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 Industry and Trade, negotiates on behalf of the Czech government with foreign investors. In addition, CzechInvest provides: assistance during implementation of investment projects, consulting services for foreign investors entering the Czech market, support for suppliers, and assistance for the development of innovative start-up firms. There are no laws or practices that discriminate against foreign investors.
The Czech Republic is a recipient of substantial foreign direct investment (FDI). Total foreign investment in the Czech Republic (equity capital + reinvested earnings + other capital) equaled USD 156 billion at the end of 2017, compared to USD 121.9 billion in 2016. The increased activity of foreign investors reflects the solid state of the Czech economy and recovery in Europe. Of these, CzechInvest negotiated 106 new investment projects by foreign investors in the Czech Republic in 2017, worth USD 2.9 billion.
As a medium-sized, open, export-driven economy, the Czech market is strongly dependent on foreign demand, especially from the EU. In 2018, 84.1 percent of Czech exports went to fellow EU member states, with 65.5 percent of this volume shipped to the EU and 32.4 percent to Germany, the Czech Republic’s largest trading partner 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 EU. Since emerging from recession in 2013, the economy has enjoyed some of the highest GDP growth rates of the European Union. GDP growth reached 4.4 percent in 2017 and 2.9 percent in 2018. Growth estimates are smaller for 2019 at 2.6 percent, given uncertainty surrounding Brexit and the possibility of increasing international trade tariffs. Some experts predict a hard Brexit could cost the Czech economy 1.1 percent of GDP and 40,000 jobs.
The Czech Republic has no plans to adopt the EUR and instead has taken a delayed approach to adopting the Eurozone’s 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 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.
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 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.
In response to the European Commission’s September 2017 investment screening proposal, the Czech Republic is currently in the process of drafting legislation to create a mechanism to screen foreign investments for national security concerns. The legislation would require government review before foreign investments in sensitive sectors like defense and critical infrastructure. Investments in certain other sectors could also require review within five years of a transaction if new advancements in technology mean foreign ownership could pose a national security risk.
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). U.S. investors are not disadvantaged or singled out by the Czech government.
Other Investment Policy Reviews
In the past three years, the government has not undergone any third-party investment policy reviews through a multilateral organization.
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 .
The time required to start a business was 25 days in 2018, which is slightly above the world average of 20.1 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://or.justice.cz/ias/ui/rejstrik . The Czech Republic’s Trade Register is an online information system that collects and provides information on entities facilitating small trade and craft-oriented business activities, as specifically determined by related legislation. It is available online at: http://www.rzp.cz/eng/index.html .
The volume of outward investment is lower than incoming FDI. According to the latest data from the Czech National Bank, outward Czech outward investments amounted only to USD 32.4 billion in 2017, compared to inward investments of USD 156 billion. However, outward investment activity has increased 78 percent since 2014. According to the Export Guarantee and Insurance Corporation (EGAP), Czech companies increasingly invest abroad to get closer to their customers, save on transport costs, and shorten delivery times. The Czech government does not incentivize outward investment. As part of EU sanctions, there is a total ban on EU investment in North Korea as of 2017.