convention on anti-money laundering and counterterrorism financing and requires transparency regarding the real (or “beneficial”) ownership of companies seeking subsidies or public contracts. The law bars anonymously owned companies from applying for public subsidies or tenders, although it does not empower officials to challenge discrepancies or irregularities in a company’s ownership structure, absent a court finding. However, the European Commission asserted in December 2021 that the Czech law does not meet EU requirements, because it allows two types of owners to be listed for one company: one with “final influence” and one who is the “final recipient of benefits”. The European Commission also criticized the carveout that public research institutions, SOEs, political parties, schools, and some other associations are not required to declare their beneficial ownership. The Czech government reported March 2022 it would make changes to the law to comply with EU requirements.
According to a law which came into force in January 2020, candidates filling supervisory board positions in state-owned companies must be selected in a clear, transparent process that prioritizes technical expertise and is reviewed by an advisory committee whose members are apolitical experts. Separately, the government recommends companies maintain internal codes of conduct that, among other things, prohibit bribery of public officials.
The Council of Europe’s anti-money laundering body MONEYVAL reported at the end of 2021 that the Czech Republic has considerably improved its implementation of measures against money laundering and terrorist financing since 2020.
The government ratified the OECD Anti-Bribery Convention in 2000 and the UN Convention against Corruption in 2014. According to the 2017 OECD Phase 4 Evaluation Report, the Czech Republic should take steps to improve enforcement of its foreign bribery laws, enhance efforts to detect, investigate, and prosecute foreign bribes, increase protections for whistleblowers, and better implement the criminal liability of the legal entities law.
Several NGOs such as Frank Bold, Transparency International, and Anticorruption Endowment Fund receive corruption reports online. The reports most frequently involve minor offenses, such as attempts to bribe police officers or other public officials to receive benefits or avoid liability. While there is not a specific law to protect NGOs involved in investigating corruption, NGO activities are protected under the Charter of Fundamental Rights and Freedom that protects civil society and free speech.