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CZECH REPUBLIC - PLACE FOR FOREIGN INVESTMENTS

(This article expired 28.12.2012.)

The Czech Republic, a member of EU, is popular as an investment location for high-tech greenfield investments and increasingly also for the brownfield investments. We are certain that the investment incentives offered by the Czech Republic will encourage you to examine the great

Introduction

The Czech Republic, a member of EU, is popular as an investment location for high-tech greenfield investments and increasingly also for the brownfield investments. We are certain that the investment incentives offered by the Czech Republic will encourage you to examine the great benefits that our country can offer your company. The Czech incentives scheme works on the basis of law (The Act on Investment Incentives) and has been fully approved by the European Commission. We are ready to provide you with maximum support to ensure that you can draw maximum benefit from the scheme.

The Czech Republic has got an open economy and welcomes foreign direct investment in all sectors. The country has, to date, been one of the region's most successful nations in attracting foreign direct investment with over USD 26 billion worth of foreign direct investment (FDI) recorded since 1990. The Czech Republic hosts manufacturing subsidiaries of nearly 1,200 foreign companies of all sizes. Famous multinational companies such as ABB, Continental, Daewoo, Danone, Ford, Matsushita, Nestlé, Phillip Morris, Procter & Gamble, Renault, Siemens, and Volkswagen already have manufacturing subsidiaries in the Czech Republic. During its recent survey, CzechInvest identified over 800 manufacturing companies each employing more than 50 employees backed by foreign capital. The FDI Survey found that 91 per cent of foreign firms which invested in the country since 1990 have already reinvested since the start of initial production. The introduction of investment incentives, considered in detail later, is accelerating the number of re-investment and expansion projects being brought forward.


Selected recent investments

  • Belgian KBC Bank was the single largest foreign investor in the Czech Republic as it acquired a majority stake in the state-owned CSOB bank (Ceskoslovenská obchodní banka) for USD 1.3 bn.
  • Sun Microsystems (of US Silicon Valley) bought Czech software developer NetBeans, a 1997 start-up in Internet (JAVA) tools development.
  • Eastman Chemical (USA) acquired Chemické závody Sokolov, traditional Czech producer of chemicals.
    Lucas Varity received investment incentives from the Czech government to open its second brake systems manufacturing plant in the Czech Republic.
  • Evobus, a daughter company of DaimlerChrysler has build its first manufacturing facility in Central and Eastern Europe near the Czech town of Plzeň. The plant produces bodies of Mercedes-Benz coaches.
  • Lexmark Electronics started printed circuit boards assembly in the Czech Technology Park in Brno, second largest city in the Czech Republic.
  • Celestica Celestica Inc. of Canada, the third biggest electronic contract manufacturing firm in the world, has decided to invest 60 mil. USD to the new greenfield plant focused mainly on PCB assembly and electromechanical installation.
  • Sagem of France started the manufacture of cellular phones near Prague and plans to spend over USD 11 mil. to build a new manufacturing plant.
  • Canadian telecommunications firm TIW won the third GSM licence and started to provided mobile phone services at the end of 1999. The firm invested over USD 850 mil. before 2004.


Performance of the Foreign Companies in the Czech Republic

A survey of foreign-owned manufacturing companies done by CzechInvest in September -November 1999 revealed that foreign manufacturers have been able to utilize the advantages offered by the Czech Republic. The survey found that manufacturing FDI in the Czech Republic continues to expand through new greenfield projects, acquisitions and the re-investment of established investors:

  • 91 per cent of firms have already reinvested within the Czech Republic since the start of initial production. Almost two-thirds of these firms have re-invested more than the value of their start-up investment.
  • 49 per cent of firms expanded production in their current Czech location by 2003.
  • 17 per cent of firms intend to expand production in a new location somewhere in the Czech Republic.
    These firms collectively expect to employ 20 per cent more people in 2004 than they did in 2000.
  • 61 per cent of firms expect to create additional jobs between mid-1999 and the end of 2004 and 23 per cent to maintain their current roster. 12 firms indicated they would create 100 or more jobs each.


Foreign-backed manufacturers are estimated to:

  • produce 65-70 per cent of all Czech manufactured exports.
  • directly employ 280,000 people in the Czech Republic. (FDI firms with more than 100 employees employ more than 25 per cent of the total Czech manufacturing workforce in employment in that size segment).
    will collectively create an estimated 22,500 net new jobs during the next twelve months.
  • safeguard an estimated 10,000 Czech suppliers in the manufacturing and service sectors and a minimum of 500,000 jobs in local supplier companies, approximately 10 per cent of the total Czech labour force in employment.
  • Foreign companies running manufacturing plants in the Czech Republic have been able to take advantage of locally-made high-quality and cost-competitive components, excellent access to external markets and cost-competitive, highly educated and skilled labour. On top of these natural & historical advantages, the Czech government offers a comprehensive package of tax and business incentives which are available to both new and existing investors.

Czech National Investment Incentives Scheme

The incentives package was approved by the Czech government on 29 April 1998. At that time, investors were obliged to invest over USD 25 million in order to become eligible for the incentives. On 16 December 1998, the minimum required amount of investment was reduced to USD 10 million. The incentives are offered to investors who will open a new greenfield or brownfield plant or establish a new joint venture with a Czech firm, however they do not apply to acquisitions. The investment incentives Act No. 72/2000 Coll., as amended, is valid as of 1st May 2004 and offers both Czech and foreign investors who are introducing new production or expanding existing production the following incentives:

Corporate Tax Relief
Full tax relief for 10 years (newly established companies)

Partial tax relief for 10 years (expanding companies)

Job Creation Grants
Up to 200 000 CZK per employee in the district with the highest unemployment rate

Training anmd Retraining Grants
Up to 35% of the costs of the training in the regions where the unemployment rate is higher
than the country's average.

The total amount of the aforementioned investment incentives (with the exception of training and re-training) must not exceed 50% (65% in the case of SMEs) of the investment made into long-term tangible and intangible assets.


Main strengths of the Czech Republic

Geographical position

The Czech Republic has a strategic location in the centre of Europe with very good access to the both established western and emerging eastern markets. The European Union is the most important external market for Czech-based manufacturers and the Czech Republic is in the first group of countries to begin accession negotiations with the EU. Once the country joins, prospective foreign investors will be able to serve the world's most populated consumer market without barriers from their manufacturing bases in the Czech Republic.

Many foreign investors have used the Czech Republic as a springboard to expand their sales in countries further east. Foreign-owned firms located in the Czech Republic use the good contacts already established by Czech managers and entrepreneurs with partners in the countries of the former Soviet Union, as well as their long-term experience in dealing with these rapidly growing markets.

Extensive infrastructure

The extensive transport infrastructure and geographical position of the Czech Republic highlights its role as a cross-roads of major European transit corridors. Several rail modernization projects are currently underway with the aim to link the Czech Republic with the pan-European network of high-speed trains. The upgrade of the Berlin-Prague-Brno-Vienna/Bratislava high-speed corridor is to be completed by 2001. The motorway network is planned to double between 1989-2007. Priority has been given to the Prague-Plzeň-Germany motorway, completed in 1997 except for a short stretch near the city of Plzeň being gradually replaced by a circular highway.

Highly-developed domestic supply base

Czech Republic has a long industrial heritage. Czechoslovakia had the seventh-highest GDP in the world between the two world wars. Much of that lead was lost during 1948-1989. But the isolation of Czechoslovakia from the international markets during that period paradoxically ensured that the Czech Republic has maintained a wide industrial supply base. Czech-produced machinery such as weaving looms, metals-working and rubber-processing machines are famous in many developed and developing countries alike, as is Czech-made equipment for power generation and minerals processing.

Highly-educated, cost-competitive workforce

Average labour costs are still much lower in the Czech Republic than in all western OECD countries and lower or on a par with those in many rapidly developing Asian economies. The Czech Republic can provide manufacturers with the high productivity levels that can only be produced by highly skilled labour. According to a OECD study, the Czech Republic has one of the world's highest proportion of graduates in the science and technical fields. The Czech Republic possesses a long-established system of vocational training based on a wide range of specialized three- and four-year vocational schools. The ready availability of highly-technically educated graduates of these schools, at a fraction of the cost of western labour, create an outstanding environment for manufacturing companies, especially for those which need to generate higher value-added products.

High credit ranking

The Czech Republic enjoys one of the highest credit rankings in Central and Eastern Europe by renowned international risk-ranking institutions. Moody's current credit rankings stands at BAA1, while Standard and Poor's have awarded the Czech Republic an 'A-' rating. The confluence of the excellent rating with relatively low inflation (by Central and East European standards) and stable macroeconomic performance mitigate the risks associated with investing in the Czech Republic.

Many foreign companies have been so impressed by the country´s opportunities that they have set multiple investments in the Czech Republic. The Swiss-Swedish concern ABB has 11 companies employing, in total, around 5.000 people in the Czech Republic, while another large multinational, Siemens, who employs over 10,000 people, controls 12 Czech companies. The Saint Gobain Group of France has 6 companies with over 2,600 employees in the Czech Republic and has recently completed a USD 6 mil. glass fibres plant in Prague. Small and medium-sized foreign companies also have multiple investments in the Czech Republic. Cherry Mikroschalter, the German automotive and computer peripherals manufacturer, is now building its second ISO9000-certified greenfield plant in North Bohemian region of the Czech Republic. The firm is manufacturing switches used in dashboards made for Jaguar, the top-flight British car marque. The new North Bohemian plant will create 700 jobs and export its products to markets in Asia, the USA, the UK, and Europe. These are just a few examples.