Czech Republic: Investment Incentives in the Czech Republic

Last Updated: 22 November 1996
Foreign investors and indigenous investors are treated equally in the establishment and development of a company in the Czech Republic (CR). The government believes that sound economic and political management are the most powerful incentives that any government can give to industry. A balanced state budget, stable currency and low inflation rate, are all results of the government's prudent economic policies.

Nevertheless, some specific limited investment incentives are in place. Topics in which the foreign investor will be mostly interested from this point of view are listed below ( with no special order) :

  • Non-discrimination: Domestic law requires that foreign investor be treated equally with local investors and among themselves : the Government or other state bodies are not in the position to make any concessions to individual investors which might lead to unfair competitive advantages.
  • Tax holiday: There are no tax holidays in the Czech Republic at present and no changes to the situation is anticipated in the near future. Rather, the government will pursue the policy of decreasing the tax burden on corporate and private individuals , VAT from 23% in 1994 to 22% in 1995, corporate income tax from 45% in 1992 to 42% in 1994, 41% in 1995, and 39% from January 1996; the maximum personal income tax rate follows the same regime - 47% to 44% in 1994, 43% in 1995 and 40% from January 1996. The government has committed itself to continue with this trend in the future. By the year 2000 corporate income tax is expected to be around 30-32%.
  • Tax consolidation: At present, tax consolidation is not permitted by Czech law; individual entities are taxed separately. Recent changes have been introduced providing a measure of relief from multiple taxation of dividend flows passing up a chain of Czech companies. Although this may be seen as the first recognition of group of companies by Czech tax law, there is no sign of an immediate introduction of group relief of losses or consolidated filings.
  • Investment relief: From 1 January 1994, in addition to accelerated depreciation, taxpayers may deduct from the tax base 10 % of input price of tangible assets classified in depreciation categories 1,2,3, if they are its first owners. Subject is to be retained in use for a minimum of 3 years.
  • Tax loss carryover: Losses incurred after 1 January 1993 are available for carryover against profits generated in the following 7 years. There is no loss carry back.
  • Dividends: Profits made by joint venture companies may be freely repatriated as dividends subject to withholding tax which are domestically set at 25%. Bilateral international treaty reductions of this rate are widely available, and treaty relief now extends to practically all OECD countries. Double taxation prevention treaties between the Czech Republic and these countries set such taxes at 0%- 15%.

Construction and assembly sites are deemed to be permanent establishments after 6 months.

  • Inward Processing Relief is available in respect of material, components and sub-assemblies imported for processing and export. The "Europe Association Agreement" between the Czech Republic and the EU will lead to a genuine free trade zone covering the Republic and the EU member states within five years.

The Government is currently reviewing the prospect of further reducing the customs tariff on technologically advanced and environmentally friendly goods and is considering granting relief on imported capital equipment.

  • Local government support: Local authorities may extend assistance and support to foreign investors in the form of providing all necessary infrastructure (energy, electricity, gas, water supplies and telecommunications to the border of the building site, as well as recruiting and re-training skilled labour. In some regions the investor is entitled to receive various grants (up to 50,000 KŠ per new job) for every new job created for registered unemployed or specific qualification. These and other forms of support from local authorities are always negotiable on a case by case basis.
  • Value added tax: The VAT regime is comparable to that of the EU system. Exemptions from VAT are very unlikely. Nevertheless, the nature of the tax is such that it should not represent any significant cost to a manufacturing organisation since the majority of the tax is recoverable.
  • CzechInvest : In recognition of the importance attracting of mobile manufacturing investment to the Czech Republic, Minister V. Dlouhì, Minister of Industry and Trade, established the Czech Agency for Foreign Investment - CzechInvest - in November 1992. The agency was created with the express purpose of assisting foreign investors to establish their operations as quickly and as painlessly as possible in the Czech Republic. Such assistance can bring welcome relief to already over-burdened managers seeking to establish a presence in the CR and, in saving valuable executive time, CzechInvestïs assistance equates to a monetary value for the companies that work with it. The service, however, is provided free of charge.

For further information contact CzechInvest at Politickych veznu 20, 112 49 Prague 1, Czech Republic Phone (42-2) 2422-1540 Fax: (42-2) 2422-1804

NOTE: Although we have made every effort to ensure the reliability of our sources, CzechInvest does not assume responsibility for its accuracy.

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