Merchandise Trade

• The Czech Republic has been a member of the World Trade Organization (WTO) since April 15, 1993.


• Since 2014, the country has been a member of the EU, which has a common set of tariffs and customs levied on various imports and exports; consequently, the EU customs code applies. 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. These free zones are legally separate 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 the goods leave the free zone.


• The EU applies a common external tariff which is applicable to all members. However, variations exist and can be determined by consulting the Tarif Intégré de la Communauté (TARIC), which stipulates the regulations and rates for specific types of goods. The TARIC is available on the EC's website and is updated daily. Agricultural goods generally have the highest tariffs applied to them.


• The EU is party to at least 50 FTAs and access to other markets of the countries concerned is currently mediated through those agreements. The EU's scheme on generalised system of preferences (GSP) entered into effect on January 1, 2014. Under the scheme, tariff preferences have been removed for imports into the EU from countries where per capita income has exceeded USD4,000 for four years in a row.


• The EU has imposed various anti-dumping measures on a wide range of products – predominantly in the areas of textiles, parts, steel, iron and machinery – coming from Mainland China and a few other Asian nations to protect domestic industries. A number of products from Mainland China are subject to the EU's anti-dumping duties, including ceramic tiles, ceramic tableware and kitchenware, fasteners, ironing boards, and solar glass. On November 13, 2016, the EC imposed a provisional anti-dumping duty on imports of some of the primary and semi-processed metals from Mainland China.


• The Czech Republic is party to the EU Common Customs Tariff (CCT), which applies to the import of goods across the external borders of the EU. The tariff is common to all EU members, but the rates of duty differ from one kind of import to another depending on what they are and where they come from. The rates depend on the economic sensitivity of products. Tariff rates in the Czech Republic are particularly low, at an average of 1% and among the lowest globally, ensuring lower costs for exporters and importers, particularly if trade is taking place within the EU customs union.


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


• The Czech Republic has no excise duties aside from those common to the region. Excise taxes are imposed on the following goods produced in or imported into the Czech Republic: fuels and lubricants; tobacco products; and beer, wine and liquor. The rate is determined by the type and quantity of the product and must be paid within 10 days of being notified by the Customs Office of the tax amount due.


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


• Goods' rules of origin (for tariff 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 import of the following products is prohibited in the EU: Controlled substances that deplete the ozone layer, and fish of vessels from Cambodia and Guinea.


• The import of the following products is restricted in the EU: Certain animal and plant species, waste, and certain goods which could be used for capital 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.

Sources: WTO – Trade Policy Review, Fitch Solutions

Multinational Trade Agreements

Active

1. The EU Common Market: The transfer of capital, goods, services and labour between member nations enjoys free movement. The common market extends to the 28 member nations of the EU, namely Austria, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the 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.


2. European Economic Area (EEA)-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.


3. EU-Turkey: The customs union within the EU provides tariff-free access to the European market for Turkey, benefitting 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), tariff-free access has enhanced trade flows between the two countries.


4. EU-Canada Comprehensive Economic and Trade Agreement (CETA): CETA is expected to strengthen trade ties between the two regions, having come into effect in October 2016. Some 98% of trade between Canada and the EU is 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 boosting foreign direct investment (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.


5. EU-Japan Economic Partnership Agreement (EPA): In July 2018, the EU and Japan signed a trade deal that promises to eliminate 99% of tariffs that cost businesses in the EU and Japan nearly EUR1 billion annually. According to the EC, the EU-Japan EPA will create a trade zone covering 600 million people and nearly a third of global GDP. The result of four years of negotiation, the EPA was finalised in late 2017 and came into force on February 1, 2019 after the EU Parliament ratified the agreement in December 2018. The total trade volume of goods and services between the EU and Japan is an estimated EUR86 billion. The key parts of the agreement will cut duties on a wide range of agricultural products and it seeks to open up services markets, particularly financial services, e-commerce, telecommunications and transport. Japan is the EU's second biggest trading partner in Asia after Mainland China. EU exports to Japan are dominated by motor vehicles, machinery, pharmaceuticals, optical and medical instruments and electrical machinery.


6. The EU-Mercosur FTA: The deal which is between the EU and Mercosur states (Argentina, Brazil Paraguay and Uruguay) was reached on June 28, 2019. The EU is Mercosur's number one trade and investment partner. EU exports to Mercosur were EUR45 billion in goods in 2018 and EUR23 billion in services in 2017. The EU is the biggest foreign investor in Mercosur with a stock of EUR381 billion, while Mercosur's investment stock in the EU amounts to EUR52 billion in 2017. The goal of the new EU-Mercosur trade deal is to remove the barriers and help EU firms, especially smaller ones, to export more; strengthen worker’s rights and ensure environmental protection, encourage companies to act responsibly, and uphold high food safety standards; and protect quality EU food and drink products labelled as Geographical Indications from imitations.


7. EU-Vietnam FTA: In June 2019, the EU and Vietnam finalised and signed their fait trade agreenebt (FTA). The agreement will eliminate 99% of tariffs, although some will be cut over a 10-year period and other goods, notably agricultural products, will be limited by quotas.


8. EU-SADC EPA (Botswana, Lesotho, Mozambique, Namibia, South Africa and Eswatini): An agreement between the EU and the SADC delegations was reached in 2016 and is fully operational for SADC members following the ratification of the agreement by Mozambique. The remaining six member of the SADC now included in the deal (the Democratic Republic of the Congo, Madagascar, Malawi, Mauritius, Zambia and Zimbabwe) are seeking economic partnership agreements with the EU as part of other trading blocs – such as with East or Central African communities.

Ratification Pending

EU-Central America Association Agreement (Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, Belize and the Dominican Republic): An agreement between the parties was reached in 2012 and is awaiting ratification. The agreement has been provisionally applied since 2013. The EU and Central America meet annually to discuss issues and best practices related to the implementation of the agreement, and the most recent meeting of the Association Committee and sub-committees was held in Antigua, Guatemala between June 18, 2019, and June 27, 2019.

Under Negotiation

1. EU-Australia: The EU, Australia's second largest trade partner, has launched negotiations for a comprehensive trade agreement with Australia. Bilateral trade in goods between the two partners has risen steadily in recent years, reaching almost EUR48 billion in 2017 and bilateral trade in services added an additional EUR27 billion. The negotiations aim to remove trade barriers, streamline standards and put European companies exporting to or doing business in Australia on equal footing with those from countries that have signed up to the Trans-Pacific Partnership or other trade agreements with Australia. The Council of the EU authorised opening negotiations for a trade agreement between the EU and Australia on May 22, 2018.


2. EU-United States (Trans-Atlantic Trade and Investment Partnership): This agreement was expected to increase trade and services, but it is unlikely to pass under the Trump administration in the United States against the backdrop of rising global trade tensions. The EU and the United States have the largest bilateral trade and investment relationship and enjoy the most integrated economic relationship in the world.

Sources: WTO Regional Trade Agreements Database, Fitch Solutions

Foreign Direct Investment

• Value Added Tax: 21%
• Corporate Income Tax: 19%

Sources: Ministry of Finance of the Czech Republic, Fitch Solutions

Important Updates to Taxation Information

• Starting 2020, the following measures transposing the EU Anti-Tax Avoidance Directive (ATAD) have come into effect:
  
  
  • Hybrid mismatches, effective for tax periods commencing on/after 1 January 2020
  • Exit taxation, effective for tax periods commencing on/after 1 January 2020

• The Czech government has drafted a law introducing a 7% digital tax on large internet companies, such as Facebook and Google, by mid-2020. The new tax will apply to internet companies with global turnover of more than EUR750 million and taxable income in the Czech Republic of more than CZK50 million (USD2.21 million) in a year. It will not affect local companies.
   
• In 2019, the government implemented the amendment to the Income Tax law. The amendment was made in order to comply with the EU Anti-Tax Avoidance Directive, which contains five legally-binding anti-abuse measures that all member states should apply against common forms of aggressive tax planning.
   
• The Czech government plans to increase excise tax on spirits by 13% from January 2020. 
   
• The VAT legislation ammendment shall contain new provisions that deal with losses and the related correction of input VAT deduction, VAT treatment of vouchers and VAT registration of members of a VAT group in relation to transformation.
   
• Starting January 1st, in all EU Member States the VAT exemption for the supply of goods to another EU Member State will only apply to sales to VAT-registered customers in that EU Member State.

Work Permit

Citizens that are not from the EU 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 employment. Citizens of the EEA (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 a family reunion permit, have been granted asylum, study in the Czech Republic or have blue or green cards.

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 a maximum of 2 years, which can be repeatedly prolonged always for maximum of 2 years and may be renewed as many times as needed. The permit process takes an average of one month.

Employee Card

An Employee Card is a permit for long-term residence in the Czech Republic where the purpose is employment, regardless of the level of required professional qualifications. Foreign nationals (not from the EU/EEA member states and Switzerland) with an employee card are entitled to work in the job for which the employee card was issued, or to work in the job for which the Department for Asylum and Migration Policy of the Ministry of the Interior granted consent.

Blue Card

The Blue Card is intended for the stay of a highly qualified employee. 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 lasted for at least three years. The Blue Card is issued with a term of validity three months longer than the term for which the employment contract has been concluded; however, this is for a maximum period of two 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 1.5 times the gross average annual wage.

Short-term Work Visa

A short-term work visa can be granted by a Czech embassy upon on application for a maximum period of 90 days to be used within 180 days. The visa must be for the purpose of employment and the application must be submitted, beside general requirements, with a work permit, employment contract and proof of securing accommodation.

Sources: Government websites, Fitch Solutions

Sovereign Credit Ratings

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

Competitiveness and Efficiency Indicators

Sources: World Bank, IMD, Transparency International

Fitch Solutions Risk Indices

Source: Fitch Solutions
Date last reviewed: April 19, 2020

Hong Kong’s Trade with Czech Republic

Export Commodity	Commodity Detail	Value (US$ million)
Commodity 1	Telecommunications and sound recording and reproducing apparatus and equipment	974.6
Commodity 2	Office machines and automatic data processing machines	344.3
Commodity 3	Electrical machinery, apparatus and appliances, and electrical parts thereof	245.9
Commodity 4	Miscellaneous manufactured articles	112.8
Commodity 5	Photographic apparatus, equipment and supplies and optical goods; watches and clocks	21.0

Import Commodity	Commodity Detail	Value (US$ million)
Commodity 1	Electrical machinery, apparatus and appliances, and electrical parts thereof	125.7
Commodity 2	Office machines and automatic data processing machines	66.8
Commodity 3	Telecommunications and sound recording and reproducing apparatus and equipment	50.2
Commodity 4	Professional, scientific and controlling instruments and apparatus	16.5
Commodity 5	Miscellaneous manufactured articles	15.2