Czech

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Czech Republic: Market Profile

Picture: Czech Republic factsheet
Picture: Czech Republic factsheet

1. Overview

Following a strong 2017, Czech real GDP growth will remain on a healthy trajectory, but decelerate over the next two years as the labour market nears full employment and external demand weakens. The country could be moving closer towards the formation of a coalition government following the election of Jan Hamáček as new Social Democratic Party leader on February 18 2018.

Source: World Bank

2. Major Economic Indicators

Graph: Czech Republic real GDP and inflation
Graph: Czech Republic real GDP and inflation
Graph: Czech Republic GDP by sector (2016)
Graph: Czech Republic GDP by sector (2016)
Graph: Czech Republic unemployment rate
Graph: Czech Republic unemployment rate
Graph: Czech Republic current account balance
Graph: Czech Republic current account balance

Note: (f) forecast
Source: IMF, World Bank

3. External Trade

3.1 Merchandise Trade

Graph: Czech Republic merchandise trade
Graph: Czech Republic merchandise trade
Graph: Czech Republic major export commodities (2016)
Graph: Czech Republic major export commodities (2016)
Graph: Czech Republic major export markets (2016)
Graph: Czech Republic major export markets (2016)
Graph: Czech Republic major import commodities (2016)
Graph: Czech Republic major import commodities (2016)
Graph: Czech Republic major import markets (2016)
Graph: Czech Republic major import markets (2016)

Source: WTO, World Bank WITS database

3.2 Trade in Services

Graph: Czech Republic trade in services
Graph: Czech Republic trade in services

4. Trade Policies

  • The Czech Republic has been a member of WTO since 15 April 1993.

  • The country is a member of the European Union (as of 2014), which has a common set of tariffs and customs levied on various imports and exports. As such, the trade policy of the Czech Republic is largely identical to that of the wider region. The EU updated its trade policy (and, by extension, its import tariffs, customs, duties, and procedures) in 2017.

  • The Czech Republic has a number of 'free zones', as per EU regulations. These free zones are legally seperate entities to the rest of the region or country's customs territory and act as a temporary site for warehousing goods in transit from non-EU states; goods are kept in these zones until the necessary legal and bureaucratic requirements are met - such as tariffs. Any charges on goods transported into the country are only applicable once it leaves the 'free zone'.

  • The simple average tariff rate for imports into the Czech Republic (and the wider European Union) is 6.3% (as of 2016). Variations, however, do exist and can be determined upon consulting the TARIC (Tarif Intégré de la Communauté), which stipulates the regulations and rates for specific types of goods. The TARIC is available on the European Commision's website and is updated daily. Agricultural goods generally have the highest tariffs applied to them.

  • The standard VAT rate is 21%, with a number of reduced rates applicable. The first reduced VAT rate of 15% is applied to a certain subset of goods, such as general foodstuffs; a second reduced VAT rate of 10% is further applicable to goods such as baby food, medicines, and books. Goods imported into Czech republic are calculated on the declared customs value plus applicable duty and excise tax.

  • The Czech republic has no excise duties in addition to those common to the region. Excise taxes are imposed on the following goods produced or imported into the Czech Republic: fuels and lubricants, tobacco products, beer, wine and liquor. The rate is determined by the type and quantity of the product and must be paid within ten days after being notified by the Customs Office of the tax amount due.

  • Regulations on product labelling, as well as safety regulations, are also available via TARIC.

  • Goods' rules of origin (for tarrif purposes) are as follows: if a product is wholly produced in one territory, the country of origin is that country. If a good is produced in multiple countries/territories, the country of origin is determined as the last country where the product underwent its 'last, substantial, economically-justified processing or working, in an undertaking equipped for that purpose, resulting in the manufacture of a new product or representing an important stage of manufacture'.

  • The importation of the following products are prohibited in the EU: Controlled substances that deplete the ozone layer; and fish of vessels from Cambodia and Guinea.

  • The importation of the following products are restricted in the EU: certain animal and plant species; waste; and certain goods which could be used for capital punishment, torture or other cruel, inhuman or degrading treatment or punishment.

  • Nine types of goods imported into the EU are subject to licensing. These goods are (broadly): textiles; various agricultural products; iron and steel products; ozone-depleting substances; rough diamonds; waste shipment; harvested timber; endangered species; and drug precursors.

Source: WTO – Trade Policy Review

5. Trade Agreement

5.1 Trade Updates

  • As a member of the EU, the Czech Republic is part to the same trade agreements as its 27 peer states. The region negotiates and enters into trade agreements as a collective due to the sinlge market nature of the union.

5.2 Multinational Trade Agreements

Active

  1. The Czech Republic is a member of WTO (Effective date: 1993).

  2. The European Union Common Market - the transfer of capital, goods, services, or labour between member nations enjoy 'free movement'; the common market extends to the 28 member nations of the EU, namely: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech REpublic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom. As the Czech Republic's main trade partners are in the EU, the absence of customs charges with member countries greatly enhances its trade volumes.

  3. European Economic Area EU–European Free Trade Association (Iceland, Liechtenstein, Norway and Switzerland): While it enhances trade flows between these countries and the Czech Republic, only Switzerland is a fairly major trading partner.

  4. EU-Turkey: The customs union with the EU provides tarff-free access to the European market for Turkey, beneftting both exporters and importers. As Turkey has steady trade flows with the Czech Republic (being in the country's top 20 exporting partners and top 21 importing partners), this has therefore enhanced trade flows between the two countries.

  5. The Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada. CETA is expected to strengthen trade ties between the two regions, having come into effect in 2016. Some 98% of trade between Canada and the EU will be duty-free under CETA. The agreement is expected to boost trade between partners by more than 20%. The Czech Republic expects CETA to improve trade in goods and services between the two countries, while, at the same time, boosting FDI. CETA also opens up government procurement. Canadian companies will be able to bid on opportunities at all levels of the EU government procurement market and vice-versa. CETA means that Canadian provinces, territories and municipalities are opening their procurement to foreign entities for the first time, albeit with some limitations regarding energy utilities and public transport.

Under Negotiation

  1. EU-Japan FTA: Japan wants to speed up negotiations for an early signing of a FTA with the EU. In 2013 EU governments instructed the European Commission to start negotiations with Japan. On 6 July 2017 the European Union and Japan reached an agreement in principle on the main elements of the EU-Japan Economic Partnership Agreement.

    On 8 December 2017, the negotiations were finalised. After the legal verification and translation processes, the European Commission can then submit the agreement for the approval of the European Parliament and EU Member States. The European Commission has now proposed to the Council and then the European Parliament that they approve the EU-Japan EPA.

  2. SADC-Economic Partnership Agreement (Botswana, Lesotho, Mozambique, Namibia, South Africa, Swaziland, Angola, Comoros, Democratic Republic of the Congo, Madagascar, Malawi, Mauritius, Seychelles, Tanzania, Zambia, Zimbabwe): an agreement between parties was reached in 2016 and is awaiting ratification, with 13 of the 35 needed states having ratified the agreement as of April 2018.

  3. Central America-EU Association Agreement (Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, Belize, and Dominican Republic): An agreement between the parties was reached in 2012 and is awaiting ratification (29 of the 34 parties have ratified the agreement as of April 2018).

Source: WTO Regional Trade Agreements database

6. Investment Policy

6.1 Foreign Direct Investment

Graph: Czech Republic FDI stock
Graph: Czech Republic FDI stock
Graph: Czech Republic FDI flow
Graph: Czech Republic FDI flow

6.2 Foreign Direct Investment Policy

  1. Government bodies that are responsible for FDI promotion, licencing and regulations - Czech Invest, the Investment and Business Development Agency, established in 1990.

  2. Foreigners in the Czech Republic face few restrictions in the real estate market and are free to purchase property, including agricultural land as well as industrial and commercial real estate. Real estate (land and buildings) located in the Czech Republic must be registered in the Cadastral Register, which is maintained by the Cadastral Office.

  3. Foreign investors can establish sole proprietorships, joint ventures, and branch offices in the Czech Republic. Foreign and domestic investors are treated equally in the eyes of the law, save for certain investment projects in the banking, insurance and defence sectors.

  4. All businesses (local and foreign) must be registered with the Commercial Register and obtain a commercial licence in order to operate.

  5. The country enacts laws on auditing, accounting, and bankruptcy. These laws include the use of international
    accounting standards (IAS), which enable companies using the common practice to streamline operations across countries.

  6. Companies operating in two or more countries in the EU can also beneft from the Societas Europaea (SE) scheme in the Czech Republic. This enables companies to operate regionally within a single legal structure, which facilitates mergers and boosts flexibility of operations.

  7. There is no limit on foreign participation in commercial enterprises. Foreigners are entitled to set up new commercial companies, subsidiaries or branches, either wholly-owned or in partnership with natural or legal persons; buy into an existing company via the acquisition of shares, bonds, or other securities; acquire concessions, acquire ownership rights over non-residential real estate improvements, including land, via establishment of a Czech company; and acquire industrial or other intellectual property rights.

  8. Investors beneft from generous tax relief and government assistance to locate in underdeveloped areas. For example, the Act on Investment Incentives (which came into force in July 2012) provides a 10-year income tax abatement for investors in certain industries, such as manufacturing, R&D, high-technology and strategic services. Investors are eligible for job creation grants, training and retraining grants, and cash grants on capital investments of up to 5% of the costs.

Sources: WTO – Trade Policy Review,The International Trade Administration (ITA), U.S. Department of Commerce

6.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
11 Free Trade ZonesThe Czech Republic offers incentives to foreign and domestic firms that invest in the manufacturing sector, technology, research and development centres, business support service centres. Incentives are funded from the Czech Republic's national budget as well as from European Union Structural Funds. Though their use has declined since joining the European community customs area, companies can benefit from various exemptions on tariffs through this system. Free zone treatment applies to all 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.


7. Taxation – 2017

  • Valued added tax: 21%
  • Corporate income tax: 19% (5% for specific funds)

Source: PwC Tax Booklet

7.1 Important Updates to Taxation Information

  • As of July 1 2017, the local reverse-charge mechanism shall be extended to transfers of real estate (immovable property) in aucitons, provisions of employees for construction works, and transfer of goods in relation to guarantees.

  • The Czech Republic is obliged to incorporate the provisions of the EU Anti-Tax Avoidance Directives with effect from 2019.

  • The VAT legislation ammendment shall contain new provisions that deal with losses and related correction of input VAT deduction, VAT treatment of vouchers, and VAT registration of members of a VAT group in relation to transformations.

7.2 Business Taxes

Type of TaxTax Rate and Base
Resident company: Corporate Tax Rates19%; 5% for specific funds (e.g. pension funds etc).
Resident company: Capital Gains TaxPart of business income taxed at ordinary rates, unless exempt; 0% for gains on sale of shares if related dividends qualify for participation exemption.
Dividends15%. The tax rate is increased to 35%, effective from 2013, for dividends paid to Czech tax non-residents from countries outside the EU/EEA that have not entered into a double tax treaty with the Czech Republic.
Non-resident companies: Capital gains on sale of shares in resident companies0% on gains by qualifying EU parent companies.
Social security contributions (All employers)Health insurance: 9%; Old-age pension (the maximum assessment base is CZK1,277,328 in 2015.): 21.5%; Sickness (the maximum assessment base is CZK1,277,328 in 2015.): 2.3%; Unemployment (the maximum assessment base is CZK1,277,328 in 2015.): 1.2%
VAT/GST (standard)The standard VAT rate is 21%, with a number of reduced rates applicable. The first reduced VAT rate of 15% is applied to a certain subset of goods, such as general foodstuffs; a second reduced VAT rate of 10% is further applicalbe to goods such as baby food, medicines, and books. Goods imported into Czech republic is calculated on the declared customs value plus applicable duty and excise tax.
Stamp DutyYes
Real estate transfer tax; levied on the acquisition of real estate4%


8. Foreign Worker Requirements

8.1 Work Permit

Non-EU member citizens require a work permit in order to work within the Czech Republic; EU member citizens do not require a work permit, but their employer must inform the job office about their being hired. Citizens of the European Economic Area (with EU member states, Iceland, Norway and Lichtenstein) and Switzerland do not require a visa to enter, reside and work in the country. No work permit is needed by foreigners from outside the EU if they have a permanent residence or family reunion permit, have been granted asylum, study in the Czech Republic or have blue or green cards.

8.2 Obtaining Foreign Worker Permits

Employers must first apply for a permit to hire foreign workers. A permit is granted once no suitable candidate can be found in the Czech Republic or in other EU member states. The vacant position must be reported to the local district Labour Office and cannot be changed at a later stage to fit the profile of a potential employee. The candidate must then apply for a work permit. The government issues the permit for maximum of 2 years, which can be repeatedly prolonged, but always for maximum of 2 years - and may be renewed as many times as needed. The permit process takes an average of one month.

8.3 Green Card

The Green Card system only applies to citizens from the following nations: Australia, Montenegro, Japan, Canada, South Korea, New Zealand, Bosnia and Herzegovina, Macedonia, United States of America, Serbia, and the Ukraine. The Green Card simplifies entry to the job market for foreigners who have qualifications for which the Czech Republic has a job opening in the register of jobs suitable for green cards. The permit is for long-term residence for employment purposes.

8.4 Blue Card

Intended for the stay associated with the performance of a highly qualified employment. A foreigner holding a blue card may reside in the Czech Republic and work in the job for which the blue card was issued, or change that job under the conditions defined. High qualification means a duly completed university education or higher professional education which has lasted for at least 3 years. The blue card is issued with the term of validity 3 months longer than the term for which the employment contract has been concluded, however this is for a maximum period of 2 years. The blue card can be extended. One of the conditions for issuing the blue card is a wage criterion - the employment contract must contain gross monthly or yearly wage at least at the rate of 1.5 multiple of the gross average annual wage.

8.5 Short-term Work Visa

Can be granted by Czech embassy upon an application for maximum period of 90 days, which can be used within 180 days. The visa must be for the purpose of employment and the application must be submitted, beside general requirements, with work permit, employment contract, proof of securing accommodation.

9. Risks

9.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody's
A1 (Stable)01/12/2008
Standard & Poor'sAA- (Stable)24/08/2011
FitchA+ (Positive)01/09/2017

Source: Moody's, Standard & Poor's, Fitch Ratings

9.2 Competitiveness and Efficiency Indicators


World Ranking
201620172018
Ease of Doing Business Index
27/189
28/190
32/190
Ease of Paying Taxes Index
46/189
48/19053/190
Logistics Performance Index
26/160
N/AN/A
Corruption Perception Index
47/176
42/180N/A
IMD World Competitiveness32/6332/63N/A

Source: World Bank, IMD, Transparency International

9.3 BMI Risk Indices


World ranking
201620172018
Economic Risk Index Rank11/202
Short-Term Economic Risk Score 73.179
75.6
Long-Term Economic Risk Score 7773.4
 77
Political Risk Index Rank29/202
Short-Term Political Risk Score78.3
 78.374.8
Long-Term Political Risk Score 8788.8
 88.8
Operational Risk Index Rank33/20132/20127/201
Operational Risk Score66
70.2
69.9

Note: NB scores rated from 0-100, with 0= Highest risk, 100= Lowest risk
Source: BMI Research

9.4 BMI Political and Economic Risk Indices

BMI Risk Summary - Q2 2018

POLITICAL RISK
The Czech Republic could be moving closer towards the formation of a coalition government following the election of Jan Hamáček as new Social Democratic Party leader on February 18. Hamáček has previously stated he would start talks with the ANO party minority government, although the ongoing investigation into caretaker Prime Minister Andrej Babiš could prove an obstacle to a smooth coalition formation process.

ECONOMIC RISK
Following a strong 2017, Czech real GDP growth will remain on a healthy trajectory, but decelerate over the next two years as the labour market nears full employment and external demand weakens.

OPERATIONAL RISK
The Czech Republic's regionally competitive operating environment is supported by a well-developed transport network, a well-educated labour force and its membership of the EU, all of which have attracted high levels of foreign investment. The migrant crisis and the Islamist terrorism threat in the wider region have elevated the risk of attacks from right-wing extremists and Islamic State in most European cities. However, the Czech Republic's strong counterterrorism capabilities, membership of NATO and comparatively low international profile temper these threats. Therefore, the country also enjoys a relatively stable security environment. Utilities costs are considerably higher than in many of its regional peers, while the tightening labour market is adding upward pressure to labour costs.

Graph: Czech Republic short term political risk index
Graph: Czech Republic short term political risk index
Graph: Czech Republic long term political risk index
Graph: Czech Republic long term political risk index
Graph: Czech Republic short term economic risk index
Graph: Czech Republic short term economic risk index
Graph: Czech Republic long term economic risk index
Graph: Czech Republic long term economic risk index

9.5 BMI Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Czech Republic Score69.957.770.070.281.7
Central and Eastern Europe Average60.955.063.463.661.4
Central and Eastern Europe Position (out of 11)2
3
3
41
Emerging Europe Average56.654.158.457.456.7
Emerging Europe Position (out of 31)2
7
3
32
Global Average49.849.850.049.349.9
Global Position (out of 201)284628
3320

Note: 100 = Lowest risk; 0 = Highest risk
Source: BMI Operational Risk Index

Graph: Czech Republic vs global and regional averages
Graph: Czech Republic vs global and regional averages
Country
Operational Risk IndexLabour Market Risk Index
Logistics Risk IndexTrade and Investment Risk IndexCrime and Secruity Risk Index
Estonia70.859.170.577.276.3
Czech Republic Score69.9
57.7
70.2
70.0
81.7
Poland69.3
55.6
72.3
69.2
80.3
Lithuania67.1
55.2
71.3
71.8
69.9
Latvia65.0
57.5
67.9
68.4
66.0
Slovakia62.9
49.7
60.7
67.7
73.5
Hungary62.8
55.6
62.4
63.4
69.7
Belarus57.0
56.5
62.7
59.2
49.5
Russia55.0
63.6
63.4
56.2
36.8
Moldova45.5
39.8
48.7
49.2
44.2
Ukraine44.4
45.9
49.5
45.6
27.5
Regional Averages60.9
55.0
66.6
63.4
61.4
Emerging Markets Averages46.8
48.0
45.8
47.5
46.1
Global Markets Averages49.8
49.8
49.3
50.0
49.9

Note: Higher score = Lower risk
Source: BMI Operational Risk Index

10. Hong Kong Connection

10.1 Hong Kong’s Trade with Czech Republic

Graph: Czech Republic major export commodities to Hong Kong
Graph: Czech Republic major export commodities to Hong Kong
Graph: Czech Republic major import commodities from Hong Kong
Graph: Czech Republic major import commodities from Hong Kong
Graph: Czech Republic merchandise exports to Hong Kong
Graph: Czech Republic merchandise exports to Hong Kong
Graph: Czech Republic merchandise imports from Hong Kong
Graph: Czech Republic merchandise imports from Hong Kong

2015
Growth rate(%)
Number of Czech residents visiting Hong Kong11,570
7.11
Number of Czech residents in Hong KongN/A
N/A

Source: Hong Kong Tourism Board, Hong Kong Immigration Department


2016
Growth rate(%)
Number of European residents visiting Hong Kong1,909,8252.51
Number of Emerging Europe residents in Hong KongN/AN/A


10.2 Commercial Presence in Hong Kong


2016
Growth rate(%)
Number of EU companies in Hong KongN/AN/A
- Regional headquarters 442
- Regional offices 717
- Local offices948

Source: Hong Kong Census & Statistics Department

10.3 Treaties and agreements between Hong Kong and Czech Republic

  • Air Service Agreement and Air Service Transit Agreement
  • Mutual Legal Assistance Agreement
  • Surrender of Fugitive Offenders Agreement
  • Transfer of Sentenced Persons Agreement
  • Double Taxation Avoidance Agreements (DTAs)

Note: The Czech Republic has double taxation agreements (DTA) with the China (mainland) and concluded the DTA with Hong Kong in December 2012.
Source: Hong Kong Department of Justice

10.4 Chamber of Commerce (or Related Organisations) in Hong Kong

The Commercial and Economic Section of the Consulate General of the Czech Republic
The Commercial and Economic Section of the Consulate General of the Czech Republic in Hong Kong promotes economic interests of the Czech Republic in HK SAR and Macao SAR. Providing full range of export and import trade services and assistance, as well as investment information and advice to companies from Czech Republic, Hong Kong and Macao.

Address: 1204-5, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong
Email: commerce_hongkong@mzv.cz
Representative: Mr. Milan Vágner
Tel: (852) 2802 2212
Fax: (852) 2802 2911
URL: www.mzv.cz/hongkong/en/trade_economy/commercial_and_economic_section_2.html

Source: Directory of Hong Kong Trade and Industrial Organisations, Hong Kong Trade and Industry Department

Czech Consulate in Hong Kong
Address: 1204-5, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong
Email: hongkong@embassy.mzv.cz
Hours of Business: Monday to Friday, 9:00 a.m. - 5:00 p.m.
Honorary Consul: Mrs. Lucie Nebesářová
Tel: (852) 2802 2212
URL: www.mzv.cz/hongkong/en/visa_consular_services/index.html

Source: Hong Kong Protocol Division of Government Secretariat

10.5 Visa Requirements for Hong Kong Residents

A Schengen Visa is needed for travel to the Czech Republic (as well as the other EU states) and is valid for up to 90 days. Application must be completed prior to travel.

  • Holders of Hong Kong SAR, BN(O) and Macao SAR passports are entitled to a visa-free entry to Schengen countries lasting no more than 90 days in any six-month period from the date of first entry in the territory of the Member States.
  • Both the Hong Kong Document of Identity (HKDI) and the Macao Travel Document are recognised by all Schengen countries. The holders of such documents, however, need to apply for a Schengen visa.
  • The Consulate General of the Czech Republic accepts visa applications only if the Czech Republic is the country of your main destination (If you are going for tourism, the main country of your destination is the one where you spend the longest time, not necessarily the country of your first entry).
  • All applicants for a Schengen visa at the Consulate General of the Czech Republic in Hong Kong is required to provide their biometric data (10 fingerprints and a digital photograph) when applying.

Source: Visa on Demand


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