INVESTMENT AND TRADE REGULATION IN THE CZECH

1. INVESTMENTS FROM MACROECONOMIC VIEWPOINT

The Czech Republic is one of the most successful transition economies in terms of attracting foreign direct investments. The introduction of investment incentives in 1998 has stimulated a massive inflow of FDI into both greenfield and brownfield projects and during the year 1993 — 2009 almost USD 80 billion in FDI has been recorded. As an early reformer in east-central Europe, the Czech Republic led the way in the early 1990s in adopting far-reaching stabilisation, liberalisation and privatisation programmes. The implementation of EU rules and regulations has also helped to improve the business environment and attract FDI.

In the year 2009, inflow of FDI totalled almost USD 3 billion. The most important investors are Germany, the Netherlands, Austria, France, U.S.A. and Japan. A significant part of FDI inflows into the Czech Republic has been concentrated in the services sector. Manufacturing has been the second-largest beneficiary, especially transport equipment (particularly automotive industry and its components), chemicals, metal products and electrical and optical equipment. More investment is now being directed towards high-technology sectors and research and development.

Summary of key advantages of the Czech Republic as an investment location:

Foreign direct investment in all sectors and from all countries is welcomed and there are no restrictions on the level of investment or ownership.
Good infrastructure
Advantageous geographical position in the centre of Europe
Highly developed domestic supply base
Educated and cost-competitive workforce
Investment incentives scheme

2. INVESTMENT POLICY OF THE CZECH REPUBLIC

2.1 NON DISCRIMINATION PRINCIPLE

Under Czech law, foreign and domestic entities are treated identically. The same conditions are set by the law for Czech and foreign entrepreneurs.

2.2 INVESTMENT PROTECTION

The Czech Republic is a member of Multilateral Investment Guarantee Agency (MIGA), an international organization for protection of investment belonging to the World Bank - IMF group. The Czech Republic has signed a number of bilateral international treaties which support and protect foreign investments. The treaties provide that each party shall permit and treat investments and associated activities of the other party's residents on a non-discriminatory basis and guarantee full protection and security by law. Up to present, the Czech Republic signed Investment Protection and Support Treaty with 77 countries including Thailand.

2.3 REPATRIATION OF PROFITS

No limitations exist concerning the distribution and expatriation of profits by Czech subsidiaries to their foreign parent companies, other than the obligation of joint stock companies and limited liability companies to generate a mandatory reserve fund and pay withholding taxes.

The Czech Republic has treaties to prevent double taxation with many countries incl. Thailand.

2.4 ACQUISITION OF REAL ESTATE

Since 1 May 2009 citizens from EU and other countries are not limited in the nature and scope of acquiring real estate (except for land that is part of an agricultural land fund or forest) in the Czech Republic. The original “legal obstacles” requiring that foreigners hold a Czech Residence Permit or Visa were lifted. Thus, they may acquire real estate under the same conditions as Czech citizens.

Since 1 May 2009 also foreign legal entities from EU and other states may acquire real estate (except for land that is part of an agricultural land fund or forest) in the Czech Republic without any restrictions and under the same conditions as Czech legal entities. Hence, the original legal requirements as to the location of the company or an establishment of a branch in the Czech Republic and entitlement to conduct business in the Czech Republic were lifted.

Any purchase or transfer of real estate must be registered with the relevant Land Registry. The real estate transfer tax is 3% of the selling price or the officially assessed value, whichever is greater, and is paid by the seller. The buyer is the guarantor and pledges for payment of the transfer tax. The transfer-tax return must be delivered to the Tax Administration Office and the transfer tax paid within three months following the registration of the transfer in the Land Registry.

2.5 INVESTMENT RISK

An open investment climate both in manufacturing and service sector has been a key element of the Czech Republic's economic transition. The country investment grade ratings from the international rating agencies in comparison with other East European transition countries are given below.

The Czech Republic has attracted a large amount of foreign direct investment (FDI) since 1990, making it one of the most successful transition country in terms of FDI per capita. The Czech Republic hosts manufacturing subsidiaries of more than 1,500 foreign companies of all sizes. Among the top foreign investors to the Czech Republic are ABB, BOSCH, CONTINENTAL, CELESTICA, DANONE, EASTMAN, FORD, MATSUSHITA, NESTLE, PANASONIC, PHILIPS, PROCTER & GAMBLE, SIEMENS, PEUGEOT+TOYOTA+CITROEN, TYCO, VOLKSWAGEN, HYUNDAI.

3. RESTRICTIONS - SUMMARY OF BARRIERS TO ACCESS CZECH MARKET AND NATIONAL TREATMENT

By the Czech law, same conditions are set for foreign entrepreneurs as well as for local entrepreneurs.

Since May 2009 foreign citizens as well as foreign legal entities from EU and other states may acquire real estates (except for land that is part of an agricultural land fund or forest) in the Czech Republic without any restrictions and under the same conditions as Czech citizens and Czech legal entities. Hence, the original legal requirements such as to the location of the company or an establishment of a branch in the Czech Republic or Czech Residence Permit or visa were lifted.

For a company registered in the Czech Republic, there is no limit for the proportion of local/foreign staff set by the law. However, the valid residence and work permit is required for every foreigner.

There is no limit set for the number of foreign companies operating in the Czech Republic as the whole, neither any limit for number of foreign companies in the particular sector of the economy.

The Government does not screen any foreign investment projects, with the exception of the defense and banking sector. In the banking sector, an application for the "Permission to Act as a Bank" must be submitted to the Czech National Bank. The decision of granting such a permission is made by Ministry of Finance and Czech National Bank. However, for Czech entities the same regulation is applied. The minimum capital of CZK 500 million is required.

For foreign investors, obstacle is a language barrier, negotiations with Czech authorities can be lead in Czech language only.

Foreign citizens (other than from the EU, Switzerland, Norway, Iceland and Liechtenstein) must obtain a uniformed Schengen visa in order to reside in the Czech Republic. However, if the purpose of residence is to earn money, then the foreign citizen must apply for a visa and for a work permit. Depending on the intended length of his/her stay, the foreign citizen applies for either a short-term or longterm visa.

Uniformed Schengen visas

A residence visa for up to 90 days allows the foreign citizen to stay up to 90 days in the Czech Republic within the time period shown on the visa. The total length of stay may not exceed three months. The visa is valid for a maximum of two years (set according to the expected number of trips to the Czech Republic).

There are following types of residence visas for up to 90 days:

1) single entry — residence of up to 90 days; allows only one entry;

2) double — entry residence of up to 90 days accumulated during the time period of the visa’s validity during 6 months;

3) multiple entry — residence of up to 90 days accumulated during the time period of the visa’s validity during 6 months; there is no limit on the number of entries and exits.

Processing of the application for a residence visa for up to 90 days may take up to 30 days from the date it is filed for processing, but the period is often shorter.

Long-term visas (does not belong to the group of Uniformed Schengen visa)

Residence visas for more than 90 days are issued for stays longer than 90 days and allow the foreign citizen to stay in the Czech Republic for a maximum of one year. This type of visa allows the foreign citizen to travel repeatedly into and out of Czech territory. A residence visa for more than 90 days can be issued for one purpose of residence (e.g. employment,entrepreneurial purposes, study, membership in a legal entity’s statutory body, maintaining family ties with a Czech citizen, maintaining family ties with a foreigner residing in the Czech Republic, health reasons or other purpose) or for multiple simultaneously existing purposes (employment + entrepreneurial purposes, employment + study). Each purpose of residence indicated on the application form must be submitted with the required documents. Processing of the application for a residence visa for more than 90 days may take up to 90 days from the date it is filed for processing.

Work permits

If the foreign citizen intends to stay in the Czech Republic for the purpose of employment, he/she must first apply for a work permit, which is issued by the local labour office depending on place of employment. In some cases, a legal representative of a company may also have to apply for a work permit. The process of handling the work permit application is governed by the Employment Act No. 435/2004 Coll., as amended and has following condition:

The employee/foreigner files a “Work Permit Application”. In practise the employer usually files the application using the power of attorney provided by the employee.

4. CZECHINVEST — CZECH INVESTMENT AND BUSINESS DEVELOPMENT AGENCY

The main objective of CzechInvest, the Investment and Business Development Agency, is to advise and support existing and new entrepreneurs and foreign investors in the Czech Republic.

CzechInvest, the Investment and Business Development Agency, is an agency of the Ministry of Industry and Trade. Established in 1992, the agency contributes to attracting foreign investment and developing domestic companies through its services and development programmes. CzechInvest also promotes the Czech Republic abroad and acts as an intermediary between the EU and small and medium-sized enterprises in implementing structural funds in the Czech Republic.

CzechInvest is exclusively authorized to file applications for investment incentives at the competent governing bodies and prepares draft offers to grant investment incentives. Its task is also to provide potential investors current data and information on business climate, investment environment and investment opportunities in the Czech Republic.

CzechInvest's services (all CzechInvest's services are free of charge):

comprehensive services for investors
full information assistance
handling of investment incentives
business properties identification
supplier identification
aftercare services
business infrastructure development
access to structural funds

Internet website of Czechinvest is www.czechinvest.org and it is available also in English.

5. INVESTMENT INCENTIVES

MANUFACTURING SECTOR — INCENTIVES AND ELIGILIBITY

The Czech Republic offers both new and existing investors investment incentives through several schemes. Until the end of the year 2009, 568 firms had been awarded incentives.

THE NATIONAL INCENTIVES SCHEME

The national incentive scheme is set by the Act on Investment Incentives (Act No. 72/2000 Coll.), amended in May 2004 and July 2007. The act is in compliance with European regulations on state aid. The incentives scheme was designed to apply equally to both foreign and domestic investors under the same conditions.

INCENTIVES LISTED IN THE ACT ON INVESTMENT INCENTIVES

Tax incentive - corporate tax relief for up to five years for new companies
Partial tax relief for up to five years for existing companies
Job creation grants - financial support for creation of new jobs
Training and retraining grants - financial support for training and retraining new employees
Site support - transfer of public land at a favourable price

The incentives are available individually or collectively and are designed to have maximum impact at the early stages of the given project.

Tax incentive

The tax incentive has two forms. If a new company (legal entity) is established for the investment project, the new company is eligible for corporate tax relief for up to five years

If the investment takes the form of an expansion project within an existing Czech company (legal entity), the company is eligible for partial tax relief for up to five years. The tax relief is terminated when the company has reached the maximum level of eligible state aid (due to European Union regulations).

Corporate income tax in the Czech Republic is a flat rate and makes 19 % since 2010.

Job-creation and training and retraining grants

Job creation grants amounting to CZK 50,000 per employee and training and retraining grants amounting to 25% of total training and retraining costs are provided only in districts with unemployment that is at least 50% higher than the national average. In the past (until 2008) the amount the amount per employee was CZK 200,000.

Site support

The preferential transfer of land or land with infrastructure owned by the state or municipalities is possible depending on the landowner’s agreement with such preferential transfer.

ELIGIBILITY CRITERIA FOR MANUFACTURING

The investment must be made in a manufacturing sector.
The investment must be made in the launch of new production or in the expansion of existing production.
The investor must invest at least CZK 100 million (approx. EUR 4 million) within three years. This limit is reduced in regions with high unemployment to CZK 60 million or CZK 50 million, depending on the unemployment rate.
Half of the investment minimum (above) must be financed through the investor’s own equity.
At least 60% of the total investment must be made in machinery.
All machinery must be new.
The proposed production must meet all Czech environmental standards

INVESTMENT INCENTIVES — COMPATIBILITY WITH EU REGULATIONS

The compatibility of the investment incentives regulations applied in the Czech Republic with EU state-aid legislation is evaluated by the European Commission. Each application for investment incentives must pass an evaluation by the Ministry of Industry and Trade, which also decides on the total amount of state aid available to each project. The actual aid available to each project is calculated as a percentage of the total value of the actual investment (i.e. capital expenditure on land, buildings, machinery and equipment, including limited expenditure on intangible assets). Once the limit of state aid available to the project has been reached, the tax break is terminated and the company has to start paying corporate tax.

BUSINESS SUPPORT SERVICES AND TECHNOLOGY CENTRES INCENTIVES AND ELIGIBILITY CRITERIA

In the past, incentives for business support services and technology centres existed in the Czech Republic, however since the year 2009 this scheme was closed.

6. POTENTIAL SECTORS

Following potential sectors for investment in the Czech Republic can be identified:

automotive industry
aerospace
electronics/robotics
high-tech engineering
life sciences (biotechnology, pharmaceuticals)
medical devices
IT and software
renewable energy sources and cleantech
nanotechnologies
R&D — research and development centres and technology centres
business support services (e.g. customer contact centres, software development centres, high- tech repair centres, business process outsourcing centres, shared services centres in finance, accounting, human resources)

Potential sectors recommended for Thai investors:

service business:
Thai restaurants
Thai spa, traditional Thai massage

7. COSTS OF BUSINESS

Costs of setting-up a company in the Czech Republic are on average 1000 USD and it takes approx. 24 days.

8. INTERNATIONAL TREATIES AND MEMBERSHIP OF THE CZECH REPUBLIC

The Czech Republic is a member of EU, OECD, NATO, WTO, IMF and EBRD.

The Czech Republic is also a member of the Multilateral Investment Guarantee Agency (MIGA) under the World Bank IMF group and also a signatory of a range of bilateral international agreements on the support and protection of foreign investments. Up to present, the Czech Republic signed Investment Protection and Support Treaty with 77 countries including Thailand.

The Czech Republic signed Double Taxation Avoidance Treaty with 72 countries incl. Thailand.

9. TRADE REGULATION

Since May 2004, the Czech Republic became EU member and EU customs duties and regulations are applied.

By becoming EU member, CZ adopted EU common trade policy. It means, that in trade matters incl. WTO, the EU act as one single actor, the European Commission negotiates trade agreements and represents the European interests on behalf of the Union's 27 member states.

9.1 TRADE POLICY

The implementation of the EU common trade policy fundamentally changed the Czech trade policy. It ceased to be a specifically national policy and became a part of the common policy of the 27 EU members. The Czech Republic defined its basic trade interest in the “Strategy of Asserting Commercial and Economic Interests in the EU“, and strives to asser them inthe EU working bodies. Basic principles of Czech strategy are as follows:

support cheap tariffs for imports of raw materials
co-create for domestic businessmen the best possible conditions for placing their goods and services on the third markets
put emphasis on rapidly developing economies, especially China, India and Russia as they are large markets where Czech products can be placed
support agriculture reform in EU
liberalize international trade in services
secure protection of intelectual property
fight against misusage of trade defense instruments, such as anti-dumping and anti-subsidy measures, by third countries
support fair competition on EU market

9.2 CUSTOMS SYSTEM IN THE CZECH REPUBLIC

With respect to customs proceedings, the accession of the Czech Republic to the EU brought two essential changes:

1. Uniform customs regulations valid in the EU are aplicable to customs proceedings in the Czech Republic

2. Delivery of goods between the EU member states is not subject to customs proceeding (i.e. border free trading in the market of size of 500 million people).

As for customs burden of the EU, it is much higher especially in the field of agricultural products, comparing with the situation before the Czech Republic became EU member, especially in case of canned tuna, canned sardines, surimi, canned pineapples, rice. Customs tariffs for these items used to be 0 % before EU accession, as these were non-competing commodities for domestic agriculture production. Current import duty e.g. for canned tuna makes 24 %, for canned pineapples 17,6 — 20,8 %.

Due to high level of agricultural protection, EU average agricultural tariff is 30 %. Most protected sector is sugar (average duty of 350 %), followed by milk products (87 %), grains (53 %) and animal feed (47 %).

9.3 TRANSFER OF GOODS ACROSS THE CZECH STATE BORDER

On the first day of the Czech Republic’s membership in the EU, the country’s customs authorities abolished routine customs checks of goods transferred across the internal borders, i.e. the common border between the Czech Republic and other EU member states. Since the Czech Republic does not have any external EU borders (borders with non-EU member states), the routine customs checks of goods transferred across the Czech border for customs and taxation purposes are usually conducted either at international airports or at the borders between EU and non-EU states. Any trade with EU member countries (including new member countries such as Romania and Bulgaria, which joined the EU in 2007) is considered intra-Community trade, which is not subject to routine customs checks or duties or other fees collected in relation to the importation or exportation of goods. Goods are transferred freely across internal EU borders.

For all EU member states, the EU customs tariff called TARIC, containing customs duty rates and import and export restrictions is applicable. TARIC can be found at the link: www.ec.europa.eu/taxation_customs/dds/tarhome_en.htm

EU — one customs territory (example)

As the EU is considered as one customs territory, the following sample situations can occur: For example, if goods from Thailand are transported to the Czech Republic via the port of Hamburg, the Czech importer has two possibilities. He can either clear the goods through customs at the Hamburg customs office or the Hamburg customs office can release the goods into a transit regime and the goods will subsequently be released into free circulation at certain Czech customs offices. Export customs procedures as well can be performed either by the Czech customs office or, in certain cases, by the customs office of other member countries.

Source : http://www.depthai.go.th

INVESTMENT AND TRADE REGULATION IN THE CZECH REPUBLIC