Why is Czech Republic an Attractive Country for Investors?
Updated on Friday 07th May 2021
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The Czech Republic is certainly one of the most developed countries in Central and Eastern Europe. Its success is also seen in what foreign investment is concerned. Numerous businesses operating in the Czech Republic are incorporated with foreign capital. Some of the sectors in whichinvestment is flourishing are real estate, strategic services, manufacturing, tourism etc. The country provides a set of advantages which are attractive for foreign investments. Our agents in company formation in Czech Republic are ready to provide an extensive presentation on the investment opportunities foreign investors can take advantage from when starting a business here and can also present the applicable legislation related to foreign investments in this country.
Investment incentives in the Czech Republic
The investment incentives in this country were introduced in 1998 and since then, they have managed to stimulate a substantial inflow of foreign direct investment (FDI) per capita (especially into greenfield projects). In 2012 and 2013, foreign direct investment hit record levels, with the United States and the European Union as the main foreign investors in the Czech Republic.
Our Czech company formation agents can give you further information on investment incentives, as well as assistance in opening a company in the Czech Republic. Investors can also request advice on the main regulations deriving from the legislation related to foreign investments in this country.
Data on foreign direct investments in Czech Republic
As we presented earlier in this article, the country benefits from a favorable market for foreign investments. Businessmen who want to open a company in Czech Republic should know that in the last years, the level of foreign direct investments slightly decreased, but the country is still one of the largest recipients of foreign direct investments in its region, after Poland, according to the data provided by UNCTAD. Currently, the following apply:
• in 2016, the level of foreign direct investments stood at $9,815 million;
• in 2017, the total investments slightly decreased to $9,522 million, while in 2018, they reached $9,479 million;
• in 2016, the Czech Republic accounted for 97 greenfield investments;
• in 2017, the number of greenfield investments in Czech Republic increased at 110;
• in 2017, the number of greenfield investments further expanded, at 132.
•In 2018, the total FDI stock stood at nearly USD 164 billion.
•In 2019, the total FDI stock in Czech Republic was around USD 171 billion.
We have presented that several years ago, the main investors of the country were represented by the EU and the United States of America. At the level of 2017, the country’s main foreign investors were from EU countries, the following being available: the largest investors were: Germany - accounting for 41.9% of all the foreign investments registered in this country, Austria, France and Belgium (with investment shares of 6.4%, 5.9% and 4.4% respectively).
However, the country received an inflow of foreign direct investments from countries located outside the EU and in this sense, the main investors were represented by Japan (6.6% of all the investments) and India (4.1%); our team of specialists in company registration in Czech Republic can present the investment regulations available, based on the nationality of the foreign businessmen. If you would like to invest in Czech Republic, contact our team for assistance.
Why should foreign investors choose the Czech Republic?
There are numerous reasons for investing in the Czech Republic and the advantages for opening a Czech companycan vary based on the economic field which is of interest for foreign businessmen. An advantage is given by the fact that the country is a member state of the EU, and thus, it benefits from the investor-friendly regulations which are set out at the level of the community.
Besides this, the country has a stable financial market and a solid banking system and in 2017, the country had an economic growth of 3.2%, as revealed by the data provided by the Organization for Economic Cooperation and Development (OECD). Investors must also consider the fact that the country has a long tradition in industrial production and this is one of the basic fields that can provide relevant investment opportunities. The country provides a set of measures for the protection of investors, the following data being available:
• the index regarding the managers’ responsibility in the Czech Republic stands at 5.0;
• this is in line with other European regions (for example in Eastern Europe and in Germany the index has the same value, of 5.0);
• the same index, of 8.0, is available in Germany, while other countries, such as those in the Eastern Europe, have a lower index, of only 6.0;
• the index measuring the investor protection in the Czech Republic stands at 6.0.
Investors must know that, the higher the value of an index is, the better the conditions are for the respective index in a given jurisdiction. The indexes, which were measured in the Doing Business Report, present the situation of the country at the level of 2018. More information concerning the protection of the investors and the rights foreign businessmen can obtain here can be provided by our team of specialists in company registration in the Czech Republic.
Foreign businessmen must also know that the development of foreign direct investments is sustained by the local government through a set of policies. One of these refers to the immigration regulations available for foreign businessmen, which are available under the “Welcome Package”; through this program, launched in 2013, foreign investors can benefit from simpler immigrationprocedures and our specialists in Czech company formation can provide additional information on this matter.
Further reasons for investing in the Czech Republic
There are many reasons for choosing the Czech Republic as a location for your business activity. Investing in the Czech Republic can be an attractive idea, as it provides a set of reasons forstarting a Czech business. For example, the Czech Republic has one of the most strategic geographical locations in the entire Europe. This means that the Czech Republic can be accessed by businesses from both the Eastern and the Western regions. Its excellent infrastructure helps the Czech Republic to be highlighted as an important crossroad for European business corridors. It is important to know that the transportation system (road system and railway system) will be further developed, as the local authorities have planned new investments in this field. Our company formation agents can offer you additional details about the Czech infrastructure and also about this country's investment advantages.
When deciding to incorporate a company in the Czech Republic, you should also consider the fact that the country offers a skilled and highly educated workforce. In areas such as science and engineering, the Czech Republic has a high number of students.
The low labor costs is another aspect to bear in mind when registering a company in the Czech Republic, as this is an element of great importance in any business activity. Comparing to other European countries (especially with the Western European ones), the Czech average labor costs are among the lowest.
Investors are invited to watch the video below, as it provides more details on this subject:
Is it hard to open a company as a foreign investor in Czech Republic?
The formalities for opening a company in Czech Republic are simple and relatively fast. The limited liability company or SRO as it is known in Czech Republic represents the main business structure that serves most commercial activities and it can be established by at least one shareholder. We present you a few requirements linked to an LLC formation in Czech Republic:
•CZK 1 is the minimum share capital required for an LLC in Czech Republic.
•Information about the owners, commercial activities, business office, and business regulations are comprised by the Articles of Association of an LLC.
•Details about the board of managers are also required for company registration in Czech Republic.
•Foreign investors must have a clear picture of the tax regulations in Czech Republic. The registration is mandatory.
•Some activities require special licenses and permits. One of our Czech company formation agents can help you.
The simplified business formalities in Czech Republic are attractive to international entrepreneurs. More about how to open a limited liability company can be offered by our Czech company formation specialists. Those interested in details about how to invest in Czech Republic can talk to our specialists.
Investing in the real estate sector in Czech Republic
The Czech real estate sector is extremely attractive in terms of foreign investment. Prague, the country's capital, is the most sought after business destination in the field of real estate and construction. These sectors are constantly evolving, and many foreigners want to relocate to the Czech Republic. Thus, the real estate market offers many options for those interested.
Knowing the potential in the real estate field, foreign investors do nothing but benefit from the advantages offered and enjoy the registered profits. A construction company or a real estate agency is a very advantageous business idea, given the rapid development in these sectors. As the registration formalities of a company are very simple, and economic activity in the above-mentioned fields can start quite quickly, without other complications or restrictions. We invite you to talk to our team of Czech company formation agents for complete details on foreign investment in the real estateand construction sectors.
Investing in the manufacturing sector of Czech Republic
The manufacturing sector of Czech Republic absorbs most of FDIs each year, according to experts and statistics in this area. Having a business or relocating one from the country of origin is for sure a great choice if you would like to expand your portfolio and also generate large profits. The automotive sector in Czech Republic is definitely a prolific one because most of the products manufactured in this country take the international road. Glass, medicines, textiles chemicals, plastics, electronics, machinery and equipment, food and beverages fabricated in Czech Republic are highly appreciated on a local and foreign plan, so deciding on a business in the Czech manufacturing sector might represent a solid idea for foreign entrepreneurs. This is another important sector covered by our company formation agents in Czech Republic who can offer the right support for abroad businessmen interested in opening a company.
Opening an import and export company in Czech Republic
A trading company is definitely an excellent business idea due to the huge profits that can be registered. If the Czech Republic is the right destination for an import and export business, then you need to consider some important details and features:
• The infrastructure and logistics offered by the Czech Republic are at high standards and often exceed the expectations of foreign investors.
• The import and export of products to and from the Czech Republic can be done both by sea, land, and air.
• Customs formalities have been simplified in recent years in order to provide the necessary support to companies operating in import and export.
• Regarding the registration of a company in this sector, the bureaucracy has been reduced to a minimum in order to support foreign investors who want to operate quickly and securely in the trading sector in the Czech Republic.
The Czech Republic is definitely a growing business destination and extremely attractive to foreigners. It is important to note that the Czech authorities are focusing on implementing as many incentives as possible that will prove beneficial for the foreign investor sector.
Credit rating in the Czech Republic and what it implies
A credit rating generally determines the probability that the borrower is going to pay back a loan (which is essentially a promise), following the confines of the agreement, without failing to pay.The credit rating generally affects the country's chances of receiving approval for a given loan or getting favorable terms for that particular loan. For December 2015 the Standard & Poor's rating for Czech Republic is AA- (stable) and Moody's rating stands at A1 (stable). Fitch has reported a rating of A+ (stable) for this month. The Czech credit rating score is 80.43 points.
Rating agencies must have an objective and balanced view of the country's financial situation and its ability to repay the debt, even though the country is always striving to have a high credit rating. Credit ratings also determine the interest rate at which the given loan will have to be repaid. Since starting companies in the Czech Republic depends on loans, a denied capital can bring problems to the future firm and it is much more difficult to pay back a high interest rate.
Legislation on FDI in the Czech Republic
The FDI in Czech Republic is regulated under the Corporations Act, which was amended with new provisions under the rules and regulations of the new Civil Code, effective from 1st of January 2014. The activity of foreign companies in Czech Republic is regulated by the Czech Ministry of Industry and Trade, which provides the legal requirements and licenses necessary for foreign businesses with operations on the Czech territory. According to a law on criminal responsibility of legal entities (local and foreign), enforced from 1st of January 2012, companies are legally responsible for the behavior of the company’s management, personnel and other entities which falls under its control.
Foreign companies in Czech Republic have the same legal statute as the local companies, as stated by the Organization for Economic Cooperation and Development (OECD) directives, implemented by the local legislation.
FDI environment in Czech Republic
Foreign investors are welcomed in Czech Republic, as the economic environment available here offers attractive prospects for businesses. The Czech government estimated that the economy will grow by 2.5% in 2016 and the unemployment rate will remain under 2%. The Czech government offers incentives for foreign capital, such as tax exemptions available for 10 years, subsidies for creating jobs, training of the employees or legal support for purchasing land. Foreign companies usually set their businesses in the field of manufacturing, finance, real estate, communication and internet technology.
Strategy for foreign investments in Czech Republic
Since 1990, the Czech Republic took an important role in the Central and Eastern European region in matters of foreign directinvestments. In 2014, the FDI inflow data registered a yearly increase of 60%, recovering completely after the economic crisis, the increase being due mainly to the automotive industry. CzechInvest issued a new strategy which intended to make the Czech Republic one of the most attractive markets for foreign entrepreneurs. This strategy is based on five principles:
• increased activity outside the country;
• improved service for entrepreneurs;
• enhanced support coordination for small and medium-sized businesses;
• highlighting the use of research and development;
• general enhancement of the communication among agencies connected to FDI and state authorities.
As for 2015, 2016 and 2017 the FDI inward flow registered in the Czech Republic was of USD 465 million, USD 9,815 million and USD 7,412 million respectively. Manufacturing, wholesale and retail, financial and insurance activities, real estate, and communication represent top sectors attractive to foreign investors in the Czech Republic. There are many companies from abroad that decide for branches and subsidiaries in the above-mentioned sectors. Also, foreign investors can easily open companies in Czech Republic as long as they respect the applicable legislation. Our lawyers in Czech Republic can provide more details on this matter.
Main investment industries and countries in the Czech Republic
According to the Czech National Bank statistics issued in 2016, the main industries which registered foreign directinvestments in theCzech Republic were:
•the manufacturing industry – 33% of the total foreign investments;
•financial intermediation – 21.8% of the entire foreign investmentsin the Czech Republic;
•property, renting – 14.7%;
•trade and maintenance – 6.7%;
•transport, storage, and communications – 6.5%.
As about the main countries investing in the Czech Republic, these are:
The team from CzechCompanyIncorporation.com is very qualified and benefits from extensive expertise in this area. I would definitely recommend them to any entrepreneur decided to start his own business here.
Mihai Cuc, Partner of Enescu&Cuc; Law Firm www.romanianlawoffice.com