The Czech Republic is a medium-sized, open, export-driven economy. Around 80 percent of its GDP is comprised of exports - mostly from the automotive and engineering industries. Its strong dependence on foreign demand, especially from the Eurozone, of which it is not a member, was highlighted in the global financial crisis of the late 2000s. However, the Czech banking sector remained relatively healthy. After two years of economic contraction, the Czech economy emerged from recession in early 2013 and has enjoyed some of the highest GDP growth rates of the European Union - 4.5 percent in 2015 and 2.3 percent in 2016, respectively. Experts predict approximately 2.5 percent growth in 2017.
Since November 2013, the Czech National Bank (CNB) has intervened in the foreign exchange markets to prevent appreciation of the Czech Crown (CZK) beyond 27/Euro. The formal justification for this action has been to prevent deflation, though it has also had the benefit of making Czech exports more cost-competitive. As of April 2017 the Crown trades at 24-25/dollar. The Czech crown is fully convertible and all international transfers of investment-related profits and royalties can be carried out freely without delay. While there has not been significant political momentum toward Euro accession in recent years, the current government under Prime Minister Sobotka has demonstrated a more positive approach to EU integration than any past government. The Czech government has met four of the five Maastricht criteria for adoption of the Euro, but decided in December 2016 not to seek to join the Exchange Rate Mechanism (ERM II) in 2017.
The Czech Republic is subject to EU law and Organization of Economic Cooperation and Development (OECD) standards for the equal treatment of foreign and domestic investors. Labor laws are comparable with those of most developed nations. Wages generally trail those in neighboring Western European countries but have been rising about five percent annually the past several years due to the economy having reached nearly full employment. The U.S.-Czech Bilateral Investment Treaty from 1992 provides for international arbitration of investor-State disputes. Great strides have been taken since the fall of communism to open the market to competition and privatization, but the prosecution of anti-trust violations is still less than adequate. Corruption remains a problem. Czech Intellectual Property Rights (IPR) protections are still not optimal, but the legal framework for IPR protection has been tested and proven successful in punishing infringers. Other western concepts such as entrepreneurship and corporate social responsibility (CSR) are growing trends in the Czech business and NGO communities.
There are no general restrictions on foreign investment, although limits exist within certain sectors. The Czech Republic attracts a great deal of FDI for its size, and has taken strides to diversify its traditional investments in engineering into new fields of research, development and innovative technology. EU structural funding has enabled the country to open a number of world-class scientific and high-tech centers. Companies from EU member states are the chief foreign investors in the Czech economy, but the government has signaled a desire to seek more export and investment opportunities from non-European regions, including the United States, China, and South Korea.
Table 1
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Toward Foreign Direct Investment
The Czech Republic is a recipient of substantial foreign direct investment (FDI). As a medium-sized, open, export-driven economy, the Czech Republic is strongly dependent on foreign demand, especially from the Eurozone. In 2016, almost 84 percent of Czech exports went to fellow EU states, with more than 60 percent shipped to the Eurozone, and 32 percent to the Czech Republic’s largest trading partner, Germany. The recent global economic crisis pulled the Czech Republic into its longest historical recession and highlighted its sensitivity to economic developments in the Eurozone. In early 2013, the economy finally emerged from recession, and has enjoyed some of the highest GDP growth rates of the European Union since then. In 2016, GDP growth was 2.3 percent.
2015 Czech per capita GDP was 87 percent of the EU average, ranking the Czech Republic as the 15th wealthiest EU member state. The trade balance has been positive every year since 2005 and in 2015 and 2016 rose substantially, with surpluses of around $16.5 billion and $20 billion, respectively. Export revenues were 83 percent of GDP in 2015. The main export commodities are automobiles, machinery, and information and communications technology.
Over the past ten years, the Czech Republic has taken a wait-and-see approach regarding the country’s entry into the Eurozone. Economic difficulties in the Eurozone during the global downturn weakened public support for the country’s adoption of the euro, as did the more recent Greek crisis, and previous governments opposed setting a target date for accession. In 2014, the current government, led by Prime Minister Bohuslav Sobotka (CSSD), adopted the Fiscal Compact, a treaty committing signatories to limit their state budget deficits to three percent of GDP, and subsequently to adopt the euro. Terms of the Fiscal Compact will become mandatory for the Czech Republic only after adoption of the euro. There has not been significant political momentum toward euro accession in recent years, and the government opted not to seek to join the Exchange Rate Mechanism (ERM II) in 2017.
Some unfinished elements in the economic transition, such as the slow pace of legislative and judicial reforms, have posed obstacles to investment, competitiveness, and company restructuring. The Czech government has harmonized its laws with EU legislation and the acquis communautaire. This effort involved positive reforms of the judicial system, civil administration, financial markets regulation, intellectual property rights protection, and in many other areas important to investors.
While there have been many success stories involving American and other foreign investors, a handful have experienced problems, mainly in heavily regulated sectors of the economy, such as in the media sector. The slow pace of the courts is often compounded by judges’ lack of familiarity with commercial or intellectual property cases. In the 2017 World Bank’s Ease of Doing Business register, the Czech Republic ranks 27th overall out of 190 economies (moving down one position from 26th overall in 2016), and 53rd out of 190 in the category of Protecting Minority Investors (down two positions compared with 2016).
Both foreign and domestic businesses voice concerns about corruption. Other long-term economic challenges include dealing with an aging population and diversifying the economy away from an over-reliance on manufacturing toward a more high-tech, services-based, knowledge economy.
Since 1990, the Czech Republic has become one of the leading countries in the Central and Eastern European (CEE) region, attracting most of incoming FDI. Though Poland was the leader by total volume of FDI gained, the Czech Republic and Hungary managed to achieve the highest FDI per capita. While in the early years massive volumes of FDI flowed primarily into the Czech automotive, real estate, and alternative energy sectors, in 2010, the Czech Republic, together with its fellow Visegrad Four countries (Slovakia, Hungary, Poland), attracted 70 percent of all FDI headed towards development of services and R&D projects in the CEE region. FDI inflow tripled in 2012 after a sharp drop-off during the economic crisis. Total foreign investment in the Czech Republic (equity capital + reinvested earnings + other capital) equaled CZK 116.6 billion at the end of 2015, compared to $121.5 billion in 2014 (Note: Expressed in Czech Crowns, FDI stocks increased about 4.3 percent from 2014 to 2015, but the USD appreciated 8.7 percent against the Crown). The increased activity of foreign investors reflects a gradual recovery of the European market, driven mostly by the automotive industry. Currently, the Czech Republic is experiencing the next stage of the FDI cycle, with an outflow of profits abroad exceeding volume of reinvested profits.
In 2016, CzechInvest, the government investment promotion agency, negotiated 76 new investment projects in the Czech Republic by foreign investors, worth $1.95 billion. The largest number and value of investments came from the Netherlands, Germany, Austria, and the United States.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign individuals or entities can operate a business under the same conditions and to the same extent as Czechs. Some areas, such as banking, financial services, insurance, media, or defense equipment have certain limitations or registration requirements, and foreign entities need to register their permanent branches in the Czech Commercial Register. Some professions, such as architects, physicians, lawyers and tax advisors require membership in the appropriate professional chamber. These licensing and membership requirements apply equally to foreign and domestic professionals.
As of early 2012, U.S. and other non-EU nationals can purchase real property, including agricultural land, in the Czech Republic without restrictions. Czech legal entities, including 100 percent foreign-owned subsidiaries, may own real estate without any limitations. The right of foreign and domestic private entities to establish and own business enterprises is guaranteed by law in the Czech Republic. Enterprises are permitted to engage in any legal activity with the previously noted limitations in some sensitive sectors. Laws on auditing, accounting and bankruptcy are in force. These laws include the use of international accounting standards (IAS) for consolidated corporate groups.
Other Investment Policy Reviews
The Czech government underwent an OECD investment policy review in 2001 in the process of joining the OECD. The government has not undergone any additional third-party investment policy reviews since that date.
The World Bank’s Doing Business 2017 Economic Profile and the Economist Intelligence Unit likewise provide further detail on the Czech Republic’s investment climate. More information can be found here: http://www.doingbusiness.org/data/exploreeconomies/czech-republic
Business Facilitation
The Business Register (Obchodni rejstrik - www.justice.cz ) is a publicly accessible register that provides details on business entities, as specifically stated by related legislation. Such details include: name, address and registration number of the entity; description of its business activities; information on the entity’s owners; and details on equity shares. The Business Register is administered on a regional basis, by the Business Register Courts.
An application for an entry into the Business Register can be submitted in a hard copy, via a direct entry by a Public Notary or electronically, subject to meeting online registration criteria required by law.
The Trade Register is an online information system that collects/provides information on entities running licensed business activities, www.zivnostensky-rejstrik.cz/.
The Ministry of Industry and Trade provides an electronic guide on doing licensed business, presenting step-by-step assistance, including links to related legislation and statistical data, and specifying authorities with whom to work (such as business registration, tax administration, social security, and municipal authorities), www.mpo.cz/cz/podpora-podnikani/zivnost-podnikani and www.businessinfo.cz/.
According to the World Bank’s 2017 Doing Business Guide, the Czech Republic ranked 81st in the “Starting a Business" category, 130th in dealing with construction permits, and 31st in registering property.
There exist two public agencies promoting investment and/or facilitating doing business. Both are managed by the Ministry of Industry and Trade.
CzechTrade supports development of international trade and cooperation between Czech and foreign entities. By means of supporting export activities, CzechTrade promotes increased competitiveness of Czech industry. More information is available at http://www.czechtradeoffices.com/.
CzechInvest is an agency of the Ministry of Industry and Trade. Established in 1992, the agency contributes to attracting foreign investment and developing domestic companies through its services and development programs, as well as promoting the Czech Republic abroad. CzechInvest acts as an intermediary between the EU and small (SMEs) and medium-sized enterprises (MSMEs) to ease implementation of EU structural funds (subsidies). More information is available at www.czechinvest.org/en/about-czechinvest.
Following the EC 2003/361 Recommendation, the size definition of a business entity is based on the number of employees, volume of annual turnover, and volume of assets.
* An MSME employs fewer than 250 employees, its annual turnover does not exceed Euro 50 million, and the volume of its assets is less than Euro 43 million.
* Small enterprises (SMEs) employ fewer than 50 persons, with annual turnover and volume of assets that do not exceed Euro 10 million.
* Micro enterprises have fewer than 10 employees. Annual turnover and volume of assets are under Euro 2 million.
Useful information on facilitating MSME business is available at www.czechinvest.org/definice-msp.
Outward Investment
The government does not restrict domestic investors from investing abroad though the volume of outward investment is significantly lower than incoming FDI as a result of the lesser purchasing power of Czech investors.
The Ministry of Industry and Trade 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 http://www.businessinfo.cz/cs/clanky/jednotna-kontaktni-mista-jkm-cr-3092.html.
2. Bilateral Investment Agreements and Taxation Treaties
The Czech Republic and United States share a bilateral investment treaty (BIT). The former government of Czechoslovakia signed the original BIT with the United States in 1992, and the Czech Republic adopted this treaty in 1993, after the split with Slovakia. The Czechs amended the treaty in 2003, along with other new EU entrants which had U.S. BITs, following negotiations with the European Commission about conflicts within the EU acquis communautaire.
Several dozen other countries have signed and ratified investment agreements with the Czech Republic, and some are in the process of ratification. The Czech Republic also has abrogated several treaties - mostly those with other/new EU member states, in accordance with the EU determination that, given the Commission’s new investment competence under the Lisbon Treaty, investment treaties among member states are now inconsistent with EU legislation. The full list of agreements, including ratification dates, can be found on the Ministry of Finance website http://www.mfcr.cz/cs/legislativa/dohody-o-podpore-a-ochrane-investic/prehled-platnych-dohod-o-podpore-a-ochra.
A bilateral U.S.-Czech Convention on Avoidance of Double Taxation has been in force since 1993. In 2007, the U.S. and Czech governments signed a bilateral Totalization Agreement that exempts Americans working in the Czech Republic from paying into both the Czech and U.S. social security systems. The agreement entered into force on Jan. 1, 2009. In 2013, the U.S. and Czech governments signed a Supplementary Totalization Agreement amending the original agreement to reflect new Czech legislation on health insurance. In 2014, the U.S. and the Czech Republic signed an Agreement on Improvement of International Tax Compliance and to Implement FATCA (the Foreign Account Tax Compliance Act).
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 Anti-Monopoly Office (UOHS) http://www.uohs.cz/en/homepage.html. It is a central administrative body entirely independent in its decision-making practice. The scope of competencies of the Office is defined by the Act No 273/1996 Coll., as amended by the Act No 187/1999 Coll. 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 are published before they enter into force. Opportunities for prior consultation on pending regulations exist, and all interested parties, including foreign entities, can participate. A biannual governmental plan of legislative and non-legislative work is available on the Internet, along with information on draft laws and regulations (often only in the Czech language). Business associations, consumer groups and other non-governmental organizations, including the American Chamber of Commerce, can submit comments on laws and regulations. Laws on auditing, accounting and bankruptcy are in force. These laws include the use of international accounting standards (IAS) for consolidated corporate groups.
A 2014 OECD Country Economic Survey notes that, since joining the EU, the Czech Republic has made progress in improving its inconsistent competition policy and removing bureaucratic barriers that inhibit competition. The competition framework is on par with OECD best practices, but successful prosecution of cartels has rarely happened. The OECD survey is available at: http://www.oecd.org/czech/economic-survey-czech-republic.htm
International Regulatory Considerations
Membership in the EU requires subordination to the unique, supranational law system in which, according to an interpretive declaration of member-state governments appended to the Treaty of Lisbon, “the Treaties and the law adopted by the Union on the basis of the Treaties have primacy over the law of Member States" under conditions laid down in the case law of the Court of Justice. Key principles of EU law include fundamental rights as guaranteed by the Charter of Fundamental Rights and as resulting from constitutional traditions common to the EU’s states; EU law is divided into ‘primary’ and ‘secondary’ legislation. Primary legislation is derived from the consolidated versions of the Treaty on European Union and the Treaty on the Functioning of the European Union and are the basis for all EU action. Secondary legislation, which includes directives, regulations, and decisions, is derived from the principles and objectives set out in the treaties.
Common policies, which are the essence of multinational integration, are based on common legislation. Inherent in the concept of a common policy is its binding force on the member states. The latter must give the common institutions the legal means to implement common policies and to enforce their decisions on all the parties concerned and on their citizens. Hence, common policies are shaped by legal acts agreed upon by the common institutions, implemented by the member states, and/or the common institutions, and controlled by the common institutions. The national laws of the member states are harmonized in a great number of fields in the context of common policies. A special law, based on the treaties, which was formerly called acquis communautaire and now "acquis of the EU", is thus built to bring into being common policies, a law that is superimposed and takes precedence over national law, even the constitutional law, of the Member States, whether national legislation predates or postdates European legislation.
Czechoslovakia (a predecessor to the Czech Republic) was a founding member of the GATT in 1947, and the member of the World Trade Organization (WTO). Since the entry of the Czech Republic to the EU in 2004, the Czech Republic is represented in the WTO by the European Commission - an independent body representing all EU members.
Legal System and Judicial Independence
The Czech commercial code and civil code are largely based on the German legal system, which follows a continental legal system where the principle areas of law and procedures are codified. The commercial code details rules pertaining to legal entities and is analogous to corporate law in the United States. The civil code deals primarily with contractual relationships among parties.
As of Jan. 1, 2014, the Czech Commercial Code, Act No. 513/1991 Coll. (former Czech Commercial Code), ceased to exist; some areas which were regulated by the former Czech Commercial Code are now governed by the new Czech Civil Code, Act. No. 89/2012 Coll, while other parts have been abolished. The new Czech Act on Business Corporations, Act No. 90/2012 Coll. (Corporations Act) has stepped in to govern those areas which are specifically concerned with trading companies and cooperatives.
Matters related to the Czech Commercial Register are governed by Act No. 304/2013 Coll., on public registers of legal entities and individuals. The new Czech Act on Business Corporations introduced substantial changes to Czech corporate law. Detailed provisions for mergers and time limits on decisions by the authorities on registration of companies are covered, as well as protection of creditors and minority shareholders.
The judiciary is independent, but decisions may vary from court to court. The reason for diverse legislative approaches may well be the fact that the new Civil Code did not only rewrite the system but also introduced new terminology. Consequently, the two substantive laws, the Penal Code and the Civil Code, have been adopted without a new procedural law to explain how the laws should be applied, which would allow courts to proceed according to a clearly outlined jurisdiction. Some observers ascribe the variances to the lack of a procedural law to delineate application of the Penal and Civil Codes.
Laws and Regulations on Foreign Direct Investment
In 2012, the Czech Parliament passed a new Civil Code (effective Jan. 1, 2014), modifications to the existing civil law, and a new regulation for corporations - an Act on Corporations (also effective Jan. 1, 2014).
The Czech Ministry of Industry and Trade maintains a doing business website at www.businessinfo.cz, which aids foreign companies in establishing and managing a foreign-owned business in the Czech Republic, including how to navigate the legal requirements, licensing, and operating in the EU market. The investment agency run by the Ministry of Industry and Trade, CzechInvest, provides assistance and consultation services to investors entering the country.
Liability
Criminal liability - related offences - are included in the new Criminal Code, Act No. 40/2009 Coll., which has been in effect since Jan. 1, 2010. Penalties include imprisonment, a ban on the activity, asset forfeiture or fines.
Administrative liability covers administrative offenses committed by both individuals and legal entities (or individuals as entrepreneurs).
A new law on criminal responsibility of legal entities has been in force since Jan. 1, 2012. It outlines a list of offenses that could be committed by legal entities. A legal entity is responsible for the behavior of its management, personnel and any bodies that fall under its control.
The latest statistics from the Supreme Public Prosecutor show that there were 227 prosecutions of legal entities in 2015. The most frequent crime was fraud - especially tax fraud - followed by extortion and environmental crimes. There were 115 convictions. The most frequent penalty was a fine (from CZK 10,000-50,000 - $400-2,000), as well as publishing of the penalty (on the Internet, in the press and on TV), and a ban on activities. In 13 cases the court decided to abolish the company.
An amendment to the law on criminal responsibility of legal entities came into force on Dec. 1, 2016. It expands the responsibility of legal entities, for a wider range of offenses - including libel - than under the old law.
Organizational Structure of Investments
Foreign investors can, as individuals or business entities, establish sole proprietorships, joint ventures and branch offices in the Czech Republic. In addition, the government recognizes joint-stock companies, limited liability companies, general commercial partnerships, limited commercial partnerships, partnerships limited by shares, and associations.
National Treatment
From a legal standpoint both foreign and domestic investors are treated equally. The government does not differentiate between foreign investors from different countries, and does not screen foreign investment projects other than in the banking, insurance and defense sectors. Upon accession to the OECD, the Czech government agreed to meet (with a small number of exceptions) OECD standards for equal treatment of foreign and domestic investors and implement limitations on special investment incentives. The U.S.-Czech Bilateral Investment Treaty contains specific guarantees of national treatment and Most Favored Nation treatment for U.S. investors in all areas of the economy other than insurance and real estate (see the section on the Bilateral Investment Treaty below).
Competition and Anti-Trust Laws
The Office for the Protection of Competition (UOHS) is the central authority of state administration responsible for creating conditions that favor and protect competition, supervision over public procurement, and consultation and monitoring in relation to the provision of state aid. The Office is headed by a Chairman, who is appointed by the President of the Czech Republic for a six-year term, http://www.uohs.cz/en/homepage.html.
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 Embassy is aware of just one case of possible alleged expropriation of a U.S. foreign investment.
Potential investors should first ensure they have clear title to all land and property associated with potential projects. The process of tracing the history of property and land acquisition can be complex and time-consuming, but it is necessary to ensure clear title. Title insurance is still a relatively new concept in the Czech Republic. Investors participating in privatization of state-owned companies are protected from restitution claims through a binding contract signed with the government.
Dispute Settlement
ICSID Convention and New York Convention
The Czech Republic is a signatory and contracting state to the International Centre for Settlement of Investment Disputes (ICSID Convention). It also has ratified the convention on the Recognition and Enforcement of Arbitral Awards (1958 New York Convention). This convention obligates local courts to enforce a foreign arbitral award if it meets the legal criteria. Applications for enforcement of foreign judgments can be made to Czech courts and are determined in accordance with a bilateral recognition treaty, agreement or convention; if one of these does not exist, then it is enforced in a manner which is consistent with Czech law. Judgments rendered in other EU countries are enforceable in accordance with applicable EU regulations.
Investor-State Dispute Settlement
In 1993, the Czech Republic became a member state to the International Centre for Settlement of Investment Disputes (ICSID Convention). The 1993 U.S.-Czech Bilateral Investment Treaty contains provisions regarding the settling of disputes through international arbitration.
International Commercial Arbitration and Foreign Courts
Mediation is admissible in every area of law, except where it is excluded by legislation. Mediation is an option in every nearly every area of law, including family law, commercial law, and criminal law. 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.
Mediation is governed both by Act No 202/2012 on mediation and, in the area of criminal proceedings, by Act No 257/2000 on the Probation and Mediation Service of the Czech Republic. The training of mediators acting within the criminal justice system is ensured by the Probation and Mediation Service; training in the area of non-criminal mediation is offered by a range of bodies and educational institutions.
Directive 2008/52/EC allows those involved in a dispute to request a written agreement arising from mediation be made enforceable. An agreement between the parties to the mediation in a civil case may be submitted to the court for approval in the context of further proceedings. The results of mediation provided in the context of criminal proceedings by the Probation and Mediation Service may be taken into account by the public prosecutor and the court in their decision in a given case.
Bankruptcy Regulations
A new amendment to the bankruptcy law that will come into force on June 1, 2017 includes such provisions as a prohibition of forum shopping (insolvency tourism), restriction of voting rights of the creditors from the debtor’s group, provisions against “bullying" insolvency petitions, and stricter rules for documenting the existence of a claim when filing a creditor’s insolvency petitions. It also sets penalties for bankruptcy administrators of up to CZK five million ($200,000) for serious administrative violations such as failure to state the address of the bankruptcy administrator where the administrator actually executes his activities. The 2017 edition of the World Bank’s Doing Business Report ranked the Czech Republic 26th (compared to 22nd in 2016) for ease of resolving insolvency. Although this represents a drop of four positions compared to last year, it still puts Czech Republic ahead of many fellow EU member states.
4. Industrial Policies
Investment Incentives
The Czech Republic offers incentives to foreign and domestic firms that invest in the manufacturing sector, technology, research and development centers, business support service centers, etc. Incentives are funded from the Czech Republic’s national budget as well as from European Union Structural Funds. The amendment to the Investment Incentives Act will make it possible to expand the number of eligible districts from four to 14. The purpose of the expansion is to encourage investors to implement projects in regions with the highest rates of unemployment.
For more information on investment incentives consult Financial Support Programs on CzechInvest’s website at https://www.czechinvest.org/es, or contact CzechInvest directly at +420 296 342 512, pobidky@czechinvest.org, or www.czechinvest.org.
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 zone treatment applies to both non-Community and Community goods, and duties need to be paid only in the event that the goods brought into the free zone are introduced into the local economy. However, since the Czech Republic has been part of the single customs territory of the European Community, and offers various exemptions on customs tariffs, the use of these 11 free-trade zones has declined.
Performance and Data Localization Requirements
Performance Requirements
Post is not aware of any performance requirements mandated by the Czech government for foreign investors, with the possible exception of those that receive investment incentives from the Czech government.
Data Storage
Data storage regulations is governed by EU standards.
5. Protection of Property Rights
Real Property
Real estate (land and buildings) located in the Czech Republic must be registered in the Cadastral Register, which is maintained by the Cadastral Office. The Cadastral Register is the primary source of information on real estate (including related encumbrances, easements or liens). The Cadastral Register, containing information on plots of land and buildings, housing units and non-residential premises, is publicly available and information on a particular property can be obtained from the Cadastral Register. Transfer of ownership title to real estate (e.g., sale and purchase agreement) is effective from the date of execution of a written agreement and registration of the transfer of the ownership title in the Cadastral Register. The Czech Republic ranked 31st for ease of registering property in the 2017 World Bank’s Doing Business Index, up 6 places from 37th in 2016.
Intellectual Property Rights
The Czech Republic is a signatory to the Bern, Paris, and Universal Copyright Conventions. In 2001, the government ratified the World Intellectual Property Organization (WIPO) Copyright Treaty and the WIPO Treaty on Performances and Phonograms. Domestic legislation protects all intellectual property rights, including patents, copyrights, trademarks, industrial designs, and utility models. Amendments to the trademark law and the copyright law have brought Czech law into compliance with relevant EU directives and WTO Trade-Related Aspects of Intellectual Property Rights (TRIPS) requirements. The civil procedure code provides for ex parte search and seizure in enforcement actions. Literary works enjoy copyright protection from 50 to 70 years. The customs service and the Czech Commercial Inspection have legal authority to seize counterfeit goods. A 2006 amendment to the Law on Civil Procedure made ex-parte search more accurate, clear and easy to apply and enforce. The amendment also made it easier to define and recover losses caused to owners by piracy. The Criminal Code, which came into effect Jan. 1, 2010, increased maximum penalties for trademark, industrial rights and copyright violations from two to eight years. Enforcement statistics are available at the following website (in Czech): https://www.celnisprava.cz/cz/statistiky/Stranky/dusevni-vlastnictvi.aspx.
Intellectual property rights (IPR) violations at markets on the borders of Germany and Austria were once an issue of greater concern, but since 2008, Czech authorities have made substantial efforts against physical markets and have adopted an acceptable legal framework for IPR protection. In recognition of this fact, USTR removed the Czech Republic from the Special 301 Watch List in 2011. While online piracy is a growing concern, the legal framework for IPR protection has been tested and proven successful in punishing infringers. The Embassy continues to work with U.S. industry and Czech government officials to strengthen enforcement of intellectual property rights.
For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.
Resources for Rights Holders
Contact at the U.S. Embassy regarding IPR issues in the Czech Republic:
Marko Velikonja
Senior Economic Officer
+420 257 022 000
velikonjamg@state.gov
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 14 listed companies. The overall trade volume of stocks increased negligibly - from CZK 167.9 billion ($6.8 billion) in 2015 to CZK 168.03 ($6.8 billion) in 2016, with an average daily trading volume of CZK 666.78 million ($27.00 million). The PSE index (PX) decreased by 3.6 percent in 2016. The PX development trend mirrored development of a broad Euro Stoxx 600 index. The PX index has been stagnating for past five years - reliably reflecting results of its main drivers - Erste Bank, Komercni Bank, CEZ and VIG.
In March 2007, the PSE created the Prague Energy Exchange (PXE) to trade electricity in the Czech Republic and Slovakia and, later, Hungary (The Exchange’s official name now is Power Exchange Central Europe). PXE’s goal is to increase liquidity in the electricity market and create a standardized platform for trading energy.
A new securities law was adopted in 2001 to improve regulation of brokers and dealers. In 2006, supervision over banks, capital markets, insurance houses and pension funds were combined under the umbrella of the Czech National Bank http://www.cnb.cz/en/index.html.
The Czech National Bank (CNB), as the financial market supervisory authority, sets rules to safeguard the stability of the banking sector, the capital markets, the insurance industry and the pension scheme industry, 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, and facilitates the efficient exchange of this information between CCR participants. CCR participants are all the banks and branches of foreign banks carrying on business in the Czech Republic, as well as other persons where so provided in a special legislative act. CCR participants are required to update the CCR database on a monthly basis. Each of the participants has access to the information in the system, as does the Czech National Bank as the CCR operator. The CNB is the guarantor for the project and for the further development of the CCR system. The project was implemented in close co-operation with the Czech Banking Association. The comments of individual banks were also taken into consideration. The CCR application uses state-of-the-art information technology and meets strict requirements in the data security area.
Money and Banking System
Large domestic banks belong to European banking groups. Most operate conservatively and concentrate almost exclusively on the domestic Czech market. As a result, Czech banks remained relatively healthy throughout recent global financial crisis. Results of regular banking sector stress tests, as conducted by the Czech National Bank (CNB), repeatedly confirm the outstanding state of the Czech banking sector, presenting a capital adequacy ratio exceeding 17 percent, on average, which is deemed sufficient resistance to potential shocks. The stress test conditions developed by the CNB present substantially stricter criteria than those set up by the European Central Bank (ECB). Results of the most recent stress test conducted by the CNB are available at https://www.cnb.cz/en/financial-stability/. As of Dec. 31, 2016, the total assets of commercial banks stood at CZK 5.47 trillion (approximately $225 billion), according to the CNB. Foreign investors have access to bank credit on the local market, and credit is generally allocated on market terms. Domestic household borrowing in foreign currencies is negligible
The issue of hostile takeovers is covered by the EU Directive 2004/25/EC on Takeover Bids. A copy of this document is available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2004:142:0012:0023:EN:PDF
Foreign Exchange and Remittances
Foreign Exchange
The Czech crown is fully convertible, and is linked to the Euro. Since November 2013, the Czech National Bank has intervened to weaken the Czech Crown relative to the Euro, and to prevent deflation. In late 2016, the CNB stated that the return to conventional monetary policy was planned by mid-2017.
Imports or exports equal to or exceeding 10,000 euros ($13,000) in cash, travelers’ checks, money orders, securities or commodities of high value (such as precious metals or stones) must be declared at the border.
The Czech National Bank (CNB) supervises the foreign exchange market and its compliance with foreign exchange regulations. Articles of Agreement can be found here: http://www.imf.org/External/Pubs/FT/AA/index.htm#art7.
Remittance Policies
All international transfers of investment-related profits and royalties can be carried out freely. The U.S.-Czech Bilateral Investment Treaty guarantees repatriation of earnings from U.S. investments in the CR. However, a 15 percent withholding tax is charged on repatriation of profits from the Czech Republic. This tax is reduced under the terms of applicable double taxation treaties. For instance, under the U.S. treaty, the rate is five percent if the U.S. qualifying shareholder is a company controlling more than 10 percent of the Czech entity, and 15 percent in other cases. There are no administrative obstacles for removing capital. The law permits conversion into any currency. The average delay for remitting investment returns meets the international standard of three working days.
Sovereign Wealth Funds
The Czech government does not operate any sovereign wealth fund.
7. State-Owned Enterprises
The Ministry of Finance is the administrator of the ownership rights of state-owned enterprises (SOEs). Potential conflicts of interests are covered by existing Act No. 159/2006 on Conflicts of Interest. Legislation on the civil service took effect Jan. 1, 2015, and established measures to prevent political influence over public administration, including operation of SOEs.
Private enterprises are generally allowed to compete with public enterprises under the same terms and conditions with respect to access to markets, credit, government contracts and other business operations, although there are frequent accusations that large domestic companies - including both SOEs and private firms - use their political clout and connections to gain unfair advantage. SOEs purchase or supply goods or services from private sector/foreign firms. SOEs are subject to the same domestic accounting standards, rules and taxation policies as their private competitors, and do not afford any material advantages, compared to private entities. State-owned or majority state-owned companies are present in several (strategic) fields, including the energy, postal service, information & communication, and transport sectors. The Czech state also owns interests in two small banks, and an insurance house. One of the banks and the insurance house specialize in export financing; their services are available to both private firms and SOEs.
SOEs are usually structured as joint-stock companies. They do not report directly to ministries but are managed by a Board of Directors (statutory body) and a Supervisory Board that generally includes representatives of the government and trade unions (representing employees, both union and non-union, as required by law). Like privately owned joint-stock companies, the SOEs are fully responsible for their obligations towards third parties, although shareholders are not personally liable for a company’s obligations. SOEs are required by law to publish an annual report, disclose their accounting books, and submit to an independent audit.
Private enterprises and SOEs carry out procurement in accordance with the Act on Public Procurement No 137/2006 ) which is fully harmonized with the existing EU legislation on Public Procurement. In harmony with the long-term efforts to secure single rules for public procurement purposes, the European Commission issued proposals to amend Directives 2004/17/EC on procurement in the water, energy, transport and postal services sectors (COM/2011/895 final) and 2004/18/EC on public works, supply and service contracts (COM/2011/0896 final), as well as for the adoption of a Directive on concession contracts (COM/2011/0897 final) in December 2011. New Directives were adopted by the European Parliament and the Council of the European Union on 26 February 2014. EU countries had until April 2016 to transpose the new rules into national law (except with regard to e-procurement, where the deadline is October 2018). Details on updated legislation are available at http://ec.europa.eu/growth/single-market/public-procurement/index_en.htm.
A list of some 50 state-owned or majority state-owned companies is available at: http://www.mfcr.cz/cs/verejny-sektor/majetek-statu/majetkove-ucasti/2017/majetkove-ucasti-ministerstva-financi-ke-27972.
OECD Guidelines on Corporate Governance of SOEs
As an OECD member, the Czech Republic promotes the OECD Principles of Corporate Governance and the affiliated Guidelines on Corporate Governance for SOEs. SOEs are subject to the same legislation as private enterprises regarding their commercial activities. The Ministry of Finance administers the government’s ownership of SOEs; http://www.mfcr.cz/en/.
Corporate Governance rules are covered by the:
* Act on Criminal Liability of Legal Entities
* Act on Corporations
* Civil Code
* Act on Capital Markets
* Act on Audit
* Act on Banks
* Money Laundry Act
* Public Procurement Act
In 2004, an Administration and Management Code was developed, based on the OECD Principles of Corporate Governance, to set up standards of operation for business entities and their relation to shareholders, investors, creditors and auditors. As a result of numerous subsequent legislative updates, corporate governance rules are now in the process of being modified to reflect current trends in corporate administration and management, as well as to meet new rules (to be) adopted by the EU, such as on obligatory provision on data collection.
Information on Corporate Governance principles is available on the web sites of the Corporate Governance Institute http://governance.cz/.
Courts act independently and are declared to be free from any interference. Post is not aware of any evidence of discriminatory conduct presented by courts with respect to favoritism toward a SOE.
Privatization Program
According to the Ministry of Finance http://www.mfcr.cz/en/, as a result of several waves of privatization of formerly state-owned companies since 1989, almost 90 percent of the Czech economy is now in private hands. Privatization programs have been generally open to foreign investors. In fact, most major state-owned companies were privatized with foreign participation. The government evaluates all investment offers for state enterprises. Many complainants have alleged non-transparent or unfair practices in connection with past or planned privatizations.
In early 2013, the Czech government approved the sale of a 44 percent stake in the national airline, Czech Airlines (CSA), to Korean Air. The Czech government sought a strong, non-European investor who would help CSA to further develop, and to expand the number of CSA flights to overseas destinations. The tender process met EU rules, and the final purchase conditions were subject to approval by the European Commission. The government had attempted, unsuccessfully, to privatize the airline in 2009. A local private carrier, Travel Service, acquired an additional 34 percent stake in CSA. Czech Aeroholding, an umbrella company which includes a national group of companies operating in air transport and related services, holds a minority stake of 19.74 percent, and the Czech Insurance Company (Ceska Pojisovna) owns 2.26 percent. No privatization program is currently underway.
8. Responsible Business Conduct
The concept of responsible business conduct (RBC) is fairly new in the Czech Republic. The government has successfully grasped the concept of corporate social responsibility (CSR) and it is in the process of understanding and defining RBC. Some principles of RBC are consistent with already long-effective laws protecting human rights, environment, labor relations, and financial accountability. In addition, the host country has a well-developed structure of trade unions and the private sector, in particular, responds to societal expectations through voluntary implementation of their own CSR programs.
In April 2014, the Czech government approved the National Action Plan for CSR. The document was drafted in cooperation with NGOs and private companies and presented by the Ministry of Industry and Trade. The major goal of the National Action Plan is to establish fundamental principles and to support and encourage CSR, highlighting that CSR should remain a voluntary policy. In 2015, the Sustainable Development Section of the Quality Council of the Czech Republic - an advisory and coordination body of the government - actively encouraged CSR in the Czech Republic through creation of a National Informational CSR Portal that provides businesses, NGOs, representatives of state administration, and the public with updates related to CSR in the Czech Republic. In addition, the Section participated in a number of public and expert forums, advocating for social responsibility and sustainable development, and it submitted an updated version of the National Action Plan (NAP) for CSR.
The updated NAP touches on the issues of public tenders and encourages businesses and state administration to consider potential long-term social and environmental impacts of their procurement decisions, instead of deciding strictly based on financial costs.
Post is not aware of any controversial instances of corporate impact on human rights.
The government strictly and effectively enforces legislation in the area of human rights, labor rights, consumer protection, and environmental protection to protect individuals from adverse business impacts. Domestic standards are generally very high and in many instances exceed EU-wide requirements. Negligence or failure to comply with this legislation results in serious consequences.
Shareholders are protected by developed legislation that clearly describes legal processes, organization structures, administration, management of all business components, including stakeholders.
Companies are not required to publicly disclose information about their RBC or CSR activities. However, they gladly promote their efforts, for example by applying for prestigious CSR awards.
Various local NGOs monitor and advise CSR programs, such as the Business Leaders Forum, Business for Society, the CSR Association, Nadace Via and the CSR Committee of the American Chamber of Commerce. Business for Society gives annual CSR awards to the “Top Responsible Company" in order to increase public awareness about CSR, promote and reward excellent CSR achievements, and to encourage entrepreneurship. The private sector competes for prizes in 12 categories and the event enjoys strong media attention. Growing numbers of applicants, especially small and medium-sized Czech companies, indicate increasing attention these companies are paying to CSR.
The host government encourages local as well as foreign enterprises to follow generally accepted RBC principles on grounds of adherence to the OECD Guidelines for Multinational Enterprises (MNE) and to the United Nations Guiding Principles of Business and Human Rights. The OECD Guidelines for MNE are actively promoted by the National Contact Point and the United Nations Principles are being reviewed at the Office of the Government, with the goal to issue a separate national action plan to secure its implementation.
Since 2013, the host government has maintained a National Contact Point (NCP) for OECD MNE guidelines. The NCP working group consists of representatives of the government, employer organizations (Confederation of Industry and Trade), employee organizations (Czech-Moravian Confederation of Trade Unions), and NGOs (Frank Bold). It is supervised by the Ministry of Industry and Trade. In November 2016, the NCP, in cooperation with the Norwegian NCP, organized an all-day seminar focused on the importance and mission of the OECD MNE guidelines. The goal was to introduce representatives of business, unions, and state administration to the text of the guidelines, to its objectives and to activities of the NCP. The Norwegian NCP presented their experience with practical implementation of the guidelines in Norway. In addition, the Czech NCP participates in the Economic Diplomacy Course for Czech diplomats and other employees, organized by the CzechTrade agency. The NCP closely and actively cooperates with other regional NCPs to share best practices, procedures and experience.
The host government adheres to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. At the moment, a joint EU directive, which should establish specific responsibility for the whole supply chain, has been submitted by the European Commission and is being negotiated in the European Parliament. The implementer of this agenda in the Czech Republic is the Ministry of Industry and Trade, which should transcribe the EU directive into national legislation.
The Czech Republic does not have any significant oil and natural gas resources and is dependent on purchasing these commodities from abroad. There are no special domestic transparency measures requiring the disclosure of payments made to governments for projects related to the commercial development of oil, natural gas, or minerals. Payments for extraction of minerals in the Czech Republic abide by the Mining Law, which clearly determines payments are processed for extracted minerals as well as for mined areas. International trade with oil, natural gas and minerals is not subject to any special legislation; it follows the general rules of international trade. The Czech Republic is not an EITI-compliant Country, nor an EITI candidate.
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 twelve years for officials, and police investigate bribery with tools such as wire-tapping. Corruption of public officials is prosecuted on the regional level to ensure that prosecutors have specialized knowledge and avoid bias; the government believes that regional prosecutors know the local environment and actors better that their colleagues on the national level. The special Organized Crime Police Unit (UOOZ) and the Unit for Combating Corruption and Serious Financial Criminality (UOKFK) are primarily responsible for investigating high-level corruption cases. Bribes are not tax deductible, and all anti-corruption laws apply equally to Czech and foreign investors. Criminal procedure law allows for the seizure of criminal proceeds paid or transferred to family members of corrupt officials, although their prosecutions depend on evidence.
The current government has proclaimed fighting corruption as one of its priorities, and to that end, has been working on anti-corruption legislation. It has passed an amendment to the law on public procurement, and a new law on the register of public tenders. In addition, the Government Legislative Council is reviewing a new law on the public prosecution service that envisages a more independent prosecutor. It will then go to the Cabinet for approval before submission to the Chamber of Deputies, perhaps as soon as the current spring 2016 session.
Two more anti-corruption bills are currently being debated in the Chamber of Deputies: the financial disclosure bill and the bill on financing political parties.
UN Anticorruption Convention, OECD Convention on Combatting Bribery
A law introducing criminal liability for legal entities came into effect on Jan. 1, 2012. The government ratified the OECD Anti-Bribery Convention in January 2000 and the UN Convention Against Corruption (UNCAC) in January 2014. According to Transparency International (TI) reports, there is little or no enforcement of the OECD Convention in the Czech Republic. TI cites insufficient definition of foreign bribery offenses, jurisdictional limitations, lack of coordination between investigation and enforcement entities, inadequate whistleblower protection, and lack of awareness as the causes for this lack of enforcement.
The Czech Republic became a member of the Open Government Partnership in 2011, and in 2012 approved an Action Plan including the adoption of an Act on Civil Servants, which was intended to lead to a system allowing freer access to information and publication of data.
In 2013 a new anti-corruption initiative called Reconstruction of the State was launched. This confederation of nearly 20 locally-renowned anti-corruption organizations has worked towards strong anti-corruption reform in the Czech Republic and has successfully advocated for the adoption of six new pieces of anti-corruption legislation.
Despite widespread concern about corruption, U.S. companies have not been significantly deterred from investing in the Czech Republic. The most common allegations of corruption relate to public procurement and external pressures on the judiciary. An April 2012 procurement reform law lowered the threshold for application of procurement rules to contracts valued at one million Czech crowns ($50,000) for services and three million crowns ($150,000) for construction, although the Senate later amended it by raising the threshold by 10 percent. The law requires more than one bidder for all procurements and mandates that the tender be published. The law also requires bidders to disclose more of their ownership structure in the bidding process, but it contains some exceptions to that obligation. American businesses have also cited inconsistent competition policies as an investment obstacle.
An amendment to the Law on the Central Registry of Contracts was enacted in December 2015 and took effect July 1, 2016. The amendment requires all national, regional, and local authorities and companies to make public all newly concluded contracts valued at CZK 50,000 ($2,000) or more. The Registry of Contracts has its own government web page: http://smlouvy.gov.cz.
Resources to Report Corruption
Contact at government agency responsible for combating corruption:
Eva Kyzourova
Department for Combating Corruption
Office of the Government
Vladislavova 4
11000 Praha 1
+420 224 002 412
sekretariat.brs@vlada.cz
Contact at watchdog organization:
David Ondracka
Director
Transparency International Czech Republic
Sokolovska 260/143
+420-224 240 895
ondracka@transparency.cz
Nadacni Fond Proti Korupci
Anticorruption Endowment
Na Florenci 31, 110 00 Praha 1
+420 226 209 047
E-mail: info@nfpk.czwww.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 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 emerging strength of the electronics and information technology sectors is also creating demand for highly skilled workers.
The wide availability in the Czech Republic of an educated, relatively low-cost labor force on the doorstep of Western Europe has been a major attraction for foreign investors. While the wage gap continues to narrow, the income convergence process was slowed due to the recession, and Czech wages still trail significantly those of neighbors like Germany and Austria. During 2016, wage levels increased. According to the Czech Statistical Office, in the third quarter of 2016, the labor force participation rate (age 15 and above) was 60.1 percent, and the unemployment rate of 4.0 percent was the lowest in the European Union; the rate of unemployment decreased further to 3.6 percent in the fourth quarter. However, unemployment rates vary significantly between regions. In the third quarter of 2016, the unemployment rate was lowest in Prague (2.3 percent) and highest in the Moravia-Silesia region (6.4 percent).
Freedom of Association and the Right to Collective Bargaining
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 hospitals, electricity/water supply services, air traffic control, the nuclear energy sector, and oil /natural gas sectors. Members of the armed forces, prosecutors, and judges may not form trade unions or strike. The scope for collective bargaining is limited for civil servants, whose wages are regulated by law. Only trade unions may legally represent workers, including non-members.
Prohibition of Child Labor and Minimum Age for Employment
The minimum age for employment is 15. Employment of children between the ages of 15 and 18 is subject to strict standards of safety, limitations on hours of work, and the requirement that work not interfere with education. Infringement of child labor rules is subject to fines up $83,000. The State Bureau for Labor Inspections (SBLI) effectively enforced these regulations. The SBLI has not reported any recent cases of child labor law violations.
Acceptable Conditions of Work
The law provides for a 40-hour workweek, two days of rest per week, and a break of at least 30 minutes during a standard eight-hour workday. Employees are entitled to at least 20 days of paid annual leave. Employers may require up to eight hours per week of overtime to meet increased demand but not more than 150 hours of overtime in a calendar year. Additional overtime is subject to employee consent. The provisions of the labor code govern premium pay for overtime, which is equal to at least 125 percent of the average earnings.
The Ministry of Labor and Social Affairs establishes and enforces minimum wage standards. During the year the national minimum wage increased from $375 to $403 per month (Note: The wage increased from CZK 9,200 to 9,900 per month, but the dollar value has declined due to depreciation of the Czech Crown against the U.S. Dollar). By comparison, the minimum subsistence cost, defined as the minimum amount needed to satisfy the basic needs of a working-age adult for a month, was $90. Enforcement of the minimum wage was one of the primary objectives of SBLI inspections.
The government sets occupational health and safety standards. The labor code obliges an employer to provide safety and health protection in the workplace, maintain a safe and healthy work environment, and prevent health and safety risks.
12. OPIC and Other Investment Insurance Programs
A bilateral agreement was signed in 1990 between the Overseas Private Investment Corporation (OPIC) and Czech Republic. Finance programs of OPIC, including investment insurance, have been available in the Czech Republic since 1991. Investors are urged to contact OPIC’s offices in Washington directly for up-to-date information regarding availability of services and eligibility. The OPIC Info Line (202) 336-8799 offers general information 24 hours a day. Application forms and detailed information may be obtained from OPIC, 1100 New York Avenue, NW, Washington D.C. 20527. The Czech Republic is a member of the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA).
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
* Sources: Ministry of Finance of the Czech Republic (www.mfcr.cz ). Czech Statistics Office (czso.cz) and Czech National Bank ).
As of 2015, the Czech National Bank (CNB) has revised the method for valuing foreign investment stocks. Rather than the sum of historical flows, the CNB 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. The book value of own funds is used for unquoted shares and the shares of domestic companies in foreign direct investment. See www.cnb.cz/en/statistics/bop_stat/bop_publications/pzi_books/PZI_2015_EN.pdf. As a result, while the 2014 figure for total U.S. FDI stock was listed at $4.388 billion, under this new methodology it is valued at $1.567 billion.
Table 3: Sources and Destination of FDI
Sources:
https://www.cnb.cz/analytics/saw.dll?Portal
http://data.imf.org/regular.aspx?key=60564262
The IMF rankings for the top five sources and destinations of FDI stock are consistent with data from the Czech National Bank, though actual figures vary by roughly 10-20 percent.
The top sources of and destinations of Czech foreign direct investment represent a combination of major EU trading partners and favored tax havens. The leading country for both inward and outward direct investment flows is the Netherlands. In the early 1990s, it became a popular place for corporate registration for domestic and foreign businesses active in the Czech Republic. In past years, the main rationale for registering a business in the Netherlands related to favorable corporate income taxes, stimulating rapid development of offshore corporate structures in the Czech Republic. While the tax haven effect has dissipated (corporate income tax rates in the Czech Republic and Netherlands are nearly equal), the Netherlands remains a popular country for large corporations. Luxembourg attracts Czech businesses for the same reason. Among the other FDI partner countries, Cyprus offers one of the lowest corporate income tax rates in the EU (currently 12.5 percent), and tax exemption of dividends. Nevertheless, all corporations are required to have an independent audit of their accounting.
These statistical distortions should dissipate in future years with the global adoption of the recently revised OECD Benchmark Definition for FDI, which is designed to discount investment flows from special purpose entities.
Table 4: Sources of Portfolio Investment
14. Contact for More Information
Marko Velikonja
Senior Economic Officer
Trziste 15, 118 01 Prague 1
+420 257 022 000
velikonjamg@state.gov
Tags
Bureau of Economic and Business Affairs Bureau of European and Eurasian Affairs Czech Republic
Source: U.S Department of State, Bureau of European and Eurasian Affairs
