Czech Republic: What Is The Investment Climate In The Czech Republic?

Last Updated: 23 July 1997
Investors expect governments to create a stable political and economic environment and that is exactly what has happened in the Czech Republic the country's level of stability with regard to rapid liberalisation and privatisation, has no parallel in any of the post communist countries. Launched on January 1, 1991, the Czechoslovak economic reform has aimed to re-integrate the national economy with those of the developed world market through privatisation, liberalisation of prices and foreign trade, the establishment of currency convertibility, macro economic stabilisation, and the attraction of foreign direct investment (FDI).


  • The Civic Democratic Party (ODS) lead by Vaclav Klaus, won the parliamentary elections held in the first weekend of June 1996 with 29.62 % of the vote. President Vaclav Havel appointed Vaclav Klaus Prime Minister for a second term and to form a new coalition government. The new government is based on the same party coalition from the previous government with the Christian Democrats (KDU-ÈSL) and Civic Democratic Alliance (ODA). This is a clear sign of continued confidence in the government's ability to pursue the course of reform leading to the free market and political stability.
  • On June 10 1997 Premier Vaclav Klaus asked the Parliament for a vote of confidence because of some existing economic difficulties. The government of Klaus won the confidence of Parliament in a close vote of 101 - 99.


  • The CR's conservative fiscal policies have produced a reliable investment climate with one of the lowest levels of inflation in central and eastern Europe, strong foreign currency reserves, one of the region's lowest foreign debt per capita, and favourable exchange rates. Strict economic policies have sought to achieve a balanced budget, with an independent central bank controlling the money supply.
  • The latest economic measures taken by the Czech government on April 16 and May 28 should improve the present ecomonic situation and contribute to the completion of the country's transformation. The main aim of the measures is to speed up the final stage of the privatization process, make Czech capital market more transparent and improve the conditions for doing business, exports, public finances as well as for the fight with economic criminality.
  • Inflation rates have continued to decrease after the high 20.8% 1993 average inflation rate caused by introduction of the value-added tax (VAT) in January 1993. Average inflation in 1994 dropped to 10 %. The average inflation rate for the year 1995 was 9.1%. The average inflation rate for the year 1996 was 8,8%. Current data - May 97 - 8%, are little increasing is expected.
  • In December 1996 the CR's US$ 1,980 national debt per capita was one of the region's lowest. This low national debt illustrates the Czech government's rejection of such short-term measures as higher borrowing, which has increased national debt in many Western economies.
  • Having already installed the essential legal and institutional framework, the government is now focusing its efforts on reorienting its economy toward the European Community market, which currently represents over 60% of the country's trade.
  • Signalling the country´s return to the international community of advance economies, the Czech Republic joined the OECD on 28 November 1995. As the 26th member, the Czech Republic is the first former European communist country to join the organization of the world´s most advanced economies. Membership will enable the country to participate in political dialogue led by the most advanced market economies regarding social, economic and financial affairs.
  • Such economic policies have led to improved ratings from Moody's Investors' Service and Standard & Poor's, making the Czech Republic the first post-communist country to be rated, Baa1 and A respectively,.
  • The Czech Republic moved to No. 35 in May 1997 on the list of countries rated by the Swiss Institute for Management Development in Lausanne (IMD) in terms of overall competitiveness. Leading the list is the U.S., followed by Singapore and Hong Kong. Hungary sits at No. 36 and Poland at No. 43.
  • According to the American magazine Institutional Investor the Czech Republic is rated as No. 28, Slovenia as 40, Poland as 46 and Hungary 48 from point of view international bankers (as of Spring 1997).

Note: numbers represent scoring system used

Executives were asked, first, in which countries they had already invested and, second, which they considered most attractive for future. Six points were given to each executive's investment or preference, five points to the largest, etc. Source: MPG International / Wall Street Journal, 1996


  • The inflow of foreign direct investment (FDI) reached almost US$ 7.4 billions by the end of March 1997. (Sources: Czech National Bank, CzechInvest)
  • The most common forms of FDI are:
       joint ventures - to date, joint ventures with recently 
       privatised companies have been the dominant form of foreign 
       greenfield investments;
       participation in the privatisation process - although the 
       deadline for submitting projects for the second wave of 
       privatisation has passed, many approved projects have been 
       designed to accommodate future foreign investors.

  • Investors can also acquire equity positions through the Prague Stock Exchange.
  • Czech legislation enables foreign entrepreneurs to conduct business in the CR under the same conditions as Czech entrepreneurs. A foreigner may become either the sole or co-founder of a company, and may also join an existing Czech enterprise. Foreigners who own businesses abroad may also conduct business activities in the CR provided they own a branch office within the CR.
  • According to the Czech Commercial Code, the official forms of business entities accepted by the Commercial Register include: joint-stock company; limited liability company; limited partnership; general commercial partnership( unlimited partnership); co-operative; branch office of a foreign company.
  • There is no upper limit on the level of foreign investment in the CR.


  • Foreign entrepreneurs can make use of credits granted by both Czech and foreign banks.
  • As in other countries, interest rates vary according to the duration of credit, and are expected to decrease along with future economic development. Czech banks offer credits for 15 - 25% average interest rate. Short-term interest rates are high as the Czech National Bank (CNB) keeps the liquidity on the market low because of the recent pressure on depreciation of the Czech Crown.
  • The CNB has decided to raise the discount rate from 10.5% to 13.0% and to set up the Lombard rate at 50%.


  • The protection of foreign investments is guaranteed through a number of intergovernmental agreements signed by the former Czech and Slovak Federal Republic (CSFR) and approximately 30 other countries; the CR continues to honour all such agreements.


  • To engage in business, entrepreneurs must apply to the respective Trades Licensing Office for authorisation. This may come as a trade certificate or a trade license, depending on the nature of the business.
  • persons having a domicile or seat outside the CR must also establish a responsible representative to act in compliance with business regulations.


  • On October 1, 1995 full convertibility of the Czech Crown was established by the Foreign Exchange Act. The new law complies with Art. 8 of the International Monetary Fund Charter, a pre-requisite for OECD membership. Restrictions on investing out of the country and borrowing limits have been removed.
  • Since May 28 the Czech Crown (CZK) is theoretically allowed to float freely given abolishing the +/- 7.5% fluctuation band. According to the decision by central bank the Czech Crown will henceforth be linked only to the D-Mark (DEM). The currency basket has was previously made up 65% by the D-Mark and 35% by the US-Dollar.

  • Czech foreign exchange regulations and investment protection agreements guarantee the transfer of profits and capital abroad.


  • The current taxation system, introduced in January 1993, includes a value-added tax (VAT) of 5% for services and 22% for goods similar to those in most Western European countries.
  • Businesses in the Czech Republic are subject to a corporate income tax of 39% of tax base. The corporate income tax rate has been consistently reduced over the last several years: it was 45% in 1992, 42% in 1994, 41% in 1995 and 39% in 1996 and 1997. For the next year is expected to be cut down to 35%.
  • Those living in the Czech Republic for at least 183 days in one calendar year are subject to a personal income tax. Tax rates vary according to annual taxable income by employee or tax base by entrepreneur, ranging from 15-40%.
  • Future tax reform will result in a reduction of direct taxes paid by companies as the Czech government aims at shifting the tax burden away from enterprise onto indirect taxation.


  • Prices were liberalised in the former CSFR on January 1, 1991. Currently, only 5% of prices are regulated, (i.e. water, energy for households, certain medications and health care equipment, solid fuels).


  • As a founding member of GATT (the General Agreement on Tariffs and Trade) and WTO (World Trade Organization), the CR applies import duties according to the valid and internationally recognised customs tariff. .
  • Also exempt from import duties are certain selected types of goods, goods not subject to customs clearance (for personal use by diplomats, members of government, etc.), and goods located in customs-free zones and storehouses. Since January 1, 1996, the customs duties on more than two thirds of items listed have been reduced.
  • In terms of Czech government economic correction measures were approved the so-called import deposits, i.e. importers of foodstuffs and consumer goods have to put down a no-interest deposit worth 20% of the imported goods value and its freezing at the determined banks for 180 days. The importer will have to prove to the Customs the putting down of the compulsory deposit as a condition for letting the goods in the country and its releasing into „free circulation".


  • With an outstanding 1991 literacy rate of 98.9% (according to Census), the Czech workforce is educated, skilled, cost-effective and was ranked the highest in Eastern Europe, surpassing Hungary in measures of managerial skills. According to a 1996 OECD report on education, the CR produces a higher percentage of science and engineering graduates than any other country in the world.
  • Foreign citizens may be employed in Czech companies provided they acquire a work permit from the respective labour office and a residence permit from either the diplomatic or consular office of the CR abroad, or from the Ministry of the Interior in the CR.

For further information contact CzechInvest at Politickych veznu 20,112 49 Prague 1, Czech Republic Phone (420-2) 2422-1540 Fax: (420-2) 2422-1804

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

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions