The Czech Republic is a medium-sized, open economy with 74.4 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 32.6 percent going to Germany alone. The United States is the Czech Republic’s largest non-EU export destination. Due to the economic impact of COVID-19, Czech GDP dropped by 5.6 percent in 2020 according to the Czech Statistical Office. The Ministry of Finance is forecasting 3.1 percent growth for 2021.
President Zeman signed the “Bill on Screening of Foreign Investments” into law January 22, 2021. The law gives the government the ability to screen greenfield investments and acquisitions by non-EU investors and will enter into force on May 1, 2021.
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.
On November 27, 2019, a Digital Services Tax (DST) proposal drafted by the Ministry of Finance was introduced in the Czech Parliament. The proposal would levy a seven percent tax on revenues from online advertising, online marketplace services, and services transmitting user data for companies with global annual revenues of more than €750 million ($893 million) and Czech-based revenue of more than 100 million crowns ($4.5 million). In addition, companies that do not generate more than 10% of their total European revenue from covered services in the Czech Republic would be exempt from the tax. The second reading of the bill is currently pending in the Czech Parliament’s lower house. Although the legislation calls for a seven percent tax rate, there is a proposed amendment to decrease the rate to five percent. The bill will need to go through two more readings in the lower house before it moves to the Parliament’s upper house, and then to the Czech President for approval. If the Czech Parliament passes the DST bill, the earliest possible implementation date would be July 1, 2021.
The United States announced on February 15, 2020 plans to provide up to USD1 billion in financing through the Development Finance Corporation (DFC) to Central and Eastern European countries of the Three Seas Initiative to reinforce energy security and economic growth in the region. The DFC approved December 2020 the first tranche of the U.S. support for the Three Seas Fund amounting to USD300 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 plans to be involved in investment projects in the Czech Republic temporarily (maximum five years) and will primarily focus on private sector assistance.
The economic fallout from COVID-19 resulted in the Czech Republic’s highest historic state budget deficit of 367 billion crowns ($16.7 billion) in 2020, in comparison to the originally planned deficit of 40 billion crowns ($1.8 billion). As of February 28, 2021, the Czech Republic has appropriated 25.5 percent of GDP (approximately $65 billion) for the COVID-19 response, including $24 billion (9.4 percent of GDP) in direct support, $1.4 billion (0.5 percent of GDP) in tax and levy deferrals, and $40 billion (15.5 percent of GDP) in loan guarantees.
The Czech Republic fully complies with EU and the Organization for Economic Cooperation and Development (OECD) standards for labor laws and equal treatment of foreign and domestic investors. Wages continue to trail those in neighboring Western European countries (Czech wages are roughly one-third of comparable German wages). Wage growth slowed following the coronavirus pandemic. While wages rose about 6 to 8 percent annually in 2018 and 2019, there was only 4.4 percent growth in 2020, according to the Czech Statistical Office. In 2020, wages decreased primarily in the hospitality sector and real estate but grew in health care. While the unemployment rate rose to 3.3 percent in 2020 due to COVID-19, it remained the lowest in the EU.
|TI Corruption Perceptions Index||2020||49 of 180||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2020||41 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2020||24 of 131||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2019||4,815||http://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2019||21,940||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The Czech government actively seeks to attract foreign investment via policies that make the country a competitive destination for companies to locate, operate, and expand. The Czech investment incentives legislation (amended Act No. 72/2000 Coll., effective as of September 6, 2019) creates incentive payments for high value-added investments that focus on R&D and create jobs for university graduates. The law eliminates incentives for investments targeting low-skilled labor and establishes more favorable rules for technological investments in sectors such as aerospace, information and communication technology, life sciences, nanotechnology, and advanced segments of the automotive industry. In addition, due to COVID-19, the government approved November 30, 2020 an amendment to this statute, which enables producers of personal protective equipment, medical devices, and pharmaceuticals to more easily obtain investment incentives.
CzechInvest, the government investment promotion agency that operates under the Ministry of Industry and Trade (MOIT), negotiates on behalf of the Czech government with foreign investors. In addition, CzechInvest provides assistance during implementation of investment projects, consulting services for foreign investors entering the Czech market, support for suppliers, and assistance for the development of innovative start-up firms. There are no laws or practices that discriminate against foreign investors.
The Czech Republic is a recipient of substantial FDI. Total foreign investment in the Czech Republic (equity capital + reinvested earnings + other capital) equaled USD171.3 billion at the end of 2019, compared to USD164 billion in 2018.
As a medium-sized, open, export-driven economy, the Czech market is strongly dependent on foreign demand, especially from EU partners. In 2020, 83.5 percent of Czech exports went to fellow EU member states, with 32.6 percent to the Czech Republic’s largest trading partner, Germany, according to the Czech Statistical Office. Since emerging from recession in 2013, the economy had enjoyed some of the highest GDP growth rates of the European Union until the COVID-19 outbreak. While GDP growth reached 2.4 percent in 2019, there was a 5.6 percent GDP decline in 2020. The Ministry of Finance is forecasting 3.1 percent growth for 2021.
The Czech Republic has no plans to adopt the euro as it believes having its own currency and independent monetary policy is helpful to manage an economic crisis like the current one caused by the COVID-19 pandemic.
The slow pace of legislative and judicial reforms has 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, protection and enforcement of intellectual property rights, 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, for example in the media industry. Both foreign and domestic businesses voice concerns about corruption.
Long-term economic challenges include dealing with an aging population and diversifying the economy away from manufacturing toward a more high-tech, services-based, knowledge economy.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign individuals or entities can operate a business under the same conditions as Czechs. Foreign entities need to register their permanent branches with the Czech Commercial Register. Some professionals, such as architects, physicians, lawyers, auditors, and tax advisors, must register for membership in the appropriate professional chamber. In general, licensing and membership requirements apply equally to foreign and domestic professionals.
In response to the European Commission’s September 2017 investment screening directive, the Czech government drafted foreign investment screening legislation. The law will come into effect on May 1, 2021 and gives the government the ability to review greenfield investments and acquisitions by non-EU foreign investors. The law allows MOIT to screen FDI in virtually any sector of the Czech economy but specifies four high-risk sectors for which investment screening is mandatory: critical infrastructure, ICT systems used for critical infrastructure, military equipment, and sensitive dual use items. Outside these critical sectors, non-EU investors are under no obligation to report acquisitions or greenfield investments, but MOIT can retroactively review investments at any point within five years according to security concerns that may arise. Screening of acquisitions is triggered when a non-EU buyer attempts to make a purchase that would give it at least 10% of the voting rights of a Czech company. However, screening is possible at an even lower threshold in cases where the foreign investor has additional means of exerting potentially malign control over a Czech company, such as through appointment of staff to key positions. Furthermore, the law gives regulators considerable leeway to designate an investor as “non-EU” if the investor is “indirectly controlled” by non-EU business or individuals.
As of early 2012, U.S. and other non-EU nationals could purchase real estate, including agricultural land, in the Czech Republic without restrictions. However, following the implementation of the investment screening law as of May 1, 2021, land purchases by non-EU investors may be screened if located near critical infrastructure, such as military installations. Enterprises are permitted to engage in any legal activity with the previously noted limitations in sensitive sectors. The right of foreign and domestic private entities to establish and own business enterprises is guaranteed by law. Laws on auditing, accounting, and bankruptcy are in force, including the use of international accounting standards (IAS).
Other Investment Policy Reviews
The OECD last conducted an economic survey of the government in 2020.
Individuals must complete a number of bureaucratic requirements to set up a business or operate as a freelancer or contractor. MOIT provides an electronic guide on obtaining a business license, presenting step-by-step assistance, including links to related legislation and statistical data, and specifying authorities with whom to work (such as business registration, tax administration, social security, and municipal authorities), available at: https://www.mpo.cz/en/business/licensed-trades/guide-to-licensed-trades/. MOIT also has established regional information points to provide consulting services related to doing business in the Czech Republic and EU. A list of contact points is available at: https://www.businessinfo.cz/en/starting-a-business/starting-up-points-of-single-contact-psc/addresses-points-of-single-contact-psc/.
The average time required to start a business is 25 days according to the World Bank’s ‘Doing Business’ Index. The Czech Republic’s Business Register is publicly accessible and provides details on business entities including legal addresses and major executives. 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 requirements. The Business Register is publicly available at: https://or.justice.cz/ias/ui/rejstrik. The Czech Republic’s Trade Register is an online information system that collects and provides information on entities facilitating small trade and craft-oriented business activities, as specifically determined by related legislation. It is available online at: http://www.rzp.cz/eng/index.html.
The Czech government does not incentivize outward investment. The volume of outward investment is lower than incoming FDI. According to the latest data from the Czech National Bank, Czech outward investments amounted to USD 45.1 billion in 2019, compared to inward investments of USD 171.3 billion. However, according to the Export Guarantee and Insurance Corporation (EGAP), Czech companies increasingly invest abroad to get closer to their customers, save on transport costs, and shorten delivery times. As part of EU sanctions, there is a total ban on EU investment in North Korea as of 2017.
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).
3. Legal Regime
Transparency of the Regulatory System
Tax, labor, environment, health and safety, and other laws generally do not distort or impede investment. Policy frameworks are consistent with a market economy. Fair market competition is overseen by the Office for the Protection of Competition (UOHS) (http://www.uohs.cz/en/homepage.html). UOHS is a central administrative body entirely independent in its decision-making practice. The office is mandated to create conditions for support and protection of competition and to supervise public procurement and state aid.
All laws and regulations in the Czech Republic 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 online, 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. Laws on auditing, accounting, and bankruptcy are in force. These laws include the use of international accounting standards (IAS) for consolidated corporate groups. Public finances are transparent. The government’s budget and information on debt obligations are publicly available and published online.
International Regulatory Considerations
Membership in the EU requires the Czech Republic to adopt EU laws and regulations, including rulings by the European Court of Justice (ECJ).
Czechoslovakia was a founding member of the GATT in 1947 and a member of the World Trade Organization (WTO). Since the Czech Republic’s entry into the EU in 2004, the European Commission – an independent body representing all EU members – oversees Czech equities in the WTO and in trade negotiations.
Legal System and Judicial Independence
The Czech Commercial Code and Civil Code are largely based on the German legal approach, which follows a continental legal system where the principal 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.
The Czech Civil Code, Act. No. 89/2012 Coll. and the Act on Business Corporations, Act No. 90/2012 Coll. (Corporations Act) govern business and investment activities. The Act on Business Corporations introduced substantial changes to Czech corporate law such as supervision over the performance of a company’s management team, decision-making process, and remuneration and damage liability. 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 of the executive branch. Regulations and enforcement actions are appealable, and the judicial process is procedurally competent, fair, and reliable.
Laws and Regulations on Foreign Direct Investment
The Foreign Direct Investment agenda is governed by the Civil Code and by the Act on Business Corporations. In addition, the newly adopted investment screening law, which comes into effect on May 1, 2020, will give the government the ability to screen greenfield investments and acquisitions by non-EU investors for national security considerations.
The Czech Ministry of Industry and Trade maintains a “one-stop-shop” website available in Czech only at https://www.businessinfo.cz/ which aids foreign companies in establishing and managing a foreign-owned business in the Czech Republic, including navigating the legal requirements, licensing, and operating in the EU market.
Competition and Anti-Trust Laws
The Office for the Protection of Competition (UOHS) is the central authority responsible for creating conditions that favor and protect competition. UOHS also supervises public procurement and monitors state aid (subsidy) programs. UOHS is led by a chairperson who is appointed by the president of the Czech Republic for a six-year term.
Expropriation and Compensation
Government acquisition of property is done only for public purposes in a non-discriminatory manner and in full compliance with international law. 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. Investors participating in privatization of state-owned companies are protected from restitution claims through a binding contract with the government.
ICSID Convention and New York Convention
The Czech Republic is a signatory and contracting state to the Convention on the Settlement of Investment Disputes between States and Nations of Other States (ICSID Convention). It also has ratified the Convention on the Recognition and Enforcement of Arbitral Awards (New York Convention of 1958), which obligates local courts to enforce a foreign arbitral award if it meets the legal criteria.
Investor-State Dispute Settlement
The 1993 U.S.-Czech Bilateral Investment Treaty contains provisions regarding the settling of disputes through international arbitration. In the past 10 years the Czech Republic has been involved in 29 known arbitral disputes with foreign investors.
International Commercial Arbitration and Foreign Courts
Mediation is an option in nearly every area of law including family, commercial, and criminal. Mediators can be contracted between the parties to the dispute and found through such sources as the Czech Mediators Association, the Czech Bar Association, or the Union for Arbitration and Mediation Procedures of the Czech Republic. A number of other non-governmental organizations (NGOs) and entities work in the area of mediation. Directive 2008/52/EC allows those involved in a dispute to request that a written agreement arising from mediation be made enforceable. The results of mediation may be taken into account by the public prosecutor and the court in their decision in a given case. The local courts recognize and enforce foreign arbitral awards issued against the government.
The government amended the bankruptcy law on June 1, 2019, expanding the categories of debtors qualified for debt discharge. In addition, to protect businesses affected by COVID-19 from bankruptcy, the government passed in April 2020 a law that puts a moratorium on filings for debt collection against all companies until the end of August 2020. This period was later extended through June 30, 2021. The law also suspended companies’ obligations to file for bankruptcy until the end of June 2021 if they are not able to meet their liabilities. Furthermore, in response to an EU directive on insolvency, the Czech government proposed an amendment to the bankruptcy law which is currently subject to approval by the Parliament. The amendment would shorten the debt relief period for individuals from five to three years. The directive requires the Czech Republic to update its legislation by July 17, 2021.
The Czech Republic ranked 16th in the 2020 edition of the World Bank’s Doing Business Report for ease of resolving insolvency.
4. Industrial Policies
The Czech Republic offers incentives to foreign and domestic firms alike that invest in the manufacturing sector, technology and R&D centers, and business support centers. The amended Act No. 72/2000 Coll. came into force September 6, 2019 and shifted availability of incentive programs from all types of investments to only those requiring R&D and that create jobs for university graduates, as well as in specialized sectors such as aerospace, information and communication technology, life sciences, nanotechnology and advanced segments of the automotive industry. Incentives are funded from the Czech Republic’s national budget as well as from EU Structural Funds. The government provides investment incentives in the form of corporate income tax relief for 10 years, cash grants for job creation up to USD 8,000 per job, cash grants for training up to 50 percent of training costs, and cash grants for the purchase of fixed assets up to 20 percent of eligible costs. In response to COVID-19, the government approved November 30, 2020, an amendment to this law, which enables producers of personal protective equipment and medical products to more easily obtain investment incentives, because the state considers these products strategic for the protection of citizens’ lives and health during the pandemic. In addition, to prevent businesses from delaying investments due to high uncertainty caused by COVID-19, the latest amendment also lowers thresholds for obtaining investment incentives, primarily for small and medium-sized investors. The latest amendment also makes it possible for companies affected by COVID-19 to apply for an extension of the period for fulfilment of the general terms and conditions of investment incentives. In addition, in 2019, the Czech Republic significantly expanded film industry incentives provided through the state organization Czech Film Fund. The new incentives cover up to 20% of eligible costs of foreign filmmakers.
The government does not have a common practice of issuing guarantees or jointly financing FDI projects.
Foreign Trade Zones/Free Ports/Trade Facilitation
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 duties. Free trade zone treatment means duties need to be paid only in the event that the goods brought into the free trade zone are introduced into the local economy. Since the Czech Republic became part of the single customs territory of the European Community and now offers various exemptions on customs tariffs, the original tariff-driven use of these free trade zones has declined.
Performance and Data Localization Requirements
The host government does not mandate local employment. There are no government-imposed conditions on permission to invest. The host government does not follow “forced localization.”
The visa process for non-EU foreign investors and their employees is time consuming and slow, but the requirements are the same for domestic, EU, and non-EU companies.
The Czech Republic abides by EU law governing data localization and performance. The Czech Republic strongly supported creating the EU Regulation on free flow of non-personal data which came into effect in May 2019, stating that it would boost the competitive data economy and accelerate the development of artificial intelligence.
The July 16, 2020 ruling of the EU’s highest court in the Schrems II case, which invalidated the legal basis for the EU-U.S. Privacy Shield framework, has put a significant burden on companies transferring personal data from the Czech Republic to the United States.
The Lower house of the Czech Parliament passed the “Bill on Digitalization of Public Authorities (“Cloud Bill”) March 5, 2021, marking the latest step in the country’s efforts to move government data to the cloud. The bill is now subject to approval by the Senate and signature by the President. The Czech government proposed the legislation to enable government ministries to partner with global cloud service providers to migrate government data to the cloud. The legislation seeks to operationalize a “Cloud Catalogue” of cloud service providers that are certified as secure and trustworthy partners for government data. The draft legislation mandates that sensitive government data be stored in the EU but allows global cloud services providers (including U.S. companies) to transfer data overseas for routine maintenance purposes. The legislation also allows cloud service providers managing Czech government data to comply with the U.S. CLOUD Act, which gives U.S. law enforcement agencies the right to access personal data stored outside the United States.
5. Protection of Property Rights
Real estate (land and buildings) located in the Czech Republic must be registered in the national Cadastral Register under the Cadastral Office. The Cadastral Register contains information on plots of land and buildings, housing units and non-residential premises, liens, and other information and is publicly available online in Czech only at: https://nahlizenidokn.cuzk.cz/. 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 32nd for ease of registering property in the 2020 World Bank’s Doing Business Index.
There is a negligible proportion of land that does not have clear title. If property legally purchased becomes unoccupied, property ownership does not revert to squatters.
Intellectual Property Rights
The Czech Republic is a member of the World Intellectual Property Organization (WIPO) and party to the Berne Convention, the Paris Convention, the Patent Cooperation Treaty (PCT), the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty. Domestic legislation protects all intellectual property rights (IPR), 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 the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The Criminal Code sets the maximum penalty of eight years of imprisonment for trademark, industrial rights, and copyright violations. The Customs Administration of the Czech Republic and the Czech Commercial Inspection have legal authority to seize counterfeit goods. Information on seizures of counterfeit goods and cases of IPR infringement are tracked by the Customs Administration. Information is available in Czech at https://www.celnisprava.cz/cz/statistiky/Stranky/dusevni-vlastnictvi.aspx.
The Czech Republic was removed from the Watch List of the U.S. Trade Representative Special 301 Report in 2011. While online piracy in the Czech Republic has been cited by some U.S. entities as an area of concern, the legal framework for protecting and enforcing IPR has been tested and proven successful in punishing infringers. In response to the 2019 EU Copyright Directive, the Czech government proposed in November 2020 an amendment to their Copyright Act. The amendment will clarify the right of copyright holders to receive payment for online distribution of their content by third parties. The EU Copyright Directive requires the Czech Republic to update its legislation by June 7, 2021. The Czech Republic is not listed as hosting any physical markets in USTR’s 2020 Notorious Markets Report, but it reportedly hosts a website containing infringing content.
For additional information about treaty obligations and points of contact at local IPR offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.
6. Financial Sector
Capital Markets and Portfolio Investment
The Czech Republic is open to portfolio investment. There are 55 companies listed on the Prague Stock Exchange (PSE). The overall trade volume of stocks decreased from CZK142.55 billion (USD6.5 billion) in 2018 to CZK108.78 billion (USD5 billion) in 2019, with an average daily trading volume of CZK435.12 million (USD19.9 million).
In March 2007, the PSE created the Prague Energy Exchange (PXE), which was later re-named to Power Exchange Central Europe, to trade electricity in the Czech Republic and Slovakia and, later, Hungary, Poland, and Romania. PXE’s goal is to increase liquidity in the electricity market and create a standardized platform for trading energy. In 2016, the German power exchange EEX acquired two thirds of PXE shares. Following the acquisition, the PXE benefited from both an increased number of traders and increased trade volume.
The Czech National Bank, as the financial market supervisory authority, sets rules to safeguard the stability of the banking sector, capital markets, and insurance and pension scheme industries, and systematically regulates, supervises and, where appropriate, issues penalties for non-compliance with these rules.
The Central Credit Register (CCR) is an information system that pools information on the credit commitments of individual entrepreneurs and legal entities, facilitating the efficient exchange of information between CCR participants. CCR participants consist of all banks and branches of foreign banks operating in the Czech Republic, as well as other individuals included in a special law.
As an EU member country, the local market provides credits and credit instruments on market terms that are available to foreign investors.
The Czech Republic respects IMF Article VIII.
Money and Banking System
Large domestic banks belong to European banking groups. Most operate conservatively and concentrate almost exclusively on the domestic Czech market. Despite the COVID-19 crisis, Czech banks remain healthy. Results of regular banking sector stress tests, as conducted by the Czech National Bank, repeatedly confirm the strong state of the Czech banking sector which is deemed resistant to potential shocks. Results of the most recent stress test conducted by the Czech National Bank are available at https://www.cnb.cz/en/financial-stability/stress-testing/banking-sector/. As of January 31, 2021, the total assets of commercial banks stood at CZK8,661 billion (approximately USD395 billion), according to the Czech National Bank. Foreign investors have access to bank credit on the local market, and credit is generally allocated on market terms.
The Czech National Bank has 10 correspondent banking relationships, including JP Morgan Chase Bank in New York and the Royal Bank of Canada in Toronto. The Czech Republic has not lost any correspondent banking relationships in the past three years, and there are no relationships in jeopardy.
The Czech Republic does not currently regulate cryptocurrencies.
Foreign Exchange and Remittances
Foreign Exchange Policies
The COVID-19 outbreak caused the Czech crown to significantly depreciate, primarily in Q1 – Q2 2020. Between February and May 2020, the Crown depreciated from CZK25 to CZK27.3 per EUR and from CZK22.9 to CZK25 per USD. However, the crown recovered to CZK25.8 per EUR and CZK21.4 per USD by February 2021.
The CZK is fully convertible and floats freely. The Czech National Bank supervises the foreign exchange market and its compliance with foreign exchange regulations. The law permits conversion into any currency.
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 Czech Republic. However, a 15 percent withholding tax is charged on the repatriation of profits from the Czech Republic. This tax is reduced under the terms of applicable double taxation treaties. There are no administrative obstacles to removing capital. The average delay for remitting investment returns meets the international standard of three working days.
Sovereign Wealth Funds
The Czech government does not operate a sovereign wealth fund.
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 USD 22.2 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.
As a result of several waves of privatization, the vast majority of the Czech economy is now in private hands. Privatizations have generally been open to foreign investors. In fact, most major SOEs were privatized with foreign participation. The government evaluates all investment offers for SOEs. Many competitors have alleged non-transparent or unfair practices in connection with past privatizations.
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, 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.
Department of State
- Country Reports on Human Rights Practices (https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/);
- Trafficking in Persons Report (https://www.state.gov/trafficking-in-persons-report/);
- Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities (https://www.state.gov/key-topics-bureau-of-democracy-human-rights-and-labor/due-diligence-guidance/) and;
- North Korea Sanctions & Enforcement Actions Advisory (https://home.treasury.gov/system/files/126/dprk_supplychain_advisory_07232018.pdf).
Department of Labor
- Findings on the Worst forms of Child Labor Report (https://www.dol.gov/agencies/ilab/resources/reports/child-labor/findings );
- List of Goods Produced by Child Labor or Forced Labor (https://www.dol.gov/agencies/ilab/reports/child-labor/list-of-goods);
- Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World (https://www.dol.gov/general/apps/ilab) and;
- Comply Chain (https://www.dol.gov/ilab/complychain/).
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 USD2,280) 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 (USD2,280) 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 European Commission and the latest Council of Europe Group of States Against Corruption (GRECO) evaluation report identified areas where Czech conflict-of-interest legislation could be strengthened. In response, the Czech Republic approved an amendment to the Czech conflict-of-interest law. Other actions, such as strengthening rules regarding lobbying, implementing new rules to improve transparency in the work of parliamentary committees and subcommittees, and making changes to the selection and dismissal procedures for judicial officials are in the drafting or approval process with the date of final approval uncertain.
President Zeman signed the “Beneficial Ownership Bill” into law on January 22, 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.
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 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 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.
Resources to Report Corruption
Contact at government agency responsible for combating corruption:
Conflict of Interest and Anti-Corruption Department
Ministry of Justice of the Czech Republic
12800 Prague 2
+420 221 997 595
Contact at “watchdog” organizations:
Transparency International Czech Republic
+420-224 240 895
Udolni 33, Brno
tel: +420 545 213 975
Nadacni Fond Proti Korupci
Revoluční 8, building A, 5th floor, 110 00 Praha 1
+420 226 209 047
10. Political and Security Environment
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. The political institutions underpinning parliamentary democracy generally function smoothly. Elections have resulted in orderly and peaceful changes of government.
11. Labor Policies and Practices
A historically strong and well-developed machinery industry, one of the key drivers of Czech exports, requires a wide range of technically qualified staff, including the entire spectrum of professions from manual workers to engineers and designers. The rapidly growing electronics and information technology sectors are also creating demand for highly skilled workers. Despite the COVID-19 crisis, key economic growth and export-driven industries are facing the challenge of demand for highly skilled technical workers that exceeds supply. Robotic automation and digitalization are also impacting many industries.
The wide availability in the Czech Republic of an educated, relatively low-wage labor force on the doorstep of Western Europe was a major attraction for foreign investors in the 1990s. While the wage gap continues to narrow and the income convergence process reflects the Czech Republic’s economic growth in recent years, Czech wages still trail significantly those of neighbors like Germany and Austria. In 2020, wage levels increased by an average of 4.4 percent, according to the Czech Statistical Office. While the unemployment rate rose to 3.3 percent in 2020 due to COVID-19 according to the Ministry of Finance, it remained the lowest in the EU. According to Eurostat, the Czech Republic’s unemployment rate was 3.2 percent in January 2021, compared to the EU-27 average of 7.3 percent. However, unemployment rates vary significantly between regions. In February 2021, the unemployment rate was the lowest in the Pardubice region (3.17 percent) and highest in the Karlovy Vary region (6.02 percent).
Unemployment insurance and other social safety net programs exist for workers laid off for economic reasons. Labor laws differentiate between layoffs and firing.
Czech law guarantees Czech workers’ right 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 healthcare, electricity/water supply services, air traffic control, and the oil, natural gas, and nuclear energy sectors. Members of the armed forces, prosecutors, and judges may not form trade unions or strike. Only trade unions may legally represent workers, including non-members. Labor dispute resolutions are carried out in civil court proceedings. There were no strikes in the last year that posed an investment risk.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
|Host Country Statistical source*||USG or international statistical source||USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other|
|Host Country Gross Domestic Product (GDP) ($M USD)||2020||$258,002||2019||$250,681||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical source*||USG or international statistical source||USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other|
|U.S. FDI in partner country ($M USD, stock positions)||2019||$1,727.6||2019||$4,815||BEA data available at
|Host country’s FDI in the United States ($M USD, stock positions)||2019||$717.7||2019||N/A||BEA data available at
|Total inbound stock of FDI as % host GDP||2019||65.3%||2019||69.2%||UNCTAD data available at
|*Sources: Czech Statistical Office (www.czso.cz), Czech National Bank (https://www.cnb.cz/cnb/obiee_pzi).|
As of 2015, the Czech National Bank records cross-border equity capital stocks for quoted shares (in line with the ESA 2010 and BPM6 international manuals) at market value instead of book value, rather than valuing FDI as the sum of historical flows, which is the methodology used by the United States. This explains the large discrepancy between U.S. and Czech figures for 2019.
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||170,044||100%||Total Outward||44,075||100%|
|“0” reflects amounts rounded to +/- USD 500,000.|
The IMF rankings for the top five sources and destinations of FDI stock are consistent with data from the Czech National Bank. IMF and Czech National Bank figures for inward direct investment vary by up to 4 percent and figures for outward direct investment vary by up to 16 percent. These statistical distortions are a result of the global adoption of the revised OECD Benchmark Definition for FDI, which is designed to discount investment flows from special purpose entities.
The top sources and destinations of Czech FDI represent a combination of major EU trading partners and favored tax regimes. In the early 1990s, the Netherlands became a popular location for corporate registration for domestic and foreign businesses active in the Czech Republic. In recent years, the main rationale for registering a business in the Netherlands was favorable corporate income taxes, stimulating rapid development of offshore corporate structures in the Czech Republic. While this has dissipated (corporate income tax rates in the Czech Republic and Netherlands are nearly equal), the Netherlands remains a popular platform for large corporations given its robust network of investment agreement protections. Luxembourg attracts Czech businesses for similar reasons. Among 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.
|Portfolio Investment Assets|
|Top Five Partners (Millions, current US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||32,450||100%||All Countries||18,067||100%||All Countries||14,384||100%|
|United States||3,823||12%||United States||2,770||15%||Slovakia||2,046||14%|
The Czech National Bank does not provide its own statistical data on portfolio investments by individual countries but provides a reference to IMF data on its website. As far as portfolio investment assets for all countries, the 2019 IMF results are consistent with the Czech National Bank’s data.
14. Contact for More Information
Economic Section – U.S. Embassy Prague
Trziste 15, 118 01 Prague 1
+420 257 022 000