In this article, we will cover the advantages and challenges of investing in Czech Republic, as well as mentioning the major investment areas in the Czech Republic.
Advantages of Investing in the Czech Republic
The Czech Republic has a safe investment environment for foreign investors. With its stable social and political system, Czech Republic offers well-structured business and investment opportunities. Also according to the Eurostat Foreign affiliates statistics (FATS), almost one-third of all jobs in the Czech Republic are provided by multinational corporations.
It offers stable prices regarding business expenses and a transparent investment system such as well-regulated incentive programs and tax deductions. Also, it offers a great social and cultural environment and a high quality of life for foreigners. Its legislation and judiciary systems are in harmony with the European Union regulations and foreign and domestic investors are equally treated under Czech law. The Czech government does not scrutinize foreign investment projects unless they are in the banking or defense sectors.
Challenges of Investing in the Czech Republic
The economy of the Czech Republic is mostly dependent on exports and foreign investment, which makes it difficult to foresee the economic environment for investors, specifically in times of crisis. Also, ageing of the population and the decrease in birth rates constitute obstacles in the long-term development of the country.
What is Czechinvest?
Investment and Business Development Agency (Czechinvest) of the Czech Republic, was established in 1992 by the Ministry of Industry and Trade. It has an advisory and supporting role as a state contributory organization for developing domestic companies and for attracting foreign investment.
Czechinvest also promotes the Czech Republic in relations with the EU and small business enterprises on international terms. Czechinvest provides all of its services free of charge. Some of its activities are:
- Information assistance services
- Operating investment incentives
- Providing access to EU structural funds
- Infrastructure development for businesses
- Searching for potential suppliers
Gurcan Partners is a Foreign Economic Relations Board, AmCham and Association of German Chambers of Industry and Commerce member international law and consultancy firm.
Major Investors and Investment Areas in Czech Republic
Foreign Direct Investment (FDI) has played a great role in the Czech Republic and FDI stock has grown significantly. Czech Republic has provided perfect conditions for FDI. The main economic activities in the Czech Republic; motor vehicle manufacturing, financial services, wholesale and retail are also the key targets of FDI. Foreign investors find these sectors profitable and they have been the main investment areas. For example, motor vehicle manufacturing represents 8% of the FDI stock and a quarter of all manufacturing investment.
Over the last decade, both the financial services industries and the motor vehicle manufacturing industries have become heavily foreign-owned. In motor vehicle manufacturing more than 90% of the enterprises are foreign-controlled. There are three major manufacturers: German Volkswagen Group, South Korean Hyundai Group, and Japanese-French joint venture Toyota-PSA.
(Statistics sources: Czech National Bank Statistics and European Commission Economic Brief-FDI in the Czech Republic)
Major Industries in the Czech Republic
- Manufacturing Industry
The manufacturing industry is one of the most important industries of the Czech Republic’s economy. The industry mostly consists of high-tech engineering, machine engineering, and automotive engineering.
- Service Industry
The service Industry has gotten attraction over the years due to globalization and following the competitive global environment in automotive industries. Almost 60% of the employees in the Czech Republic work in the service industry.
- Agricultural Industry
The government of the Czech Republic is prioritizing the agricultural industry to ensure food security. The industry is considered as one of the key areas of the national economy. The industry also seeks sustainable modern methods.
The Czech Republic is in a location that is strategically significant. It creates an extensive network of transport which links the country to neighboring countries and as a result, it develops trading relations with these countries. The Czech Republic has direct highways to Poland, Germany, and Slovakia.
- Property taxes
Assets of a business or an individual are subject to property tax. Estate and inheritance taxes are due upon the death of an individual and the passing of the estate to an heir. On the other hand, real property taxes are mostly being assessed annually on the value of lands or immovable.
- Corporate income tax
The corporate income tax rate in the Czech Republic is 19% and it levies a tax on corporate incomes. Corporate income taxes are considered disadvantageous for investors but countries mostly mitigate with lower corporate tax rates and generous capital allowances, as well as double taxation treaties.
- Value-added Tax (VAT)
The average value-added tax rate in the Czech Republic is 21% and it is the most common form of consumption tax.
- International Taxes in the Czech Republic
Businesses in the Czech Republic expand beyond the borders, as well as the rest of the world, due to the globalized economy. As a result, countries had to come up with tax regulations that are beyond their borders.
They signed treaties to prevent double or multiple taxations of an income. The Czech Republic is one of the countries that signed many Double Taxation Treaties and a number of treaties are attracting more investors due to the appealing tax regimes.
Foreign Investors in the Czech Republic may obtain aid in the form of investment incentives. Czech and foreign legal entities and natural persons engaged in business can apply for investment incentives. Only a legal entity with its registered office in the Czech Republic can be a recipient of investment incentives.
Incorporation is just the first step in doing business in the Czech Republic. However, post-incorporation registrations are also quite important. Our professional team is ready to help in all steps of Company Registration in the Czech Republic.
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Forms of Investment Incentives
- Corporate income-tax relief for a period of ten years
- Cash grants for job creation up to the amount of CZK 300,000
- Cash grants for retraining and training new employees up to the amount of 50% of training costs
- Property-tax exemption for a period of five years – only in special industrial zones
- Cash grants for the acquisition of assets – only for strategic investments
- Eligible Costs
- State Aid
- 25% of eligible costs for large enterprises throughout the Czech Republic, with the exception of Prague
- Sample Calculation
Doing Business Report 2020, World Bank Group
World Investment Report 2020, United Nations Conference on Trade and Development
European Economy Economic Briefs, 2019, Issue 042
All rights reserved. All rights of Invest in Czech Republic article belong to Gurcan Partners. The author has no responsibilities for the information in this article. This article is prepared just to inform.
Att. Bedrettin Gürcan
Gurcan Partners Czech Republic Office
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