The Czech Republic is a medium-sized, open economy with 74.4 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 32.6 percent going to Germany alone. The United States is the Czech Republic’s largest non-EU export destination. Due to the economic impact of COVID-19, Czech GDP dropped by 5.6 percent in 2020 according to the Czech Statistical Office. The Ministry of Finance is forecasting 3.1 percent growth for 2021.
President Zeman signed the “Bill on Screening of Foreign Investments” into law January 22, 2021. The law gives the government the ability to screen greenfield investments and acquisitions by non-EU investors and will enter into force on May 1, 2021.
The Czech Republic has taken strides to diversify its traditional investments in engineering into new fields of research and development (R&D) and innovative technologies. EU structural funding has enabled the country to open a number of world-class scientific and high-tech centers. EU member states are the largest investors in the Czech Republic.
On November 27, 2019, a Digital Services Tax (DST) proposal drafted by the Ministry of Finance was introduced in the Czech Parliament. The proposal would levy a seven percent tax on revenues from online advertising, online marketplace services, and services transmitting user data for companies with global annual revenues of more than €750 million ($893 million) and Czech-based revenue of more than 100 million crowns ($4.5 million). In addition, companies that do not generate more than 10% of their total European revenue from covered services in the Czech Republic would be exempt from the tax. The second reading of the bill is currently pending in the Czech Parliament’s lower house. Although the legislation calls for a seven percent tax rate, there is a proposed amendment to decrease the rate to five percent. The bill will need to go through two more readings in the lower house before it moves to the Parliament’s upper house, and then to the Czech President for approval. If the Czech Parliament passes the DST bill, the earliest possible implementation date would be July 1, 2021.
The United States announced on February 15, 2020 plans to provide up to USD1 billion in financing through the Development Finance Corporation (DFC) to Central and Eastern European countries of the Three Seas Initiative to reinforce energy security and economic growth in the region. The DFC approved December 2020 the first tranche of the U.S. support for the Three Seas Fund amounting to USD300 million.
The European Bank for Reconstruction and Development (EBRD) agreed March 24, 2021 to a request from the Czech cabinet to return as an investor to the Czech Republic after a 13-year pause to help mitigate the impact of the COVID-19 pandemic on the economy. The EBRD plans to be involved in investment projects in the Czech Republic temporarily (maximum five years) and will primarily focus on private sector assistance.
The economic fallout from COVID-19 resulted in the Czech Republic’s highest historic state budget deficit of 367 billion crowns ($16.7 billion) in 2020, in comparison to the originally planned deficit of 40 billion crowns ($1.8 billion). As of February 28, 2021, the Czech Republic has appropriated 25.5 percent of GDP (approximately $65 billion) for the COVID-19 response, including $24 billion (9.4 percent of GDP) in direct support, $1.4 billion (0.5 percent of GDP) in tax and levy deferrals, and $40 billion (15.5 percent of GDP) in loan guarantees.
The Czech Republic fully complies with EU and the Organization for Economic Cooperation and Development (OECD) standards for labor laws and equal treatment of foreign and domestic investors. Wages continue to trail those in neighboring Western European countries (Czech wages are roughly one-third of comparable German wages). Wage growth slowed following the coronavirus pandemic. While wages rose about 6 to 8 percent annually in 2018 and 2019, there was only 4.4 percent growth in 2020, according to the Czech Statistical Office. In 2020, wages decreased primarily in the hospitality sector and real estate but grew in health care. While the unemployment rate rose to 3.3 percent in 2020 due to COVID-19, it remained the lowest in the EU.
|TI Corruption Perceptions Index||2020||49 of 180||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2020||41 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2020||24 of 131||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2019||4,815||http://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2019||21,940||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|