EXECUTIVE SUMMARY

The Czech Republic is a medium-sized, open economy with 78 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 31.8 percent going to Germany alone.  The United States is the Czech Republic’s largest non-EU export partner.  In 2019, the Czech banking sector remained healthy and the economy had a stable growth of 2.4 percent of GDP.  Due to COVID-19, the Czech government predicts a 2020 GDP decline of 5.6 percent, while the International Monetary Fund predicts a 6.5 percent contraction.

The COVID-19 outbreak and resulting economic shutdown caused the Czech crown (CZK) to significantly depreciate in Q1 2020 from CZK25 to CZK27.3 per EUR and from CZK22.9 to CZK24.9 per USD from February to March 31.  The crown is fully convertible, and all international transfers of investment-related profits and royalties can be carried out freely.  While the Czech Republic meets the Maastricht criteria for adoption of the euro and agreed to join the Eurozone under the country’s EU accession agreement in 2004, the Czech government has said it will not seek to join the common currency in the next few years, a position that has broad political and public support.

The government has taken great strides since the fall of communism to open the market to competition and privatization, but the Czech Republic still lacks robust enforcement of anti-trust violations.  The Czech Republic is committed to improving transparency and reducing corruption, and protects and enforces intellectual property rights.

The government amended the bankruptcy law June 1, 2019 and again March 31, 2020.  The June 2019 amendment expanded the categories of debtors qualified for debt discharge.  The latest amendment put a moratorium on filing of bankruptcy against all companies by creditors until the end of August 2020.  The government passed the amendment to protect from bankruptcy businesses affected by COVID-19.  The amendment also suspended companies’ obligations to file for bankruptcy until February 2021 if they are not able to meet their liabilities.  The Czech Republic ranked 16th in the 2020 edition of the World Bank’s Doing Business Report for ease of resolving insolvency.

There are few restrictions on foreign investment except in certain sectors that require access to sensitive information.  The Czech government supports legislation formalizing a procedure to review foreign investments that risk compromising national security.  The bill is pending debate and approval by both houses of Parliament.  If passed as drafted, the law would allow the government to screen inbound foreign direct investment (FDI) from non-EU entities.  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 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.  While wages continue to trail those in neighboring Western European countries (Czech wages are roughly one-third of comparable German wages), they have risen about 7 to 8 percent annually over the past two years, according to the Czech Statistical Office.  Some experts believe the economic decline from the COVID-19 pandemic will dampen wage growth.  The country was facing labor shortages in 2019 with the unemployment rate hovering below 3 percent – the lowest in the EU.  However, due to the economic impact of COVID-19, the Czech Ministry of Finance predicts a rise in unemployment to 3.3 percent in 2020.  The 1992 U.S.-Czech Bilateral Investment Treaty, signed with the former Czechoslovakia, provides for international arbitration of investor–state disputes for foreign investors.

Table 1:  Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 44 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2019 41 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 26 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 6,737 http://apps.bea.gov/
international/factsheet/
World Bank GNI per capita 2018 20,240 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.  In 2019, the government made significant changes to the investment incentives law, eliminating incentives for investments targeting low-skilled labor growth.  The amended legislation (amended Act No. 72/2000 Coll.), which went into effect September 6, 2019, restricted incentive payments to primarily high value-added investments that focus on R&D and create jobs for university graduates.  The new statue also established 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.  Through these changes the government seeks to raise the country’s standard of living.

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 USD164 billion at the end of 2018, compared to USD156 billion in 2017.   CzechInvest negotiated 82 new investment projects by foreign investors in 2018, worth USD1.4 billion.

As a medium-sized, open, export-driven economy, the Czech market is strongly dependent on foreign demand, especially from EU partners.  In 2019, 83.6 percent of Czech exports went to fellow EU member states, with 51.8 percent of this volume shipped to the EU and 32.4 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 recent COIVD-19 outbreak.  GDP growth reached 3 percent in 2018 and 2.4 percent in 2019.  Due to the economic impact of COVID-19, the government predicts a 2020 GDP decline of 5.6 percent, while the International Monetary Fund predicts a 6.5 percent contraction.

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, mainly in heavily regulated sectors of the economy, such as media.   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 an over-reliance on manufacturing and shared services 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.  Some areas, such as banking, financial services, insurance, or defense equipment have certain limitations or registration requirements, and foreign entities need to register their permanent branches in 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.

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.  Enterprises are permitted to engage in any legal activity with the previously noted limitations in sensitive sectors.  Laws on auditing, accounting, and bankruptcy are in force, including the use of international accounting standards (IAS).

In response to the European Commission’s September 2017 investment screening directive, the Czech government has prepared foreign investment screening legislation.  The bill is pending debate and approval by both houses of Parliament.  If passed as drafted, the law would allow the government to screen inbound foreign direct investment from non-EU entities to protect national security.

The proposed law introduces two regimes for screening investments.  The first regime applies to “critical sectors” and requires government approval prior to investment.  “Critical sector” investments include entities that carry out manufacturing, R&D, or maintain military equipment; entities that manage or administer critical infrastructure information systems, communication systems, or other core services; and entities that develop or manufacture goods in Annex IV of Council Regulation (EC) No. 428/2009, which sets up a regime for the control of exporting, transferring, brokering, and transiting dual-use items.  The second regime applies to remaining sectors and does not require advance government approval.  However, investments within the second regime can still be subject to screening if the government determines they pose a potential security risk.  The government has the authority to review transactions prior to and up to five years after investment.  Additionally, entities that hold a nation-wide radio or television broadcasting license or periodical publishers with a minimum average print circulation of 100,000 print copies per day require prior consultation with the government.

Other Investment Policy Reviews

The OECD last conducted an economic survey of  the government in 2018.

Business Facilitation

Individuals must complete a number of bureaucratic requirements to set up a business or operate as a freelancer or contractor.  The 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 has also established regional information points to provide consultancy 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 is25 days accprdomg tp the World Bank’s ‘Doing Business’ Index.  The Czech Republic’s Business Register is publicly accessible and provides details on business entities like 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.

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 only to USD41 billion in 2018, compared to inward investments of USD164 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.  The Czech government does not incentivize outward investment.  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 a bilateral investment treaty (BIT).  The government of Czechoslovakia signed the original BIT with the United States in 1992, and the Czech Republic adopted this treaty in 1993, after it split with Slovakia.  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 other 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).  On October 30, 2019, the Ministry of Finance published an updated draft proposal of a national digital services tax (DST) bill.  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 EUR750 million (USD831.5 million) and Czech-based revenue of more than CZK100 million (USD2.2 million).  The Ministry of Finance announced in February 2020 plans to reduce the proposed tax to five percent, but has not yet done so.  In addition, the Ministry of Finance reiterated in February 2020 that the government is in favor of an OECD global solution for DSTs and for that reason included the 2024 sunset clause in the draft DST legislation.  The Ministry of Finance confirmed it would abolish the unilateral DST when an OECD solution is in place.  The Czech Parliament is currently discussing the proposal.

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 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.

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.

The Czech Ministry of Industry and Trade maintains a “doing business” 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.

Dispute Settlement

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

In 1993, the Czech Republic became a member state to the ICSID Convention.  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 21 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.

Bankruptcy Regulations

The government amended the bankruptcy law June 1, 2019 and again March 31, 2020.  The June 2019 amendment expanded the categories of debtors qualified for debt discharge.  The latest amendment put a moratorium on filing of bankruptcy against all companies by creditors until the end of August 2020.  The government passed the amendment to protect from bankruptcy businesses affected by COVID-19.  The amendment also suspended companies’ obligations to file for bankruptcy until February 2021 if they are not able to meet their liabilities.  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

Investment Incentives

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 EUStructural 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.

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 duty.  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 Czech Republic abides by EU law governing data localization and performance.  The Czech Republic strongly supported creating of 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 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.

5. Protection of Property Rights

Real Property

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 is 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 is a growing concern, the legal framework for protecting and enforcing IPR has been tested and proven successful in punishing infringers.  The Czech Republic is not listed in the Notorious Markets Report.

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.  The Prague Stock Exchange (PSE) is small, with only 16 listed companies.  The overall trade volume of stocks decreased from CZK142.55 billion (USD5.7 billion) in 2018 to CZK108.78 billion (USD4.4 billion) in 2019, with an average daily trading volume of CZK435.12 million (USD17.5 million).

In March 2007, the PSE created the Prague Energy Exchange (PXE) 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.  Following a June 2017 merger of PXE’s trading platform with German power exchange EEX, 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.  Czech banks remain healthy.  Results of regular banking sector stress tests, as conducted by the Czech National Bank, repeatedly confirm the outstanding 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 February 29, 2020, the total assets of commercial banks stood at CZK8.2 billion (approximately USD342 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, for example 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.

Foreign Exchange and Remittances

Foreign Exchange Policies

The CZK is fully convertible.  As of April 2017, the Czech National Bank no longer pegs the CZK to the euro, and the CZK 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.

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 Czech Republic.  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.  There are no administrative obstacles for 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 ownership rights of state-owned enterprises (SOEs).  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 newly adopted 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 or 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) fields, 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 USD 6.3 billion in assets.  A list of all companies with some 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.

Privatization Program

As a result of several waves of privatization of formerly SOEs since 1989, 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 complainants have alleged non-transparent or unfair practices in connection with past privatizations.  No privatization program is currently underway.

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 in the Ministry of Industry and Trade:  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 developed 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.  The MOIT is responsible for implementation and compliance.

9. Corruption

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.  A 2016 police reform merged the special Organized Crime Police Unit (UOOZ) and the Unit for Combating Corruption and Serious Financial Criminality (UOKFK) into a new body called the National Center for Organized Crime (NCOZ).  NCOZ is now 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.  The Ministry of Justice can impose penalties of up to CZK50,000 (approximately USD2,000) 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, Czech laws regulate 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 (USD2,400) 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.  The public procurement law also addresses conflict-of-interest issues related to government procurements, however the European Commission and the latest Council of Europe GRECO evaluation report have criticized the Czech conflict-of-interest legislation.  In a 2019 interim report, GRECO deemed Czech anti-corruption efforts as globally unsatisfactory, noting the government had only implemented one out of 14 recommendations.  In addition to conflict-of-interest concerns, the report underscored the Czech government must still regulate lobbying, transparency in the work of parliamentary committees and subcommittees, and selection and dismissal procedures for judicial officials.

New legislation went into effect in January 2020 prohibiting political candidates or close acquaintances from filling supervisory board positions in state-owned companies.  The law stipulates that candidates for these positions must be selected in a clear, transparent process that prioritizes technical expertise and is reviewed by an advisory committee.  Separately, the government recommends companies maintain internal codes of conduct that, among other things, prohibit bribery of public officials.  Many companies have adopted such codes.

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
Anti-Corruption Unit
Ministry of Justice of the Czech Republic
Vyšehradská 16
12800 Prague 2
www.justice.cz
+420 221 997 595
korupce@msp.justice.cz

Contact at “watchdog” organizations:

David Ondracka
Director
Transparency International Czech Republic
Sokolovska 260/143
+420-224 240 895-7
ondracka@transparency.cz
www.transparency.cz

Frank Bold
Udolni 33, Brno
tel: +420 545 231 975
info@frankbold.org
www.frankbold.org

Anticorruption Endowment
Nadacni Fond Proti Korupci
Revoluční 8, building A, 5th floor, 110 00 Praha 1
+420 226 209 047
info@nfpk.cz
www.nfpk.cz

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.  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-cost 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 2019, wage levels increased by an average of 7.1 percent, according to the Czech Statistical Office.  According to Eurostat, the Czech Republic’s unemployment rate was 2 percent in February 2020, the lowest in the EU.  However, unemployment rates vary significantly between regions.  In February 2020, the unemployment rate was the lowest in Prague (1.95 percent) and highest in the Moravia-Silesia region (4.58 percent).  Due to the economic impact of COVID-19, the Czech government predicts a rise in unemployment to 3.3 percent in 2020.

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, the oil, natural gas, and nuclear energy sectors, and oil/natural gas 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.

12. U.S. International Development Finance Corporation and Other Investment Insurance Programs

A bilateral agreement was signed in 1990 between DFC’s predecessor – the Overseas Private Investment Corporation (OPIC) – and the Czech Republic.  Finance programs of OPIC, including investment insurance, have been available in the Czech Republic since 1991.  However, the Czech Republic has transformed into a high-income economy and therefore generally no longer qualifies for DFC support.  One recent exception is the February 15, 2020 U.S. government announcement to provide up to USD1 billion in financing through the DFC to Central and Eastern European countries of the Three Seas Initiative to reinforce energy security and economic growth in the region.  The Czech Republic is a member of the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA).

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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) 2019 $246,577 2018 $245,226 www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2018 $1,452 2018 $6,737 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
Host country’s FDI in the United States ($M USD, stock positions) 2018 $686 2018 N/A BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP 2018 67% 2018 64% UNCTAD data available at

https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 

*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.  As a result, while the 2014 figure for total U.S. FDI stock was listed at USD4.388 billion under the sum of historical flows method, under the new methodology, it is valued at USD1.567 billion.  This explains the large discrepancy between U.S. and Czech figures for 2018.

Table 3:  Sources and Destination of FDI
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 163,155 100% Total Outward 34,905 100%
Netherlands 30,657 19% Luxembourg 9,776 28%
Luxembourg 27,018 17% Netherlands 8,614 25%
Germany 26,366 16% Cyprus 3,583 10%
Austria 16,242 10% Slovakia 2,763 8%
France 11,883 7% Romania 1,392 4%
“0” reflects amounts rounded to +/- USD 500,000.

The IMF rankings for the top five sources of FDI stock are consistent with data from the Czech National Bank.  IMF rankings for destinations of FDI stock vary – the Czech National Bank ranks the top five destinations as the Netherlands, Luxembourg, Slovakia, Cyprus, and the UK.  IMF and Czech National Bank figures for inward direct investment vary negligibly and figures for outward direct investment vary by up to 4.5 percent.  These small statistical distortions are a result of the global adoption of the recently 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 place 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.  Luxembourg attracts Czech businesses for the same reason.  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.

Table 4:  Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 33,702 100% All Countries 18,735 100% All Countries 14,967 100%
Luxembourg 6,954 21% Luxembourg 5,948 32% Netherlands 2,138 14%
United States 3,567 11% United States 2,555 14% Slovakia 2,099 14%
Austria 3,367 10% Belgium 2,236 12% Austria 1,925 13%
Slovakia 2,583 8% Ireland 1,590 9% Poland 1,726 12%
Netherlands 2,359 7% Austria 1,442 8% United States 1,012 7%

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 2018 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
PragueInvestmentClimate@state.gov

2020 Investment Climate Statements: Czech Republic
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