Expanding Your Business into Czech Republic
Forming New Horizons – Expanding into Czech Republic
Country Spotlight:
GDP – $330.9 billion?
Population – 11 million
Competitiveness Ranking? – 29 out of 64 (IMD)
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The Commercial Brief:
The Czech Republic’s economy is heavily driven by three economic sectors: Services at 59.75%, Manufacturing at 30.16%, and Agriculture at 1.61%. The Czech Republic is categorized as a developed, high-income economy and is currently the 45th largest in the world. Its forecasted GDP growth for 2024 is modest at 1.1%.?
The Czech Republic has had relatively jagged inflation since its inception in 1993, spiking at over 10% in the nineties and around 15% in 2022. However, it has fallen to 2.3% and is set to continue to hover around the 2% mark in the coming years. Corporate Income Tax (CIT) ranges from 19% to 21%, this is slightly more competitive than other developed economies. Personal income tax typically ranges from 15% on gross annual income to 23% for higher earners - again, this is favorable and more competitive than other developed economies.
The Czech Republic is culturally renowned for its historic architecture, particularly in Prague, where Gothic, Baroque, and Art Nouveau styles flourish alongside iconic landmarks like Prague Castle and Charles Bridge. The country has a deep tradition in the arts, producing influential figures in music, literature, and film, such as composer Antonín Dvo?ák and writer Franz Kafka. It’s also famous for its beer culture, being the birthplace of the Pilsner and holding the highest beer consumption per capita globally. Additionally, traditional folklore, vibrant festivals, and a thriving theater scene, especially in puppetry, contribute to its rich cultural landscape.
The Czech Republic possesses various natural resources, though in modest quantities compared to some other countries. Key resources include coal, particularly brown coal (lignite), which is a significant domestic energy source. There are also smaller hard coal deposits and uranium, though uranium mining has declined recently. The country has natural gas resources but relies heavily on imports to meet demand. The Czech Republic also has reserves of kaolin (used in ceramics), clay, and limestone for construction materials and limited deposits of gold, silver, and other minerals. Additionally, its forest resources support a lumber industry, and fertile agricultural land contributes to its food production.
Companies expanding here will find strong talent pools, particularly in the automotive, IT, and manufacturing industries. Its automotive sector, anchored by companies like ?koda, offers a strong engineering and supply chain management talent pool. The country's tech hubs in Prague and Brno are also renowned for skilled software developers and IT professionals, supporting a fast-growing software development sector. The Czech Republic's expertise in precision engineering and electronics makes it a valuable location for high-tech manufacturing and engineering firms, enhancing its appeal as a center for innovation and skilled talent.
The Czech Republic has a relatively stable government, with a democratic parliamentary system and a strong commitment to the rule of law. Since the fall of communism in 1989, the country has seen peaceful transitions of power and steady political development. It is a member of the European Union and NATO, strengthening its stability within the European political landscape. However, like many democracies, the Czech Republic experiences periodic political shifts and coalition changes, which can lead to government reconfigurations. Despite these shifts, the country maintains a stable reputation, with robust institutions and a generally predictable business environment, making it attractive for international investment and business expansion, including media, advertising, fashion, and entertainment, particularly thriving in London and Manchester. Additionally, education and academic research sectors continuously seek academic professionals and researchers due to the presence of world-renowned universities. Lastly, the advanced engineering and manufacturing sectors, including automotive and aerospace, are significant employers in the Midlands and Northern England, rounding out the top industries for recruitment in the UK.
In summary, the Czech Republic is one of the very best destinations for globally minded businesses particularly given its low(ish) tax rates, favourable business climate, ease of doing business and low inflation combined with an extensive pool of talent and various tech/ manufacturing hubs make it a great place to expand to today. Please note the cautions below.?
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Challenges of Expanding into Czech Republic
In our experience, setting up a permanent overseas entity in the Czech Republic without Global EOR support can take up to 10 months, including the entity incorporation, setting up the bank account, and concluding the local registrations. This timeline does not include license applications if needed, import/ export permits, and certain industry-specific government registrations. Some of the required registrations in Czech Republic are as follows:?
Foreign Directors are allowed in the Czech Republic; however, depending on your industry and type of business, you may be required to have local representation. Some limitations relating to solvency and criminal history are reviewed at the time of incorporation.?
The employer in the Czech Republic has the obligation to ensure occupational health and safety at work with regard to risks that may endanger the health or life of employees during work performance. All mandatory benefits are managed via the health insurance companies and the social security authority. Employees are entitled to mandatory benefits that can be modified based on the employer’s benefit package.
In Czech law, there is no provision for unlimited paid time off (PTO) for employees. Instead, the law mandates a minimum of four weeks of statutory vacation annually. According to the Labor Code, employers have the authority to schedule vacations unilaterally. While it's common for employers to offer five weeks of vacation, they can provide additional time beyond the statutory requirement without any legal cap.?
Depending on your industry and type of business, Collective Bargaining Agreements may apply and determine the type of benefits your employee should receive. As an employer, you must also submit periodic reports to the Czech Statistical Office, such as questionnaires and the use of communication technologies and selected economic subject production sectors. Other reports may be requested on an ad-hoc basis by the authorities; keep in mind that all communication should be in Czech and managed via a data mailbox that is opened at the time of incorporation.?
It is, therefore, essential for employers to familiarise themselves with the above. To avoid complications and business risk and enter the market quickly and compliantly, utilise a Global EOR in the Czech Republic that has dedicated and extensive in-country personnel, HR, Legal, Payroll, Compliance & Immigration teams that can support you and your organisation directly.
If you're thinking about expanding into Czech Republic, we can help you plan for this and mitigate compliance risk. We're happy to provide guidance, simply get in touch and we will do our best to help.