HomeReportsBureau of Economic and Business Affairs2018 Investment Climate Statements...Czech Republic

# 					2018 Investment Climate Statements: Czech Republic			

 In this section										/

													Executive Summary											

                -  Executive Summary 
                -  1. Openness To, and Restrictions Upon, Foreign Investment   
                -  2. Bilateral Investment Agreements and Taxation Treaties   
                -  3. Legal Regime   
                -  4. Industrial Policies   
                -  5. Protection of Property Rights   
                -  6. Financial Sector   
                -  7. State-Owned Enterprises   
                -  8. Responsible Business Conduct   
                -  9. Corruption   
                -  10. Political and Security Environment   
                -  11. Labor Policies and Practices   
                -  12. OPIC and Other Investment Insurance Programs   
                -  13. Foreign Direct Investment and Foreign Portfolio Investment Statistics   
                -  14. Contact for More Information   

## Executive Summary

The Czech Republic is a medium-sized, open, export-driven economy with 80 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 around 40 percent going to Germany alone. The Czech banking sector remains healthy. The country has enjoyed some of the highest GDP growth rates of the EU, with 4.6 percent GDP growth in 2017.

The Czech National Bank ended its foreign exchange intervention in the Czech crown (CZK) in April 2017, which had kept the crown at 27 to the euro (EUR). Since then, the CZK has appreciated by about 5 percent against the EUR and by more than 13 percent against the U.S. dollar (USD ), according to Bloomberg. 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 EUR and agreed to join the Eurozone under the country’s EU accession agreement, the Czech government has said it will not seek to join the common currency in the next few years and the possibility remains widely unpopular among Czech voters.

The Czech Republic fully complies with EU and the Organization for Economic Co-operation and Development (OECD) standards for labor laws and equal treatment of foreign and domestic investors. Labor laws are comparable with those of most developed nations. 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 five to seven percent annually over the past two years, according to the Czech Statistical Office. The country is now facing a labor shortage as most companies struggle to find workers with the unemployment rate hovering below three percent – the lowest rate in the EU. The 1992 U.S.-Czech Bilateral Investment Treaty 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 Czech Republic still lacks sufficient enforcement of anti-trust violations. The Czech Republic is committed to improving transparency and reducing corruption. Czech intellectual property rights (IPR) protections are still not optimal, especially in the area of cyberspace, but IPR protections are enforced.

There are few restrictions on foreign investment except in certain sectors that require access to sensitive information. The Czech Republic has taken strides to diversify its traditional investments in engineering into new fields of research and development 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, but the government has signaled a desire to seek more investment opportunities from non-European countries, including the United States, China, and South Korea.

*Table 1*

							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 an attractive destination for companies to locate, operate, and expand. Act No. 72/2000 allows the Czech government to give investment incentives to investors who make new investments or expand their existing investments in the country. CzechInvest, the government investment promotion agency that operates under the Ministry of Trade and Industry, 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.

The Czech Republic is a recipient of substantial foreign direct investment (FDI). As a medium-sized, open, export-driven economy, the Czech economy is strongly dependent on foreign demand, especially from the Eurozone. In 2017, almost 80 percent of Czech exports went to fellow EU member states, with more than 60 percent of this volume shipped to the Eurozone and 40 percent to the Czech Republic’s largest trading partner, Germany, according to the Czech Statistical Office. The global economic crisis pulled the Czech Republic into its longest historical recession and highlighted its sensitivity to economic developments in the Eurozone. Since emerging from recession in 2013, the economy has enjoyed some of the highest GDP growth rates of the European Union. In 2015, GDP growth reached 5.3 percent, followed by 2.6 percent in 2016. The 2017 GDP growth rate of 4.6 percent was the second best performing year in the last decade, according to the Czech Statistical Office.

The Czech trade balance has been positive every year since 2005, and in 2016 and 2017 rose substantially, with surpluses of around USD 20.5 billion and USD 18.9 billion, respectively. Export revenues were just over 83.2 percent of GDP in 2016, according to the Czech Statistical Office. The main export commodities are automobiles, machinery, and information and communications technology.

The Czech Republic has no plans to adopt the EUR and instead has taken a wait-and-see approach to taking on the common currency. Economic difficulties in the Eurozone during the global downturn weakened public support for the country’s adoption of the EUR, as did the more recent Greek crisis, and the current government opposes setting a target date for accession.

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 media. The slow pace of the courts is often compounded by judges’ lack of familiarity with commercial or intellectual property law.

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 and shared services toward a more high-tech, services-based, knowledge economy.

Since 1990, the Czech Republic has become one of the leading destinations for FDI in the region. Total foreign investment in the Czech Republic (equity capital + reinvested earnings + other capital) equaled USD 121.9 billion at the end of 2016, compared to USD 116.6 billion in 2015. The increased activity of foreign investors reflects the solid state of the Czech economy and recovery in Europe. Of these, CzechInvest negotiated 76 new investment projects by foreign investors in the Czech Republic in 2016, worth USD 1.95 billion.

**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).

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 for money laundering, transparency, origin of funds, and security purposes. Following the European Commission (EC) September 2017 investment screening proposal, the Czech government is expected to launch expert discussions on developing an investment screening mechanism that would effectively combine the national screening criteria with those newly proposed by the EC.

U.S. investors are not disadvantaged or singled out by any of the aforementioned Czech policies. 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).

**Other Investment Policy Reviews**

The Czech Republic scores well on recent “doing business” surveys. For example, the World Bank’s Doing Business 2018 Economic Profile and the Economist Intelligence Unit provide further detail on the Czech Republic’s investment climate. More information can be found at http://www.doingbusiness.org/data/exploreeconomies/czech-republic .

**Business Facilitation**

Individuals have a number of bureaucratic requirements to set up a business or operate as a freelancer or contractor. The Ministry of Industry and Trade 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/ . The Ministry of Industry and Trade 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: http://www.businessinfo.cz/en/psc.html .

Establishing a business requires visits to various Czech offices and on average takes nine days. The Czech Republic’s Business Register is publicly accessible and provides details on business entities. 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 publically available at: https://www.czso.cz/csu/res/business_register . The Czech Republic’s Trade Register is an online information system that collects and provides information on entities facilitating small trade and craft-oriented business activities, as specifically determined by related legislation. It is available online at: http://www.rzp.cz/eng/index.html .

The Ministry of Industry and Trade has two organizations that promote trade and investment. CzechTrade supports the development of international trade and cooperation between Czech and foreign entities and offers information and assistance to exporters and investors to facilitate business between Czech and foreign businesses. CzechInvest, established in 1992, seeks to attract foreign investment and develop domestic companies through its services and development programs. The organization also runs a number of EU programs to promote business. The organization also has the mandate to offer investment incentives to foreign investors.

**Outward Investment**

While the government does not restrict domestic investors from investing abroad, the volume of outward investment remains significantly lower than incoming FDI. This is primarily due to the fact that most Czech companies have only gotten to a point in the last few years where they are mature enough and generate sufficient capital to seek out more distant markets like the United States. The Czech government does not incentivize outward investment.

							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 the 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 only at 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 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 Foreign Account Tax Compliance Act (FATCA).

							3. Legal Regime					

**Transparency of the Regulatory System**

Tax, labor, environment, health and safety, and other laws generally do not distort or impede investment. Policy frameworks are consistent with a market economy. Fair market competition is overseen by the Office for the Protection of Competition (UOHS) http://www.uohs.cz/en/homepage.html . UOHS is a central administrative body entirely independent in its decision-making practice. The office is mandated to create conditions for support and protection of competition and to supervise public procurement and state aid.

All laws and regulations in the Czech Republic are published before they enter into force. Opportunities for prior consultation on pending regulations exist, and all interested parties, including foreign entities, can participate. A biannual governmental plan of legislative and non-legislative work is available online, along with information on draft laws and regulations (often only in the Czech language). Business associations, consumer groups, and other non-governmental organizations, including the American Chamber of Commerce, can submit comments on laws and regulations. Laws on auditing, accounting, and bankruptcy are in force. These laws include the use of international accounting standards (IAS) for consolidated corporate groups.

**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 (the predecessor to the Czech Republic) was a founding member of the GATT in 1947, and a member of the World Trade Organization (WTO). Since the country’s entry into the EU in 2004, the European Commission – an independent body representing all EU members –oversees Czech interests in the WTO.

**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.

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, 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 clearly outlined jurisdictional guidelines. 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 at http://www.businessinfo.cz/en/  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 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 by potential investors 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 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.

*International Commercial Arbitration and Foreign Courts*

Mediation is an option in 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. 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**

A significant amendment to the bankruptcy law came into force on June 1, 2017. The amendment includes provisions prohibiting 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 CZK5 million (USD 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 2018 edition of the World Bank’s Doing Business Report ranked the Czech Republic twenty-fifth for ease of resolving insolvency.

There is a nationwide Central Register of Credits for the Czech Republic, governed by the Czech National Bank, which serves as the country’s credit monitoring authority.

							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, and others. Incentives are funded from the Czech Republic’s national budget as well as from European Union Structural Funds. In October 2017, the government approved amendments to the existing legislation on investment incentives to address a necessary shift from supporting manufacturing toward support of projects with higher added value such as science and technology and business support services centers. The amended legislation should take effect in the first half of 2019.

**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. While there were some instances of abuse of customs-free zones for tax evasion purposes, new Customs Act No. 242/2016 Coll. now precludes this practice by repealing a clause on exemption from value added taxation in customs-free zones.

**Performance and Data Localization Requirements**

The Czech Republic abides by EU law governing data localization and performance. That being said, within the EU, the Czech Republic is highly critical of data localization policies. On December 2, 2016, it published a joint statement alongside 13 other countries stressing the importance of the free flow of data within Europe.

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. Worker mobility is currently a difficult issue for all companies operating in the Czech Republic due to the extremely low unemployment rate.

							5. Protection of Property Rights					

**Real Property**

Real estate (land and buildings) located in the Czech Republic must be registered in the Cadastral Register under the Cadastral Office. The Cadastral Register, containing information on plots of land and buildings, housing units and non-residential premises, liens, and other information, is publicly available in the local 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 32nd for ease of registering property in the 2018 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 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 customs service and the Czech Commercial Inspection have legal authority to seize counterfeit goods. The Criminal Code, which came into effect January 1, 2010, increased maximum penalties for trademark, industrial rights, and copyright violations from two to eight years. Information on seizures of counterfeit goods and cases of IPR infringement are tracked by the Customs Office. Information is available in Czech at https://www.celnisprava.cz/cz/statistiky/Stranky/dusevni-vlastnictvi.aspx .

IPR violations at markets on the borders of Germany and Austria were once an issue of great 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 Czech Republic is not listed in the Notorious Markets Report.

For additional information about treaty obligations and points of contact at local intellectual property (IP 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 13 listed companies. Over the past year, some of these companies threatened to withdraw from the exchange. The overall trade volume of stocks decreased from CZK 168.03 billion (USD 6.8 billion) in 2016 to CZK 138.78 billion (USD 5.8 billion) in 2017, with an average daily trading volume of CZK 555.13 million (USD 23.0 million). The PSE index, which had stagnated for the past five years, increased by 14.3 percent in 2017, according to the Prague Stock Exchange 2017 Annual Report.

In March 2007, the PSE created the Prague Energy Exchange (PXE) to trade electricity in the Czech Republic and Slovakia and, later, Hungary. 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, 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 consist of all of 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.

As an EU member country, the local market provides credits and credit instruments on market terms. Foreign investors are able to get credit on the local market and a variety of credit instruments are available.

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. As a result, Czech banks remained relatively healthy throughout the last global financial crisis. Results of regular banking sector stress tests, as conducted by the Czech National Bank, repeatedly confirm the outstanding state of the Czech banking sector, presenting a capital adequacy ratio exceeding 18 percent, on average, which is deemed sufficient resistance to potential shocks. The stress test conditions developed by the Czech National Bank present substantially stricter criteria than those established by the European Central Bank (ECB). 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/ . As of December 31, 2017, the total assets of commercial banks stood at CZK7.06 trillion (approximately USD 336 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. Domestic household borrowing in foreign currencies is negligible.

The Czech National Bank has 10 correspondent banking relationships. The Czech Republic has not lost any correspondent banking relationships in the past three years and there are no relationships in jeopardy.

The Czech National Bank does not determine crypto currencies to be standard currency units and, therefore, does not regulate them. An amendment to the Anti-Money Laundering Act No. 253/2008 Col., effective from January 2017, expands the list of entities that are likely to be confronted with money laundering cases as a result of access to virtual currencies, such as currency platforms and wallet providers, and subjects them to additional reporting requirements.

**Foreign Exchange and Remittances**

*Foreign Exchange Policies*

The CZK is fully convertible. From November 2013 to April 2017, the Czech National Bank intervened to weaken the CZK relative to the EUR, and to prevent deflation. In April 2017, the Czech National Bank returned to conventional monetary policy 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.

Imports or exports equal to or exceeding EUR10,000 (~USD 12,200) in cash, travelers’ checks, money orders, securities, other investment tools or commodities of high value (such as precious metals or stones) must be declared at the border.

**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). 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, 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 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 & communication, and transport sectors.

SOEs are usually structured as joint-stock companies. They do not report directly to government 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 toward 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. 134/2016, and its addendum No. 147/2017, which is fully harmonized with the existing EU legislation on public procurement.

The Czech Republic has 13 wholly-owned SOEs and five majority-owned SOEs. Wholly-owned SOEs employ roughly 80,000 people, have more than USD 18 billion in annual income, and own more than USD 42 billion in assets. A list of all companies with some percentage of state ownership is available in Czech at: http://www.mfcr.cz/cs/verejny-sektor/majetek-statu/majetkove-ucasti/2017/majetkove-ucasti-ministerstva-financi-ke-27972 .

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**

According to the Ministry of Finance, as a result of several waves of privatization of formerly state-owned companies since 1989, over 90 percent of the Czech economy is now in private hands. Privatization programs have generally been 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 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. The government understands and supports the concept of corporate social responsibility (CSR).

In April 2014, the Czech government adopted a National Action Plan (NAP) for CSR. The major goal of the NAP 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 2016, the government updated the NAP to address public tenders and encourage businesses and state administration to consider the potential long-term social and environmental impacts of their procurement decisions instead of deciding strictly based on financial costs. The new NAP (2019-2023) is currently being prepared by the Ministry of Industry and Trade with input from NGOs, expert individuals, the private sector, and academic institutions.

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, organizational structures, administration, and management of all business components, including stakeholders.

Companies are not required to disclose publicly 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, Business for Society, and the CSR Committee of the American Chamber of Commerce. 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.

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 (NCP) 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. 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). 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. The implementer of this agenda in the Czech Republic is the Ministry of Industry and Trade.

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 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.

							9. Corruption					

Despite concerns about corruption, U.S. companies have not been significantly deterred from investing in the Czech Republic. 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. 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 than their colleagues on the national level. There have been several successful cases prosecuting corruption, but cases are often lengthy and face many delays. The 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. 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.

Czech law obliges legislators, members of the cabinet, and other selected public officials to declare their assets annually. The public can view the declarations with limited content on a website, but access to more details remains complicated because it requires a password issued by the Justice Ministry that is only valid for 30 days.

In addition to the financial disclosure law, the Bohuslav Sobotka government (2014-2017) was successful in passing an amendment to the law on public procurement, a law on the register of public tenders, and a law on transparent financing of political parties. The government failed to enact a debated bill on the public prosecution service that contained measures to ensure stronger prosecutor independence. The amended law on public procurement seeks to counter conflict-of-interest in awarding contracts or government procurement.

The government ratified the OECD Anti-Bribery Convention in January 2000 and the UN Convention against Corruption in January 2014. According to the 2017 OECD Phase 4 Evaluation Report, the Czech Republic demonstrates its commitment to improvement in the implementation of the Convention; however, it must take significant steps to enforce its foreign bribery laws and its efforts to detect, investigate, and prosecute foreign bribes. The report calls for better protection of whistleblowers and for better implementation of the criminal liability of legal entities law that has been amended six times since it came into force in 2012. Based on the report, no legal person has been prosecuted for the bribery of foreign public officials.

In October 2016, the government passed a new public procurement law that introduces new tools for evaluation of tenders that takes into account not only the price, but also the quality of the offer. The law also requires every contracting authority to post the winning contract on its public profile within 15 working days after the contract has been signed and increases the threshold for the simplified procedure of construction tenders from CZK10 to CZK50 million (USD 2.5 million). Many NGOs criticized this amendment because many construction tenders fall under CZK50 million, resulting in decreased transparency. The law requires more than one bidder for all procurements and requires bidders to disclose more of their ownership structure in the bidding process, but it also contains some exceptions to those obligations. American businesses have expressed some concerns about such frequent changes in competition policies as obstacles to investment.

The government encourages companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials. Many companies have adopted such codes but it is not an obligatory government requirement.

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 CZK50,000 (USD 2,400) or more. As of July 1, 2017 contracts not posted publicly in the Registry within 30 days will not be acknowledged as effective. The Registry of Contracts has its own government web page in Czech at: http://smlouvy.gov.cz .

Several NGOs such as Oziveni, Transparency International, and Anticorruption Endowment receive corruption reports online. In 2015, Oziveni introduced a new software GlobalLeaks that enables absolute anonymity to those who decide to report corruption. 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:

Department for Combating CorruptionRegulatory Impact Assessment UnitOffice of the GovernmentNabrezi E.Benese 411801 Praha 1+420 224 002 158korupceweb@vlada.cz

Contact at “watchdog” organizations:

David OndrackaDirectorTransparency International Czech RepublicSokolovska 260/143+420-224 240 895-7ondracka@transparency.czwww.transparency.cz 

OziveniMuchova 13, 160 00 Praha 6tel: +420 257 531 983oziveni@oziveni.czwww.oziveni.cz 

Anticorruption EndowmentNadacni Fond Proti KorupciRevolucni 8, building A, 5th floor, 110 00 Praha 1+420 226 209 047info@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 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. Labor productivity in the Czech Republic is about 71 percent of the EU average. In 2017, wage levels increased by an average of 7 percent. An exceptional wage increase in the automotive industry reflects the imbalance between a massively growing automotive sector and a critical deficiency of qualified labor available on the market. According to Eurostat, the Czech Republic’s unemployment rate was 2.4 percent in March 2018, the lowest in the EU. However, unemployment rates vary significantly between regions. In February 2018, the unemployment rate was lowest in Prague (2.3 percent) and highest in the Moravia-Silesia region (5.6 percent).

Unemployment insurance and other social safety net programs exist for workers laid off for economic reasons. Labor laws differentiate between layoffs and firing. Labor laws are generally very strict and favor the employee rather than the employer.

Given the current record low unemployment and a booming economy, employers are facing labor shortages and some companies have started to rethink investment or expansion plans fearing they cannot find workers to fill new jobs.

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. Labor dispute resolutions are carried out in civil court proceedings. There were no strikes in the last year that posed an investment risk.

							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 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 Statistical Office (www.czso.cz ), and 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 USD 4.388 billion under the sum of historical flows method, under the new methodology, it is valued at USD 1.567 billion. This explains the large discrepancy between U.S. and Czech figures for 2016.

*Table 3: Sources and Destination of FDI*

Sources: Czech National Bank (https://www.cnb.cz/analytics/saw.dll?Portal) and  the IMF (http://data.imf.org/regular.aspx?key=60564262 ).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, with the IMF listing Germany and Romania in the fourth and fifth positions, respectively (as opposed to Czech National Bank data, which places Romania and Luxembourg in the fourth and fifth positions, respectively). IMF and Czech National Bank figures for inward direct investment vary by up to 7 percent and figures for outward direct investment vary by up to 23 percent. 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.

The top sources of and destinations of Czech FDI 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, 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 is 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 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*

Source: IMF http://data.imf.org/regular.aspx?key=60587804 

							14. Contact for More Information					

Patrick EllsworthSenior Economic OfficerTrziste 15, 118 01 Prague 1+420 257 022 000PragueInvestmentClimate@state.gov

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### On This Page

                    -  Executive Summary 
                    -  1. Openness To, and Restrictions Upon, Foreign Investment   
                    -  2. Bilateral Investment Agreements and Taxation Treaties   
                    -  3. Legal Regime   
                    -  4. Industrial Policies   
                    -  5. Protection of Property Rights   
                    -  6. Financial Sector   
                    -  7. State-Owned Enterprises   
                    -  8. Responsible Business Conduct   
                    -  9. Corruption   
                    -  10. Political and Security Environment   
                    -  11. Labor Policies and Practices   
                    -  12. OPIC and Other Investment Insurance Programs   
                    -  13. Foreign Direct Investment and Foreign Portfolio Investment Statistics   
                    -  14. Contact for More Information   

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