CZECH REPUBLIC

Name of country

CZECH REPUBLIC (Czechia)

Region

Central Europe, between Germany, Poland, Slovakia, and Austria

Population

10,702,596 (July 2021 est.)

General Introduction

The Czech Republic is an EU member state as well as a member of the Schengen zone. The Czech koruna is the national currency, and Prague, the country’s capital, attracts over a million tourists each year. The Czech Republic has the most developed industrialized economic system among Central and Eastern European countries. Heavy machinery, iron and steel production, metals, and services account for the majority of industrial output.

The Czech Republic offers an interesting mix of advantages for foreign investors. A large share of the population has secondary and tertiary education and notably, a highly qualified, flexible and innovative workforce available at a fraction of the cost of Western economies. The country has a long history of industrial production, a strategic location and a mentality, culture and attitudes similar to those of Western countries.

Economy

The Czech Republic is one of the most successful transition economies, and its economy is considered highly developed and open as well as heavily dependent on foreign demand. Its main business partners are EU countries, the destination of 85% of Czech exports (33% of which go to Germany). The main export commodities are machinery, computer technology and transportation vehicles. The country is popular among foreign investors thanks to its central location (as it is close to major EU markets), developed manufacturing sector (especially automotive), favourable labour costs (recently rising due to a shortage of skilled workers), well-educated and skilled workforce, fair business environment, and easy to secure supply chain.
For future prosperity, it will be crucial for Czech producers to find new export markets outside the EU. The Ministry of Industry and Trade has prepared a new export strategy, in co-operation with local exporters and the general business public. It concluded that a wider stratification of Czech industry will be beneficial to avoid further dependence on the automotive and engineering sectors. Chemical and chemical-technological industries are promising in this respect.
Dominant Industries

Originally, the Czech Republic attracted foreign direct investments mainly into the engineering sector. New, large greenfield projects in the automotive sector were realised in the northeast and central regions. These investments especially benefited from lower labour costs (compared with Western countries), a strong tradition of engineering, as well as a convenient location in Central Europe.

The Czech Republic desires to become a destination for investments with high added-value, requiring less invested capital. For this reason, the country is focused on negotiating with investors interested in research and development (R&D) and services, to which it can offer an optimal combination of favourable investment factors. Spending on R&D has increased from 0.95% of GDP in 1995 to over 2% of GDP in 2019. Total R&D spending in the Czech Republic has more than doubled over the past ten years.

In 2019, FDI inflow totalled EUR6.743 billion, concentrated in the automotive-components sector, while software, IT and financial services industries were the second-largest beneficiary. The most important investors are Germany, the US, Japan, the UK and Austria. The current top destinations for inward foreign direct investment include the South Moravian region, the Ústecký region, the Central Bohemian region and Prague.

Population and Language

The Czech Republic has approximately 10.7 million inhabitants as of 2020. The majority of inhabitants are ethnically Czech. National minorities include Ukrainians, Slovaks, Vietnamese, Russians, Poles, Germans, among others. The official language is Czech, which is spoken by 96% of the population.

Business Culture

A working week consists of a maximum of 40 working hours, with certain exceptions.

The Czech Republic currently has 13 statutory public holidays.

Generally speaking, the business hours for most services and offices are from 8/9 am to 17/18pm on Monday through to Friday.

The most common business vehicles are the private limited liability company (LLC) (společnost s ručením omezeným) and joint stock company (JSC) (akciová společnost). An LLC is a very popular legal form for small and mediumsized businesses because it requires a lower minimum capital investment and fewer corporate governance requirements than a JSC.
The Czech trust fund (svěřenský fond) functions similarly to trusts of Western EU countries.

Foreign Companies.

Foreign companies typically establish a subsidiary in the Czech Republic in the form of an LLC or a JSC. Foreign companies that do not want to establish a separate legal entity in the Czech Republic may consider doing business through a branch (odštěpný závod zahraniční osoby).

Wifi Speed

As of December 2020, the average download speed of fixed internet connections in Czechia was approximately 74.8 Megabits per second (Mbps). Mobile internet connections were a little slower, at around 61.8 Mbps.

 Electrical outlet

In the Czech Republic the power plugs and sockets are of type E. The standard voltage is 230 V and the standard frequency is 50 Hz.

Per Capita GDP

Real GDP per capita
$38,300 note: data are in 2017 dollars (2020 est.)
$40,700 note: data are in 2017 dollars (2019 est.)
$39,900 note: data are in 2017 dollars (2018 est.)

note: data are in 2010 dollars

Climate

temperate; cool summers; cold, cloudy, humid winters

Residence-by-Investment

The investment visa to the Czech Republic is not the most popular way to immigrate to the Czech Republic, but it is a very reliable and effective way to do so. The low popularity of this method of obtaining visas is primarily due to the large amount of investment required. Even when compared to other economically developed countries, such as those in the EU. The effectiveness of this method is demonstrated by the fact that almost no honest investors are rejected.

Investment

Czechia recently launched a limited-edition golden residency program aimed at serious investors who will contribute to the country’s economy. The program boasts extremely fast processing times for the main investor’s and their family members’ residence permits. At least CZK 75.000.000 (approximately EUR 2.850.000 or USD 3.250.000), whereby the entire amount does not have to be invested in cash, and up to 60% of this amount can be provided through assets (tangible or intangible) – for example, machinery, real estate, know-how, and so on.

Processing Time

Processing times are extremely short: investors can obtain their residence permit within 30 to 45 days of submitting all required documentation.

Key Benefits

Investment visas have several advantages over obtaining a regular long-term business visa:

• In the Czech Republic, the process of applying for a visa takes at least 30 to 45 days, which is twice as long as the process of applying for a long-term business visa, which takes 120 days.
• Furthermore, unlike long-stay visa recipients for business, applying for an Investment Visa does not necessitate a personal presence in the Czech Republic prior to application.
• Another significant advantage is that a businessman’s family members can quickly obtain long-term residence permits for family reunification.
• Long-term stay applications for family members on an Investment Visa are processed much faster and issued within 90 days, as opposed to other types of family reunification visas, which can take up to 270 days;
• the extremely low bounce rate for honest investors.

Requirements

Several conditions that the investor must meet in order to obtain a visa to the Czech Republic are as follows:

• A two-year visa that can be renewed is available at a high cost. Non-EU investors can take advantage of it. A businessman must make an investment of at least CZK 75 million. Naturally, the entire amount cannot be invested in cash, and up to 60% of this amount can be provided by assets, both tangible and intangible, such as cars, real estate, and so on.
• A businessman is required to create and provide at least 20 full-time jobs during the duration of the Investment Visa Program (in comparison to the German Business Visa Program, where the mandatory requirement includes an investment of 1 million. EURO and the creation of 10 jobs);
• The investor must develop a business plan for the investment.

Procedures and Time Frame

To begin with, the process of applying for an Investment visa is at least twice as quick as applying for a long-term business visa. An investment visa should take no more than 30 to 45 days to obtain (as opposed to 120 days when applying for a long-term visa for the purpose of business). It also applies to passive shareholders and has a two-year validity period.

Furthermore, unlike applicants for long-term residence permits for business purposes, applicants for the Investment visa do not need to reside in the Czech Republic prior to filing the application (e.g. based on long-term visa for the purpose of business).

Performance Guarantee

 Natural Resources

hard coal, soft coal, kaolin, clay, graphite, timber, arable land

 Ethnic Groups

Czech 64.3%, Moravian 5%, Slovak 1.4%, other 1.8%, unspecified 27.5% (2011 est.)

Languages

Czech (official) 95.4%, Slovak 1.6%, other 3% (2011 est.)

Religion

Roman Catholic 10.4%, Protestant (includes Czech Brethren and Hussite) 1.1%, other and unspecified 54%, none 34.5% (2011 est.)

Median Age

total: 43.3 years
male: 42 years
female: 44.7 years (2020 est.)

Urbanization

urban population: 74.2% of total population (2021)
rate of urbanization: 0.2% annual rate of change (2020-25 est.)

Physician density

4.12 physicians/1,000 population (2018)

Government type

parliamentary republic

Unemployment Rate

2.8% (2019 est.)
3.18% (2018 est.)

Taxes

Headline Personal Income Tax Rate (highest marginal tax rate)

– 45.7% (peaks for employee gross annual income of $90,000 or more)
– 39% (for gross annual income of $450,000 or more)

The scope of taxation depends on the tax residency status of the individual. Czech tax residents are taxed on their worldwide income, while Czech tax non-residents are taxed on their Czech source income only.

Personal income tax rates

As of 2021, the Czech Republic returns to progressive taxation, with the introduction of a marginal rate of 23%, as follows:

• Gross income up to the social security payment cap (the threshold for 2021 is CZK 1,701,168) will be subject to a 15% rate.
• Gross income exceeding CZK 1,701,168 will be subject to a rate of 23%.

As the progressive tax rate will be applicable to all types of income, some passive income, like capital gains or rental income (combined with employment income), may incur a higher tax burden. However, for most individuals with employment income only, this change will lead to effective lower employment taxation.

The solidarity surcharge of 7% for high-income earners was abolished as of 2021. Previously, as of 2013, ‘solidarity contribution’ amounting to 7% of the gross employment income and self-employment income less tax deductible expenses that were above the social security payment cap was in effect. This additional ‘solidarity contribution’ applied to income from employment and entrepreneurial activity only.

Industry and Commerce Tax- From 0.2% to 1.4% of company income

Property Tax- From 0.5% to 1.6%

Unless an applicable double-tax treaty provides otherwise, the following individuals are considered to be Czech tax residents:

• Foreign employees present in the Czech Republic for at least 183 days in a calendar year.
• Persons with a permanent home/address in the Czech Republic.
• The taxable period for all individuals is a calendar year.

Other Methods to Determine Residency

• The Czech Republic does not have any other methods to determine tax residency.

Tax-resident employees must pay the following:

• Personal income tax. This is levied at a progressive tax rate of 15% and 23% on the employee’s gross employment income. The higher tax rate applies to that part of the individual’s total tax base (including not only the employment income) exceeding CZK1,867,728 (for 2022).
• Social security contributions. These contributions are 6.5% of the employee’s gross salary, up to a cap of 48 times the average salary, that is, CZK1,867,728 in 2022.
• Health insurance contributions. These contributions are 4.5% of the employee’s gross salary. No cap applies.

Non Tax–Resident Employees

• For personal income tax and social security/health insurance contributions non tax–resident foreign employees (if they are subject to the Czech mandatory social security and public health insurance systems) are liable to pay personal income tax on their Czech source income at the same progressive tax rates as tax-resident employees.
• Both tax resident and non-tax–resident individuals are obliged to file on their own behalf an annual personal income tax return if they received employment income concurrently from more than one employer, or if they earned various types of income exceeding CZK 6,000 other than:

1. Employment income from one employer that was subject to monthly payroll tax withholdings.
2. Income subject to a final withholding tax.
3. Tax-exempt income.
4. Personal income tax liability is payable by the same deadline as for filing the tax return.

Headline Corporate Income Tax Rate (excluding dividend taxes) – 19%

Corporate – Taxes on corporate income
Czech resident companies are required to pay CIT on income derived from worldwide sources. Non-resident companies are required to pay CIT on income sourced in the Czech Republic.

The CIT rate is 19% and applies to all business profits, including capital gains from the sale of shares (if not exempt under the participation exemption regime).

There is a special CIT rate of 15% levied on dividend income of Czech tax resident entities from non-resident entities (unless subject to participation exemption).

A 5% CIT rate applies to income of certain investment funds, and a 0% CIT rate applies to pension funds.

Tax resident companies are those situated in the Czech Republic or managed and controlled from a place within the Czech Republic. (Their place of effective management is in the Czech Republic.)

 The place of effective management is any place where key management and commercial decisions that are necessary for the conduct of the entity’s business as a whole are made.

 Tax-resident business vehicles are taxed on their worldwide income, unless they are expressly tax-exempt. Relief is normally granted to foreign-source income under double-tax treaties.

Non Tax–Resident Business

Non tax–resident businesses are liable for corporate income tax on Czech source income as defined in Act No. 586/1992 Coll., on Income Taxes, as amended and subject to the provisions of any applicable double-tax treaty. Typically, non tax–resident businesses having a permanent establishment in the Czech Republic are liable for corporate income tax on profits attributable to the permanent establishment. Depending on the circumstances, the income of non tax–resident businesses may be liable to file a corporate tax return by the statutory deadlines.

The main taxes that potentially apply to a tax-resident business vehicle include the following:

– Corporate income tax. This applies to tax-resident companies as well as to non-tax residents. The standard corporate tax rate is 19%, with a reduced rate of 5% applicable to income received by selected types of investment funds and 0% applicable to income generated by specific pension funds of pension insurance institutions. Dividends received by Czech companies from abroad create a separate tax base subject to 15% tax.

Value added tax (VAT). This is payable by all commercial enterprises (both individuals and legal entities) whose turnover exceeded CZK1 million in the previous 12 consecutive calendar months. The VAT rate in 2020 is either 21%, 15% or 10%, depending on the type of goods delivered or services provided.

Excise tax. This applies at different rates to certain defined kinds of goods (for example, alcohol, tobacco and petrol).

Energy taxes. These are levied on electricity, natural gas, coal and solid fuels. The tax rate on electricity is CZK28.30 per megawatt hour (MWh). The tax base on natural gas ranges from CZK30.60 per MWh to CZK264.80 per MWh. The tax rate on solid fuels is CZK8.50 per gigajoule.

Real estate tax. This applies to owners or users of real estate situated in the Czech Republic. The rate depends on the type and location of the real estate. The tax rates on buildings range from CZK2 to CZK20 per square metre depending on the building’s purpose. Land tax rates ranges from CZK0.2 to CZK5 per square metre.

Transfer taxes. Real estate acquisition tax was abolished with retroactive effect on all real estate transfers carried out from 1 December 2019. Gift and inheritance taxes were abolished from January 2014. However, gifts may be subject to the 15% and 23% personal income tax, if they are not exempt.

Road tax. This applies to road motor vehicles which are used in the Czech Republic for business purposes and cargo vehicles weighing more than 3.5 tonnes. The annual tax rate on the tax base ranges from CZK1,200 to CZK4,200 for personal motor vehicles, based on the engine cylinder capacity and from CZK1,800 to CZK37,800 for trucks and other vehicles depending on the weight and number of axles.

Personal income tax on wages. This is deducted from the employee’s monthly wages and withheld by the employer as an advance payment along with the employer’s contribution (payroll tax advances). Employers must also pay compulsory social insurance and health insurance contributions. Individual businesses are responsible for filing their own income tax returns and for paying taxes.

Withholding tax. This applies to specified types of income at 5%, 15% or 35%, unless an applicable double-tax treaty provides otherwise.

The Czech Republic has concluded double-tax treaties with about 90 countries including the majority of EU member states, China, Japan, Canada and the US.