2023 Investment Climate Statements: Czechia

Policies Towards Foreign Direct Investment   

The Czech government actively seeks to attract foreign investment via policies that make the country a competitive destination for companies to locate, operate, and expand.  The Czech investment incentives legislation (amended Act No. 72/2000 Coll., effective as of September 6, 2019)  targets high value-added investments that focus on R&D and create jobs for university graduates.  The law eliminates incentives for investments in low-skilled labor and establishes more favorable rules for technological investments in sectors such as aerospace, information and communication technology, life sciences, nanotechnology, and advanced segments of the automotive industry.

CzechInvest, the government investment promotion agency that operates under the Ministry of Industry and Trade (MOIT), 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 FDI.  Total foreign investment in the Czech Republic (equity capital + reinvested earnings + other capital) equaled USD 200.5 billion at the end of 2021, compared to USD 192.5 billion in 2020.

As a medium-sized, open, export-driven economy, the Czech market is strongly dependent on foreign demand, especially from EU partners.  In 2022, 70.7 percent of Czech exports went to fellow EU member states, with 26.3 percent to the Czech Republic’s largest trading partner, Germany, according to the Czech Statistical Office.  While GDP grew by 3.3 percent in 2021, the growth slowed down to 2.4 percent in 2022.  The Ministry of Finance is forecasting a 0.5 percent decline for 2023.

The Czech Republic has no plans to adopt the euro as it believes having its own currency and independent monetary policy is helpful for managing economic crises.

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, protection and enforcement of intellectual property rights, and in many other areas important to investors.  Nonetheless, the slow pace of legislative and judicial reforms has posed obstacles to investment, competitiveness, and company restructuring.

While there have been many success stories involving American and other foreign investors, a handful have experienced problems, for example in the media industry.

Long-term economic challenges include adapting to climate change and environmental degradation, dealing with an aging population, and diversifying the economy away from manufacturing 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.  Foreign entities need to register their permanent branches with 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.

In response to the European Commission’s September 2017 national security investment screening directive, the Czech government adopted foreign investment screening legislation, which came into effect on May 1, 2021, and gives the government the ability to review greenfield investments and acquisitions by non-EU foreign investors.  The law allows the Ministry of Industry and Trade (MOIT) to screen FDI in virtually any sector of the Czech economy but specifies four high-risk sectors for which investment screening is mandatory: critical infrastructure, ICT systems used for critical infrastructure, military equipment, and sensitive dual use items.  Outside these critical sectors, non-EU investors are under no obligation to report acquisitions or greenfield investments, but MOIT can retroactively review investments at any point within five years if security concerns arise.  Screening of acquisitions is triggered when a non-EU buyer attempts to make a purchase that would give it at least 10 percent of the voting rights of a Czech company.  However, screening is possible at an even lower threshold in cases where the foreign investor has additional means of exerting potentially malign control over a Czech company, such as through appointment of staff to key positions.  Furthermore, the law gives regulators considerable leeway to designate an investor as “non-EU” if the investor is “indirectly controlled” by non-EU business or individuals.

As of early 2012, U.S. and other non-EU nationals could purchase real estate, including agricultural land, in the Czech Republic without restrictions.  However, following the implementation of the investment screening law as of May 1, 2021, land purchases by non-EU investors may be screened if located near critical infrastructure, such as military installations.  Enterprises are permitted to engage in any legal activity with the previously noted limitations in sensitive sectors.  The right of foreign and domestic private entities to establish and own business enterprises is guaranteed by law.  Laws on auditing, accounting, and bankruptcy are in force, including the use of international accounting standards (IAS).

Other Investment Policy Reviews   

The OECD last conducted an economic survey of the government  in 2023.

Business Facilitation   

Individuals must complete a number of bureaucratic requirements to set up a business or operate as a freelancer or contractor.  MOIT provides an electronic guide for obtaining a business license. The guide offers 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). The guide is available at:  https://www.mpo.cz/en/business/licensed-trades/guide-to-licensed-trades/ .  MOIT also has established regional information points to provide consulting services related to doing business in the Czech Republic and EU.  A list of contact points is available at:  https://www.businessinfo.cz/psc/.

The average time required to start a business is 25 days according to the World Bank’s ‘Doing Business’ Index.  The Czech Republic’s Business Register is publicly accessible and provides details on business entities including legal addresses and major executives.  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 publicly 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 .

Outward Investment   

The Czech government neither prohibits nor incentivizes outward investment.  The volume of outward investment is lower than incoming FDI.  According to the latest data from the Czech National Bank, Czech outward investments amounted to USD 55.5 billion in 2021, compared to inward investments of USD 200.5 billion.  However, 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.  As part of EU sanctions, there is a total ban on EU investment in North Korea as of 2017.

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.

The government requires companies with over 500 employees to undertake environmental, social, and governance (ESG) disclosures to facilitate transparency.

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.  Public finances are transparent.  The government’s budget and information on debt obligations are publicly available and published online.

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

Legal System and Judicial Independence   

The Czech Commercial Code and Civil Code are largely based on the German legal approach, which follows a continental legal system where the principal 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 of the executive branch.  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.  In addition, the newly adopted investment screening law, which came into effect on May 1, 2020, gives the government the ability to screen greenfield investments and acquisitions by non-EU investors for national security considerations.

The Czech Ministry of Industry and Trade maintains a “one-stop-shop” website available at https://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 (subsidy) 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 can be complex and time-consuming, but it is necessary to ensure clear title.  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   

The 1993 U.S.-Czech Bilateral Investment Treaty contains provisions regarding the settling of disputes through international arbitration.  In the past 10 years the Czech Republic has been involved in 24 known arbitral disputes with foreign investors.

International Commercial Arbitration and Foreign Courts   

Mediation is an option in nearly every area of law including family, commercial, and criminal.  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   

The government amended the bankruptcy law on June 1, 2019, expanding the categories of debtors qualified for debt discharge.   The basic debt relief period for individuals is currently five years. However, if the debtor is a pensioner, disabled, his or her debt was created prior 18 years of age, or manages to repay at least 60 percent of debt, then the debt relief period shortened to three years.

Investment Incentives   

The Czech Republic offers incentives to foreign and domestic firms alike that invest in the manufacturing sector, technology and R&D centers, and business support centers.  The amended Act No. 72/2000 Coll. came into force September 6, 2019, and shifted availability of incentive programs from all types of investments to only those requiring R&D and that create jobs for university graduates, as well as in specialized sectors such as aerospace, information and communication technology, life sciences, nanotechnology and advanced segments of the automotive industry.  Incentives are funded from the Czech Republic’s national budget as well as from EU Structural Funds.  The government provides investment incentives in the form of corporate income tax relief for 10 years, cash grants for job creation up to USD 9,000 per job, cash grants for training up to 70 percent of training costs, and cash grants for the purchase of fixed assets up to 20 percent of eligible costs.   In addition, film industry incentives cover up to 20 percent of eligible costs of foreign filmmakers, with a cap of USD 6.8 million per project.

The government does not typically issue guarantees or engage in joint financing for FDI projects.

The government primarily provides subsidies, as opposed to incentives (such as feed-in tariffs, discounts on electricity rates, or tax incentives) for clean energy investments.

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 duties.  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. The Czech Republic does not have special economic zones.

Performance and Data Localization Requirements   

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 the same for domestic, EU, and non-EU companies.

The Czech Republic abides by EU law governing data localization and performance.  The Czech Republic strongly supported creating the EU Regulation on free flow of non-personal data which came into effect in May 2019, stating that it would boost the competitive data economy and accelerate the development of artificial intelligence.

In January 2023, the National Cyber and Information Security Agency (NUKIB) released a draft cybersecurity law for public comment that included data and information localization requirements for certain regulated entities in the Czech Republic, such as providers of critical infrastructure. In published comments explaining the proposed law and associated implementing decrees, NUKIB explained that some regulated entities might eventually be required to process a portion of their data and information within the Czech Republic. These data localization requirements would only apply to data assessed to have a “critical” security impact. In cases where the impact of data is assessed to be “high,” regulated providers might be required to process some data and information within the EU, NATO, OECD and EFTA countries only. If data and information were deemed to have a lower level of security impact, regulated providers would not be subject to data localization requirements. The draft law and corresponding draft decree are still subject to significant change, as the cybersecurity law has not yet been submitted to parliament. NUKIB expects the law to be finalized in late 2024.

The “Bill on Digitalization of Public Authorities (“Cloud Bill”) came into force February 1, 2022, marking a significant step in the country’s efforts to move government data to the cloud.   The legislation operationalized a “Cloud Catalogue” of cloud service providers that are certified as secure and trustworthy partners for government data.  The legislation mandates that sensitive government data be stored in the EU but allows global cloud services providers (including U.S. companies) to transfer data overseas for routine maintenance purposes. The legislation also allows cloud service providers managing Czech government data to comply with the U.S. CLOUD Act, which gives U.S. law enforcement agencies the right to access personal data stored outside the United States.

Real Property   

Real estate (land and buildings) located in the Czech Republic must be registered in the national Cadastral Register under the Cadastral Office.  The Cadastral Register contains information on plots of land and buildings, housing units and non-residential premises, liens, and other information and is publicly available online in Czech only at:   https://nahlizenidokn.cuzk.cz/ .  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.

There is a negligible proportion of land that does not have clear title.  If property legally purchased becomes unoccupied, property ownership does not revert to squatters.

Intellectual Property Rights   

The Czech Republic was removed from the Watch List of the U.S. Trade Representative Special 301 Report in 2011.

The Czech Republic is a member of the World Intellectual Property Organization (WIPO) and party to the Berne Convention, the Paris Convention, the Patent Cooperation Treaty (PCT), the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty.  Domestic legislation protects all intellectual property rights (IPR), 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 the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).  The Criminal Code sets the maximum penalty of eight years of imprisonment for trademark, industrial rights, and copyright violations.  The Customs Administration of the Czech Republic and the Czech Commercial Inspection have legal authority to seize counterfeit goods.  Information on seizures of counterfeit goods and cases of IPR infringement are tracked by the Customs Administration.  Information is available in Czech at  https://www.celnisprava.cz/cz/statistiky/Stranky/dusevni-vlastnictvi.aspx .

While online piracy in the Czech Republic has been cited by some U.S. entities as an area of concern, the legal framework for protecting and enforcing IPR has been tested and proven successful in punishing infringers.  The Czech Republic is not listed as hosting any physical and online markets in USTR’s 2022 Notorious Markets Report.

The Czech Republic updated its Copyright Act in 2022, placing new obligations on online platforms that display content from third-party news publishers. The Czech government drafted the law in response to the 2019 EU Directive on Copyright in the Digital Single Market (EUCD), which requires that all EU member states update their copyright legislation. The Czech “EUCD Transposition” legislation, among other dispositions, compels online platforms to negotiate licensing fees with news publishers in exchange for the right to display news content on platforms. In response to the new law, Google and Meta restricted the displays of short excerpts of some news content on their Czech platforms for users inside the Czech Republic.

For additional information about treaty obligations and points of contact at local IPR offices, please see WIPO’s country profiles at  http://www.wipo.int/directory/en/ .

Capital Markets and Portfolio Investment   

The Czech Republic is open to portfolio investment.  There are 59 companies listed on the Prague Stock Exchange (PSE).  The overall trade volume of stocks increased from CZK 125.31 billion (USD 5.7 billion) in 2020 to CZK140.48 billion (USD 6.4 billion) in 2021, with average daily trading volume of CZK 559.66 million (USD 25.4 million).

In March 2007, the PSE created the Prague Energy Exchange (PXE), which was later re-named to Power Exchange Central Europe, to trade electricity in the Czech Republic and Slovakia and, later, Hungary, Poland, and Romania.  PXE’s goal is to increase liquidity in the electricity market and create a standardized platform for trading energy.  In 2016, the German power exchange EEX acquired two thirds of PXE shares.  Following the acquisition, 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, capital markets, and insurance and pension scheme industries, 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, facilitating the efficient exchange of information between CCR participants.  CCR participants consist of all banks and branches of foreign banks operating in the Czech Republic, as well as other individuals included in a special law.

As an EU member country, the local market provides credits and credit instruments on market terms that are available to foreign investors.

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.  Despite the COVID-19 crisis, Czech banks remain healthy.  Results of regular banking sector stress tests, as conducted by the Czech National Bank, repeatedly confirm the strong state of the Czech banking sector which is deemed resistant to potential shocks.  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/banking-sector/ .  As of January 31, 2023, the total assets of commercial banks stood at CZK 9,648 billion (approximately USD 438 billion). Foreign investors have access to bank credit on the local market, and credit is generally allocated on market terms.

The Czech National Bank has 9 correspondent banking relationships, including JP Morgan Chase Bank in New York and the Royal Bank of Canada in Toronto.  The Czech Republic lost a correspondent banking relationship with the Norwegian bank Nordea in the past three years.

The Czech Republic does not currently regulate cryptocurrencies.

Foreign Exchange and Remittances   

Foreign Exchange Policies   

The CZK is fully convertible and 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.

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 the repatriation of profits from the Czech Republic.  This tax is potentially reduced under the terms of applicable double taxation treaties.  There are no administrative obstacles to 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.

Privatization Program   

As a result of several waves of privatization, the vast majority of the Czech economy is now in private hands.  Privatizations have generally been open to foreign investors.  In fact, most major SOEs were privatized with foreign participation.  The government evaluates all investment offers for SOEs.  Many competitors have alleged non-transparent or unfair practices in connection with past privatizations.

Climate Issues

In statements to the public, the government has repeatedly endorsed the EU’s goal of carbon neutrality by 2050.  A key step toward that goal will be the country’s planned exit from coal by 2033 which currently contributes to one-third of the Czech Republic’s electricity production.  Switching from coal will offer commercial opportunities in alternative sources of power and the infrastructure and energy storage capabilities necessary to bring it to market.  Nuclear energy is widely seen as the best alternative to coal, but solar, wind and to some extent, green hydrogen, likewise attract investment.

Two of the stated priorities for the Ministry of Environment include energy efficiency and adaptation.  In September 2021, the government approved an updated version of the national Climate Change Adaptation Strategy 2021 – 2030, which is in line with the EU Adaptation Strategy.  The adaptation strategy addresses all significant manifestations of climate change in the Czech Republic and aims to reduce vulnerability and increase the resilience of society and ecosystems to climate change and thus reduce its negative impacts.  The Strategy’s implementation document is the National Action Plan for Adaptation to Climate Change which assigns specific tasks to relevant ministries.

The Climate Protection Policy of the Czech Republic 2017 – 2030 defines the main goals and measures in the field of climate protection at the national level to ensure compliance with greenhouse gas emission reduction targets in line with international agreements, and thus contribute to transition to a sustainable low-emission economy.  By the end of 2023, the Ministry of Environment should submit to the government an update of the Climate Protection Policy, which will contain new measures the Czech Republic will have to take in the coming years to reach net-zero carbon emissions by 2050.  In October 2022, legislation banning single use plastic came into effect.  The Czech Republic will abide by the EU Regulation on deforestation-free supply chains once formally adopted in 2023, according to expected timeline.

Although the government strategies do not specify requirements for private sector contributions to achieving relevant targets, they include examples of positive and negative forms of financial incentives to encourage companies towards contributing to climate goals.

The Czech government offers a range of subsidy programs to achieve environmental goals.  For example, manufacturing companies can receive subsidies for installing low-carbon and smart technologies, using renewable resources, increasing energy savings, and reducing losses in heat distribution.  Companies can receive subsidies and soft loans from the EU Operational Program Environment (OPE) 2021-2027 which supports projects in the field of protection of nature, biodiversity, green infrastructure, circular economy, sustainable water management, renewable resources, energy efficiency and reduction of greenhouse gas emissions.

Public procurement policies include environmental considerations, including resource efficiency, pollution abatement, and climate resilience.

Resources to Report Corruption   

Contact at government agency responsible for combating corruption:

Conflict of Interest and Anti-Corruption Department
Anti-Corruption Unit
Ministry of Justice of the Czech Republic
Vyšehradská 16
12800 Prague 2
www.justice.cz
+420 221 997 595
korupce@msp.justice.cz 

Contact at “watchdog” organizations:

Transparency International Czech Republic
Sokolovska 260/143, Prague
+420-224 240 895
posta@transparency.cz 
www.transparency.cz

Frank Bold
Udolni 33, Brno   or Namesti Kinskych 601/3, Prague tel: +420 545 213 975
info@frankbold.org 
www.frankbold.org

Anticorruption Endowment Fund
Nadacni Fond Proti Korupci
Karmelitska 382/14, Prague
+420 226 209 047
info@nfpk.cz 
www.nfpk.cz