Foreign Direct Investment in the Czech Republic
FDI in Figures
According to CzechInvest, Investment and Business Development Center, the Czech Republic is classified in the first place among the Central and Eastern European countries not only for the level of FDI stock but also for the FDI inflows per capita. This situation can be explained by the creation of investment incentives, by the presence of a skilled and inexpensive manpower and also by the natural advantages of the Czech Republic, such as its location in the heart of Central Europe. Since 2007, a change in FDI direction can be observed in the Czech Republic, which is going from the manufacturing industry to the "strategic services centers".
Due to the deterioration of the international situation, the FDI flow declined in 2008 and 2009, but they should recover progressively with the revival. The crisis has also reduced the size of the foreign investments in the automobile and electro-technical sectors.
The European Union and the United States are the two main foreign investors in the Czech Republic.
Country Comparison For the Protection of Investors
|Czech Republic||Eastern Europe & Central Asia||United States||Germany|
|Index of Transaction Transparency*||2.0||6.3||7.0||5.0|
|Index of Manager’s Responsibility**||5.0||4.0||9.0||5.0|
|Index of Shareholders’ Power***||8.0||6.2||9.0||5.0|
|Index of Investor Protection****||5.0||5.5||8.3||5.0|
Source: Doing Business
Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action. **** The Greater the Index, the Higher the Level of Investor Protection.
|Foreign Direct Investment||2007||2008||2009|
|FDI Inward Flow (million USD)||10,444||6,451||2,725|
|FDI Stock (million USD)||112,408||113,174||115,899|
|Performance Index*, Ranking on 141 Economies||54||86||98|
|Potential Index**, Ranking on 141 Economies||34||33||-|
|Number of Greenfield Investments***||149||142||99|
|FDI Inwards (in % of GFCF****)||23.8||12.5||1.3|
|FDI Stock (in % of GDP)||64.5||52.4||60.9|
Note: * The UNCTAD Inward FDI Performance Index is Based on a Ratio of the Country's Share in Global FDI Inflows and its Share in Global GDP. ** The UNCTAD Inward FDI Potential Index is Based on 12 Economic and Structural Variables Such as GDP, Foreign Trade, FDI, Infrastructures, Energy Use, R&D, Education, Country Risk. *** Green Field Investments Are a Form of Foreign Direct Investment Where a Parent Company Starts a New Venture in a Foreign Country By Constructing New Operational Facilities From the Ground Up. **** Gross Fixed Capital Formation (GFCF) Measures the Value of Additions to Fixed Assets Purchased By Business, Government and Households Less Disposals of Fixed Assets Sold Off or Scrapped.
Why You Should Choose to Invest in the Czech Republic
- Strong Points
Good access to the European market, a long history of industrial production and the quality of the labor force are part of the positive factors of the Czech Republic. We can also name the following factors, which represent non-negligible advantages for the country:
- A strong and independent central bank and an extremely stable currency;
- Rapid economic growth;
- A good capacity to withstand the global economic crisis.
- Weak Points
The Czech Republic is very dependent in terms of export and on the influx of foreign investments, which makes it vulnerable during crises. The country's skepticism towards Europe and the lack of interest in the adoption of the Euro could discourage certain European entrepreneurs in the long term and make the country less competitive.
The country has also experienced political tensions, particularly in 2009, which could undermine its stability in the eyes of potential entrepreneurs.
The lack of labor force also slows down the country's development (it is often necessary to hire foreign workers in order to fulfill production demands).
- Government Measures to Motivate or Restrict FDI
From 1998, the government put into place an investment incentive plan and has encouraged massive FDI inflow as well as projects on unused land ("greenfield"), as well as on used land ("brownfield" or development of existing structures). We can name amongst these measures:
- The non-discrimination and equality of treatment between nationals and foreigners;
- The protection of investment and the avoidance of double taxation;
- The protection of property rights and the export of profits.
- Bilateral Investment Conventions Signed By the Czech Republic
- To date there were signed 77 bilateral conventions
Procedures Relative to Foreign Investment
- Freedom of Establishment
- Acquisition of Holdings
- A majority holding interest in the capital of a Czech company is legal.
- Obligation to Declare
- submission of an initial application by the person intending to make the investment
- consideration of the application by the relevant government bodies
- following approval, an offer of incentives
- a formal application for the incentives by the person who will actually claim them – this may be a person other than the investor, e.g. a Czech subsidiary of a foreign investor set up following the offer of incentives
- final consideration and approval
This is valid for all sectors applying for state aid (investment incentives).
- Competent Organization For the Declaration
- Requests For Specific Authorizations
- Generally, there is no need to get an authorization before setting up a company, except in some sectors such as national defense, national security, nuclear energy, etc. In particular cases, companies have to contact the respective ministries. Investors shall contact CzechInvest, the agency of the Ministry of Industry and Trade of the Czech Republic, in order to get further information on investment matters.
- Investment Aid Agency
Czech Invest representation abroad in Brussels (Belgium), London (UK), Paris (France), Hong Kong (China), Yokohama (Japan), Munich and Koeln (Germany), Chicago (USA).
- Tenders, Projects and Public Procurement
Ted - Tenders Electronic daily, Business opportunities in EU 27
DgMarket, Tenders Worldwide
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