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SUBJECT: CZECH 2010 INVESTMENT CLIMATE STATEMENT 
 
REF: 09 STATE 124006 
2010 INVESTMENT CLIMATE STATEMENT -- CZECH REPUBLIC 
 
Maintaining an open investment climate has been a key element of the 
Czech Republic's efforts to strengthen its market economy.  As a 
member of the European Union, with an advantageous location in the 
center of Europe, relatively low cost structure and a well-qualified 
labor force, the Czech Republic is an attractive destination for 
foreign investment.  Prior to its EU accession in 2004, the Czech 
government harmonized its laws and regulations with those of the 
European Union. 
While the Czech financial system remained relative healthy, the 
small, open, export-driven Czech economy suffered from a significant 
decline in external demand, especially from its main trading partner 
Germany.  As a result, after three years of over six percent growth, 
real GDP increased only 2.3 percent in 2008 and fell an estimated 
4.4 percent in 2009, with most of the decline occurring during the 
first quarter.  GDP growth estimates for 2010 vary from 0.3 percent 
(by the Ministry of Finance) to 1.4 percent (by the Czech National 
Bank) with the pace of growth expected to slow throughout 2010, 
before rebounding in 2011.  The average inflation rate fell to 1.0 
percent in 2009 (from 6.3 percent in 2008) and is forecast to reach 
2.4 percent by the end of 2010.  The unemployment rate increased to 
9.2 percent by the end of 2009 (8 percent using ILO methodology) and 
most analysts expect it to continue to rise throughout most of 2010. 
 
The Czech government continues to offer incentives for certain types 
of foreign direct investment.  Legally, foreign and domestic 
investors are treated equally. Intellectual property rights 
violations at open-air markets on the borders of Germany and Austria 
remain a bilateral issue, which the Czech government has begun to 
address.  The U.S. is among the top five investors in the Czech 
Republic, according to the Czech National Bank (CNB) and investment 
promotion agency CzechInvest.  According to the World Bank's 2010 
"Doing Business" report, the Czech Republic is the 74th best place 
in the world to do business. 
Openness to Foreign Investment 
 
The Czech Republic has been a recipient of large amounts of foreign 
direct investment (FDI), which, together with strong export growth, 
has helped fuel economic growth, created new jobs, raised wages and 
increased domestic consumption.  GDP per capita in 2008 was 80 
percent of the EU average.  The Czech Republic's Gross Domestic 
Product (GDP) increased 6.8 percent in 2006, and 6.1 percent in 
2007, and remained strong throughout the first three quarters of 
2008, ending the year with growth of 2.3 percent.  The rate of 
economic growth, however, began to fall in the fourth quarter of 
2008, mainly due to a significant decline in demand for Czech 
exports in Western Europe.  Real GDP fell precipitously in the first 
quarter of 2009, before beginning a modest recovery throughout the 
rest of the year.  Nevertheless, real GDP is estimated to have 
dropped 4.4 percent for all of 2009. 
 
As a small, open export-driven economy, the Czech Republic remains 
sensitive to economic downturns in Western Europe, especially in 
Germany, which is by far the Czech Republic's largest trading 
partner.  Over 80 percent of Czech exports go to fellow EU members 
with roughly a third going to Germany alone.  Estimates for GDP 
growth in 2010 range from 0.3 to 1.4 percent with most of the growth 
expected early in the year.  The Czech crown has appreciated 
significantly over the past several years, peaking in July 2008, 
before depreciating sharply over the next seven months.  The crown 
appreciated throughout much of 2009 reaching early 2008 levels by 
the end of the year.  The volatility of the Crown vis-a-vis the Euro 
and U.S. Dollar has prompted calls from the business community for 
the quick adoption of the Euro. Adopting the Euro, however, has not 
been a priority of recent governments.  Moreover, in 2009 the Czech 
budget deficit ballooned to an estimated 6.6 percent of GDP, well 
above the three percent hurdle required for Euro adoption.  Since it 
is likely to take at least several years for the Czech government to 
bring public finances under control, use of the Euro in Czech 
Republic is not expected prior to 2015, at the earliest. 
 
Inflation spiked in 2008 at 6.3 percent, partly due to a one-off 
increase in VAT and excise taxes.  In 2009, however, average 
inflation dropped to only 1.0 percent as a result of the economic 
slowdown.  Inflation is forecast to reach 2.4 percent be the end of 
¶2010.  Unemployment, which was at a historical low of 5 percent in 
mid-2008, reached 8.6 percent in November 2009 and is estimated to 
peak at over 10 percent in 2010. 
 
Some unfinished elements in the economic transition, such as the 
slow pace of legislative and judicial reforms and the uneven 
enforcement of contracts by the Czech courts, are continuing 
obstacles to investment, competitiveness, and company restructuring. 
 The Czech government has harmonized its laws with EU legislation 
and the "acquis communautaire."  This effort has involved positive 
reforms of the judicial system, civil administration, financial 
markets regulation, intellectual property rights protection, and 
many other areas important to investors. While there have been many 
success stories involving American and other foreign investors, a 
handful have experienced problems, mainly in heavily regulated 
sectors of the economy, such as the media and aerospace.  Investors 
also complain about difficulties in enforcing contractual rights, 
including security interests, and the general unpredictability of 
the legal system.  The slow pace of the courts is often compounded 
by judges' lack of familiarity with commercial or intellectual 
property cases. Needed reforms of the system for registering 
companies have been slow in coming, but a new bankruptcy law, which 
entered into force July 1, 2007, addresses some of these issues, 
although many judges are still not fully versed in the new law. 
Concerns about corruption have been voiced by foreign and domestic 
businesses alike.  The World Bank's 2006 Anti-Corruption in 
Transition report ranked the Czech Republic the most corrupt country 
in Central Europe. According to the report, the Czech Republic is 
the only country among the eight new Central European EU member 
states where the situation had worsened in the preceding years.  The 
U.S. Mission in Prague held conferences on transparency (Fall 2007) 
and judicial reform (Summer 2008). A workshop on public corruption 
will be held in the spring of 2010.  Other long term challenges 
include dealing with a rapidly aging population, an unsustainable 
pension and health care system, and diversifying the economy away 
from an over-reliance on manufacturing (especially the auto sector) 
toward a more high-tech, services-based, knowledge economy. 
 
 
Measure                    Year   Index   Rank 
TI Corruption Index        2009   4.9       52 
Heritage Economic Freedom  2009   69.4      37 
World Bank Doing Business  2010    ---       74 
 
 
The right-of-center, pro-business Civic Democrats (ODS) won the 
greatest number of votes during parliamentary elections in June 
2006, but no single party emerged with a majority. A government 
coalition consisting of ODS, the Christian Democrats (KDU-CSL) and 
the Green Party (SZ) won a Parliamentary vote of confidence on 
January 19th, 2007, albeit with a very slim parliamentary majority. 
In March 2009, however, the government lost a vote of confidence, 
prompting the establishment in May 2009 of a an apolitical, interim 
government of technocrats led by former head of the Czech 
Statistical Office Jan Fischer, and supported by the Czech 
Republic's two largest parties, ODS and the left-of-center Social 
Democrats (CSSD).  The interim government is expected to remain in 
power until a new government can be formed following parliamentary 
elections scheduled for May 2010.  All mainstream political parties 
welcome foreign investment.  International businesses have 
complained that the relatively weak governments and lack of 
political continuity in recent years has complicated firms ability 
to make long-term plans. 
a. Organizational Structure of Investments 
 
Foreign investors can, as individuals or business entities, 
establish sole proprietorships, joint ventures and branch offices in 
the Czech Republic. In addition, the government recognizes 
joint-stock companies, limited liability companies, general 
commercial partnerships, limited commercial partnerships, 
partnerships limited by shares, and associations. 
b. National Treatment 
 
Legally, foreign and domestic investors are treated identically. 
Both are subject to the same tax codes and laws.  The government 
does not differentiate between foreign investors from different 
countries, and does not screen foreign investment projects other 
than in the banking, insurance and defense sectors.  Upon accession 
to the OECD, the Czech government agreed to meet (with a small 
number of exceptions) the OECD standards for equal treatment of 
foreign and domestic investors and limitations on special investment 
incentives.  The U.S.-Czech Bilateral Investment Treaty contains 
specific guarantees of National Treatment and Most Favored Nation 
treatment for U.S. investors in all areas of the economy other than 
insurance and real estate. (See the section on the Bilateral 
Investment Treaty below). 
 
c. Exempted Sectors 
 
According to CzechInvest, the Czech agency tasked with attracting 
and facilitating FDI and promoting small and mid-sized enterprises, 
all sectors of the Czech economy are open to foreign investment. 
Investors in the banking, financial services, insurance and 
broadcast media sectors must meet certain licensing requirements. 
Some professions, such as architects, physicians, lawyers and tax 
advisors, require membership in the appropriate professional 
chamber.  These licensing and membership requirements apply equally 
to foreign and domestic investors. 
 
d. Privatization 
 
According to the Ministry of Finance, more than eighty percent of 
the Czech economy is now in private hands after several waves of 
privatization of formerly state-owned companies since 1989. 
Privatization programs have been open to foreign investors.  In 
fact, most major state-owned companies have been privatized with 
foreign participation. The government evaluates all investment 
offers for state enterprises.  Non-transparent and unfair practices 
have been alleged in connection with some past or planned 
privatizations. 
In 2009, the government began the privatization process for Czech 
Airlines (CSA).  However, CSA's management sold several of its 
assets during the bidding process, making the tender less attractive 
to potential bidders.  The airline industry's troubles during the 
global financial crisis also reduced interest in acquiring CSA.  The 
result was a single-bidder tender, which the government ultimately 
decided to cancel, and CSA's privatization has been postponed 
indefinitely.  The Parliament also voted for legislation prohibiting 
the privatization of Prague's Ruzyne Airport planned for 2010. 
Although the President vetoed the legislation, the Parliament is 
expected to override the President's veto later this year. 
 
Conversion and Transfer Policies 
 
The Czech crown is fully convertible.  Imports or exports equal to 
or exceeding 10,000 Euro (approximately 263,000 Czech crowns or USD 
14,300) in cash, travelers' checks, money orders, securities or 
commodities of high value (such as precious metals or stones) must 
be declared at the border. 
 
The U.S.-Czech Bilateral Investment Treaty guarantees repatriation 
of earnings from U.S. investments.  A 15 percent withholding tax is 
charged on repatriation of profits from the Czech Republic.  This 
tax is reduced under the terms of applicable double taxation 
treaties.  For instance, under the U.S. treaty, the rate is 5 
percent if the U.S. qualifying shareholder is a company controlling 
more than 10 percent of the Czech entity, and 15 percent in other 
cases.  There are no administrative obstacles for removing capital. 
The law permits convertibility into any currency.  The average delay 
for remitting investment returns meets the international standard of 
three working days. 
 
Expropriation and Compensation 
 
The Embassy is unaware of any expropriation of foreign investment 
since 1989.  Government acquisition of property is done only for 
public purposes (similar to property condemnation in the United 
States for public works projects) in a non-discriminatory manner, 
and in full compliance with international law.  It is unlikely that 
any investor losing property due to a governmental action would not 
receive full compensation. 
 
Another issue of concern to foreign investors in the Czech Republic 
is restitution.  In 1990 and 1991, the federal government of 
Czechoslovakia enacted various laws aimed at compensating those 
people whose property was confiscated by the communist regime during 
the period of 1948-1989. Under the restitution laws, persons have 
the right to claim compensation for property taken from them by the 
communist government.  Most claims for restitution of 
non-agricultural property had to be filed by October 31, 1991, and 
agricultural property by December 1992.  There were additional open 
seasons for claims in 1994 and 1998, but all deadlines for these 
claims expired on July 8, 1999.  In 2000, however, a new law to 
alleviate some of the property damages during the Holocaust entered 
into force.  It amends the restitution laws allowing the state, 
subject to certain conditions, to return communal Jewish property, 
private works of art and land illegally seized by the Nazis to 
entitled Jewish communities and individuals.  While the deadline for 
claims for land expired in 2001, the claims for art can be filed 
indefinitely. 
 
Although deadlines for submitting restitution claims are now 
officially past (note: Czech court decisions have struck down the 
deadline as it applies to direct restituents and their heirs), it is 
nevertheless important that foreigners seeking to invest in the 
Czech Republic first ensure that they have clear title to all land 
and property associated with potential projects.  The process of 
tracing the history of property and land acquisition can be complex 
and time-consuming, but it is necessary to ensure clear title. 
Title insurance is not yet offered in the Czech Republic.  Investors 
participating in privatization of state-owned companies are 
protected from restitution claims through a binding contract signed 
with the government. 
Dispute Settlement 
 
The Czech commercial code and civil code are largely based on the 
German legal system.  The commercial code details rules pertaining 
to legal entities and is analogous to corporate law in the United 
States.  The civil code deals primarily with contractual 
relationships among parties. When the Czech Republic was formed in 
1993, the new Czech government maintained the previous commercial 
and civil codes.  The laws have been extensively amended since then, 
but gray areas still remain.  The judiciary is independent, but 
decisions may vary from court to court.  Commercial disputes, 
particularly those related to bankruptcy proceedings, can drag on 
for years, though new bankruptcy legislation, which came into effect 
July 1, 2007, should speed up the process.  A new, streamlined 
Commercial Registry process took effect on July 1, 2005. While the 
new legislation is an improvement over the previous system, which 
placed the registry process entirely in the hands of the courts, 
companies report that in practice the process is still quite 
time-consuming. 
The new bankruptcy law addresses important structural impediments 
such as the slow and uneven performance of the courts, weakness of 
creditors' legal standing, and the lack of provisions for corporate 
restructuring.  According to local legal experts, the new law 
shortens court proceedings and makes them much more transparent, 
gives a stronger position to creditors and renders the entire 
process more efficient.  To this end, the new law has been given a 
more extensive and more accurate structure, the terms it uses have 
been made more exact, deadlines have been implemented and a number 
of crucial decisions have been passed directly to creditors. 
The Czech Republic ratified the Convention on the Settlement of 
Investment Disputes between States and Nationals of Other States in 
¶1993.  The U.S.-Czech Bilateral Investment Treaty provides for 
international arbitration of investment disputes with the state. 
The Czech Republic has ratified the New York Convention on the 
Recognition and Enforcement of Arbitral Awards.  As a signatory of 
the latter convention, it is required to uphold binding arbitration 
awards in disputes between Czech and foreign parties.  However, 
arbitration of disputes between two Czech corporations outside the 
Czech Republic is not permitted, even if the owners are foreign. 
Applications for enforcement of foreign judgments can be made to the 
Czech courts and will be determined in accordance with a bilateral 
recognition treaty, if any, or otherwise pursuant to the 
requirements of Czech law. Judgments rendered in other EU countries 
are enforceable in accordance with applicable EU regulations. 
 
Investment Incentives 
According to current legislation, incentives are offered to foreign 
and domestic firms that invest in the manufacturing sector.  The 
package for manufacturing projects includes relief from corporate 
taxes for up to five years, job-creation grants, re-training grants 
and opportunities to obtain low-cost land.  Financial grants for 
job-creation and/or re-training are provided to those firms 
operating in regions where the annual unemployment rate exceeds by 
at least 50 percent the national average.  A partial tax incentive 
is also available for expansion of an existing manufacturing 
investment.  Research and development centers and business service 
centers in software development, shared services and high-tech 
repairs can be currently supported through EU structural funds 
(Potential Program, Innovation Program, and ICT and Business Support 
Services Program). 
The Czech Government currently is considering a new incentives 
legislative proposal to support research and development and 
business service centers through corporate tax relief of up to five 
years (i.e. same as for manufacturing).  No new incentive 
legislation, however, has appeared since 2007.  For more information 
contact CzechInvest, at incentives@czechinvest.org, or 
www.czechinvest.org. 
 
Right to Private Ownership and Establishment 
 
The right of foreign and domestic private entities to establish and 
own business enterprises is guaranteed by law in the Czech Republic. 
 Enterprises are permitted to engage in any legal activity with the 
previously noted limitations in some sensitive sectors.  Personal 
ownership of real estate by non-resident, non-EU foreign individuals 
is not permitted, but since January 1, 2002, foreign companies 
registered to do business in the Czech Republic and Czech branches 
of foreign entities may own real estate, other than agricultural and 
forest land.  As of May 1, 2009 EU nationals can acquire 
non-agricultural real estate without limitation.  U.S. and other 
non-EU nationals can purchase real property if they comply with 
temporary residence requirements.  Czech legal entities, including 
100 percent foreign-owned subsidiaries, may own real estate without 
any limitations.  All foreigners will continue to face limitations 
on the purchase of agricultural land and forests until at least 
April 30, 2011, although the Czech Republic may chose to extend this 
until 2014 under certain circumstances. 
Protection of Property Rights 
 
Existing legislation guarantees protection of all forms of property 
rights, both intellectual and physical.  Secured interests in land 
(mortgages) and in personal property are permitted.  Government 
subsidy programs are making mortgage financing more accessible, and 
consumers are becoming more used to using both secured and unsecured 
forms of credit. According to American lawyers in the Czech 
Republic, enforcing judgments and foreclosing security interests in 
land and personal property can still be difficult in practice. 
 
Major amendments to the Commercial Code came into force in 2001 that 
strengthen protection of creditors and minority shareholders.  The 
law includes detailed provisions for mergers and places time limits 
on decisions by the authorities on registering of companies.  New 
laws on auditing and on accounting were also enacted.  These laws 
include the use of international accounting standards (IAS) for 
consolidated corporate groups. 
 
The Czech Republic is a signatory to the Bern, Paris, and Universal 
Copyright Conventions.  In 2001, the government ratified the World 
Intellectual Property Organization (WIPO) Copyright Treaty and the 
WIPO Treaty on Performances and Phonograms.  Domestic legislation 
protects all intellectual property rights, including patents, 
copyrights, trademarks, and semiconductor chip layout design. 
Amendments to the trademark law and the copyright law have brought 
Czech law into compliance with relevant EU directives and WTO 
Trade-Related Aspects of Intellectual Property Rights (TRIPS) 
requirements.  Changes to the civil procedure code, effective 
January 1, 2001, provide for ex parte search and seizure in 
enforcement actions.  The Czech Republic increased copyright 
protection for literary works from 50 to 70 years, effective 
December 1, 2000, and boosted the powers of the customs service and 
the Czech Commercial Inspection to seize counterfeit goods.  A 2006 
amendment to the Law on Civil Procedure made ex-parte search more 
accurate, clearer and easier to apply and enforce.  The amendment 
also makes it easier to define and get back losses caused to owners 
by piracy.  The new Criminal Code which came into effect January 1, 
2010, increased maximum penalties for trade mark, industrial rights 
and copyright violations from two to eight years. 
Intellectual property rights (IPR) violations at markets on the 
borders of Germany and Austria are an issue of concern to U.S. 
companies and the U.S. government.  The markets consist primarily of 
open-air stalls which sell a variety of trademark and 
copyright-infringing goods such as clothing, cigarettes and CD/DVD 
recordings.  Starting in 2008, the Czech authorities significantly 
increased the scope and number of raids, resulting in a significant 
reduction in the amount of pirated goods openly available. Criminal 
and administrative penalties applied to IPR violators, however, 
continue to be infrequent, mild and lacking deterrent value.  The 
Czech authorities have also yet to fully apply many of the legal 
tools available to them to combat IPR piracy, including the 
revocation of business licenses.  USTR elevated the Czech Republic 
to the Special 301 Watch List in January 2008 due to the extensive 
violations occurring at the outdoor markets and the limited response 
from the Czech government.  The Embassy will continue to work with 
U.S. industry and Czech government officials to strengthen 
enforcement of intellectual property rights. 
Transparency of the Regulatory System 
 
Tax, labor, environment, health and safety, and other laws generally 
do not distort or impede investment.  Policy frameworks are 
consistent with a market economy.  All laws and regulations are 
published before they enter into force. Opportunities for prior 
consultation on pending regulations exist, and all interested 
parties, including foreign entities, can participate.  A biannual 
governmental plan of legislative and non-legislative work is 
available on the Internet, along with information on draft laws and 
regulations (often only in the Czech language).  Comments can be and 
are made by business associations, consumer groups and other 
non-governmental organizations, including the American Chamber of 
Commerce. 
 
However, bureaucracy and unnecessary red tape remain a source of 
complaints by both domestic and foreign investors.  Delays and 
allegations of corruption are common, especially in government 
procurement, and are of particular concern to foreign companies 
operating in the Czech Republic. 
 
A November 2008 OECD peer-review of the Czech Republic confirmed 
that in content and principle Czech competition policy meets OECD 
standards.  An Act on the Protection of Economic Competition entered 
into force in 2001, adopting rules consistent with EU competition 
policy as regards restrictive agreements, abuse of dominant position 
and merger control. 
Efficient Capital Markets and Portfolio Investments 
According to the CNB, in 2001 the last state financial institution 
(non-joint stock companies established prior to 1989) was 
privatized.  The government has more than a 50 percent share of the 
equity capital or is a controlling shareholder in two banks: The 
Czech Export Bank and the Czech-Moravian Guarantee and Development 
Bank.  A significant financial crisis in the late 1990s--prompted by 
poor banking practices throughout that decade--led to a major 
restructuring of the banking sector and a significant improvement in 
government oversight.  Currently all large domestic banks belong to 
major European banking groups, are generally extremely conservative 
and concentrate almost exclusively on the domestic Czech market.  As 
a result, all Czech banks remained relatively healthy throughout the 
global financial crisis, making the Czech Republic one of only four 
OECD countries not to have had to inject capital into the banking 
system.  As of October 31, 2009, the total assets of commercial 
banks stood at CZK 4.05 trillion (approximately 225 billion), 
according to the CNB.  As of the same date, non-performing loans 
amounted to 4.28 percent of total credit volume, up from 2.51 
percent a year earlier.  Foreign investors have access to bank 
credit on the local market, and credit is generally allocated on 
market terms. In 2002, the banks for the first time established a 
mechanism for sharing credit histories of borrowers. 
 
The Czech securities market has been handicapped by a poor 
reputation generated by several years of lax regulation, fraud and 
scandals.  Although the Prague Stock Exchange (PSE) is small (with 
only 13 companies listed for stocks), the overall trade volume of 
stocks reached CZK 463.86 billion (USD 25.2 billion) in 2009 as 
compared to CZK 852.04 billion (USD 50.1 billion) in 2008, with the 
average daily trading volume of CZK 1.86 billion (USD 100 million). 
The PSE index tends to mirror movements in international markets. 
The PSE index increased by 30.2 percent in 2009. 
 
In March 2007, PSE created the Prague Energy Exchange (PXE)--which 
has now renamed itself the Power Exchange Central Europe--to trade 
electricity in the Czech Republic and Slovakia.  PXE's goal is to 
increase liquidity in the electricity market and create a 
standardized platform for trading energy.  PXE completed its first 
trade in July, 2007 and its trading volume has increased steadily 
with a total futures market contract value in 2008 of 2.44 Euros 
(USD 3.5 billion) and a spot market contract value of Euro 7 million 
(USD 10 million).  The PXE energy exchange intends to expand as 
aggressively as possible in all directions, other than westward. 
 
In 1998 the government created a Securities and Exchange Commission 
to function as capital market watchdog.  The Commission has made 
important strides in establishing a regulatory framework for Czech 
capital markets and enforcing new rules.  It has employed a large 
number of new staff.  A new securities law was adopted in 2001 to 
improve regulation of brokers and dealers.  Legislation adopted in 
2002 gives the SEC more flexibility in issuing guidelines and 
requiring reporting of information.  In 2006, the SEC moved into the 
Czech National Bank as part of a plan to bring all of the financial 
regulators under one roof. 
 
Competition from State-Owned Enterprises (SOEs) 
 
Private enterprises are generally allowed to compete with public 
enterprises under the same terms and conditions with respect to 
access to markets, credit and other business operations, although 
there are frequent accusations that large domestic 
companies--including both SOEs and private firms--use their 
political clout and connections to gain unfair advantage. 
State-owned or majority state-owned companies are present in several 
fields, including the energy, postal service, and transport sectors. 
 The Czech state also owns two small, specialized banks.  SOEs do 
not report directly to Ministries but are managed by a Board of 
Directors and Supervisory Board that generally include both 
representatives of the government and private sector.  SOEs are 
required by law to publish an annual report and submit their books 
to independent audit. 
 
Corporate Social Responsibility 
 
Corporate Social Responsibility is a burgeoning concept in the Czech 
Republic.  Although foreign companies, particularly U.S.-owned 
businesses, tend to be more active and more vocal about their 
activities in this area, the trend appears to be spreading slowly to 
Czech companies as well.  CRS Europe and the Czech Business Leaders' 
Forum encourage their members to engage in CSR activities and to 
publicize their work in shareholder reports.  Since 2005, the Czech 
Donors Forum has given the prestigious TOP Corporate Giving award 
each year for highest volume of donations and for corporate giving 
as a percentage of gross annual profit.  In addition, The Czech 
Environment Ministry has given the annual Health, Safety and 
Environment Award since 2000 to encourage conservationism and sound 
environmental practices in the workplace.  Still, only very large 
Czech companies are vocal about their CSR efforts, and CSR is not a 
major criterion by which Czechs make investment decisions. 
 
Political Violence 
 
The risk of political violence in the Czech Republic is extremely 
low. There is no history of political violence or terrorism in 
modern times. Two recent historic political changes--the "Velvet 
Revolution" which ended the communist era in 1989 and the division 
of Czechoslovakia into the Czech Republic and Slovakia in 
1993--occurred without loss of life or significant violence. 
 
Corruption 
 
Current law makes both giving and receiving bribes criminal acts, 
regardless of the actor's nationality.  Jail sentences have been 
increased to up to eight years for officials, with stiffer penalties 
for bribery previously enacted by Parliament.  Bribes cannot be 
deducted from taxes.  Law enforcement authorities are responsible 
for combating corruption.  These laws are applied equally to Czech 
and foreign investors.  There are frequent allegations, however, 
that public officials have at times engaged in corrupt practices 
with impunity.  Political pressure and ineffective police 
investigative tools contribute to the infrequent prosecution of 
high-level corruption.  Although public figures must disclose the 
state of their finances each year, disclosure of the origin of 
financial assets is voluntary.  The absence of successful 
prosecutions for corruption (or exoneration by the courts) has in 
turn contributed to public disenchantment and concerns over impunity 
reflected in the 2008 Transparency International (TI) survey of 
managers in 26 countries, which found that the Czech Republic was 
24th in terms of political corruption, finishing ahead of only 
Mexico and Nigeria. 
 
The Czech Republic ratified the OECD anti-bribery convention in 
January 2000.  According to a July 2009 TI report, there is little 
or no enforcement of the convention in the Czech Republic, with no 
cases and only four investigations through 2008.  TI listed 
political influence over enforcement actions, inadequate 
whistleblower protection, and the lack of criminal liability for 
legal entities as contributing factors. 
 
While there has been no lack of public accusations and suspicions of 
bribery, only a few cases have reached the prosecution and 
conviction stage. Allegations of corruption are most pervasive in 
connection with public procurement.  Common problems with public 
contracts include unclear ownership of companies bidding on public 
contracts and a lack of competitive bids.  A 2004 government 
procurement law, required for EU accession, sought to curb illegal 
activities in this sphere by ensuring that public tenders were not 
tailor-made for specific businesses.  However, according to the TI 
chapter in the Czech Republic, the law has failed to reach that 
objective.  Their research has shown that more than half of public 
contracts in the Czech Republic do not comply with the 2004 Public 
Procurement Act.  TI actively conducts public information campaigns 
and has given numerous broadcast and print media interviews on 
corruption and bribery cases.  Other nongovernmental organizations 
in the Czech Republic also focus on corruption issues. 
Bilateral Investment Agreements 
 
The former government of Czechoslovakia signed a bilateral 
investment treaty (BIT) with the United States, which came into 
effect in 1992. The Czech Republic adopted this treaty in 1993, 
after the split with Slovakia.  Amendments to the treaty were 
approved in 2003 following negotiations involving both the Czechs 
and the European Commission designed to meet EU concerns about 
perceived conflicts with the EU acquis communautaire.  The Czech 
government subsequently requested the United States consider further 
amendments that would affect the BIT's coverage and dispute 
settlement provisions; bilateral discussions are continuing. 
To date, 78 countries have signed and ratified similar agreements 
with the Czech Republic.  Agreements with several other countries 
are in the process of ratification.  The full list of agreements 
including ratification dates can be found on the Ministry of Finance 
website: 
http://www.mfcr.cz/cps/rde/xchg/mfcr/hs.xsl/ 
ochrana_investic.html 
A bilateral U.S.-Czech Convention on Avoidance of Double Taxation 
has been in force since 1993. In 2007 the U.S. and Czech governments 
signed a bilateral Totalization Agreement that exempts Americans 
working in the CR from paying into both the Czech and U.S. social 
security systems. The agreement entered into force on Jan. 1, 2009. 
 
OPIC and Other Investment Insurance Programs 
 
Finance programs of the Overseas Private Investment Corporation 
(OPIC), including investment insurance, have been available in the 
Czech Republic since 1991.  Investors are urged to contact OPIC's 
offices in Washington directly for up-to-date information regarding 
availability of services and eligibility.  The OPIC Info Line (202) 
336-8799 offers general information 24 hours a day.  Application 
forms and detailed information may be obtained from OPIC, 1100 New 
York Avenue, NW, Washington D.C. 20527.  The Czech Republic is a 
member of the Multilateral Investment Guarantee Agency (MIGA). 
 
Labor 
 
The wide availability in the Czech Republic of educated, relatively 
low-cost labor on the doorstep of Western Europe has been a major 
attraction for foreign investors.  While the wage gap continues to 
narrow, the Czech Republic will continue to have far lower labor 
costs than those in Western Europe for years to come (although labor 
costs farther to the East will remain even lower, including in the 
newer EU countries Romania and Bulgaria).  Unemployment reached a 
record low of 5.0 percent in July 2008, and the relatively low level 
of unemployment throughout 2008 made it increasingly difficult for 
many businesses to find skilled and experienced workers, especially 
in Prague and the surrounding region.  This was especially true of 
employees with Western language skills, IT specialists, and 
engineers.  By the end of 2009, however, the unemployment rate had 
grown to 9.2 percent (roughly 8 percent according to the ILO's 
methodology) and was expected to continue to increase throughout 
much of 2010.  Unemployment varies significantly depending on the 
region.  Unemployment is lowest in Prague (3.7 percent) and highest 
in the Ustecky (13.6 percent), Olomouc (12.2 percent) and 
Moravia-Silesia regions (12.1 percent).  Various factors, including 
rigidities in the labor code on overtime and the housing market, 
reduce the mobility of Czech workers within the country. 
 
By law, all workers have the right to strike once mediation efforts 
have been exhausted, with the exception of judges, prosecutors, 
military, firemen, police and security sources, and workers in 
sensitive positions (e.g. nuclear power plant, gas and oil pipeline 
operators, and air-traffic controllers).  Significant labor unrest 
remained relatively rare in 2009, despite significant layoffs 
precipitated by the economic downturn.  Workers in the Czech 
Republic have the legal right to form and join unions of their own 
choosing without prior authorization. Currently, about 17 percent of 
the total labor force is a member of a labor organization.  The 
overall number of union members has fallen sharply since 1991, 
reflecting the fact that union membership is no longer compulsory. 
Although union membership has been dropping at a rate of 8 percent 
per year, the former Social Democrat (CSSD) led government was 
responsive to labor concerns and passed a new labor code in 
parliament that is considered by observers to be "labor-friendly." 
The new labor code entered into force January 1, 2007. 
 
The Ministry of Labor and Social Affairs sets minimum wage 
standards.  The standard workweek is 40 hours.  Caps exist for 
overtime.  Workers are assured 30 minutes of paid rest per work day 
and annual leave of at least four weeks per year. 
 
Foreign-Trade Zones 
 
Czech law permits foreign investors involved in joint ventures to 
take advantage of commercial or industrial customs-free zones into 
which goods may be imported and later exported without depositing 
customs duty.  Duties need be paid only in the event that the goods 
brought into the free zone are introduced into the local economy. 
The investment incentive package also permits duty-free import of 
high tech goods and creation of additional foreign-trade zones.  Due 
to EU accession and the investment incentives offered by the 
government, the advantages of using these free-trade zone are 
limited and they have waned in popularity. 
 
Foreign Direct Investment 
 
 According to the Czech National Bank, the stock of foreign 
investment in the Czech Republic from 1993 through 2008 (including 
reinvestment of profits) totaled USD 122.3 billion. 
Germany and the Netherlands are the leading foreign investors in the 
Czech Republic.  At the end of 2008, their stock of investment 
totaled USD 31.5 billion (25.8 percent of total FDI) and USD 17.7 
billion (14.5 percent) respectively, followed by Austria with USD 
13.4 billion (11.0 percent), France with USD 7.5 billion (6.1 
percent), the United States with USD 6.6 billion (5.4 percent), 
Switzerland with USD 6.2 billion (5.1 percent) and Belgium with USD 
4.4 billion (3.6 percent).  Other major investors included the 
United Kingdom, Sweden and Japan.  According to Eurostat, the Czech 
Republic was ranked third in Central and Eastern Europe in FDI stock 
in 2007 (58.8 percent of GDP).  The inflow of FDI in 2008 reached 
USD 9.12 billion (or 4.48 percent GDP).  According to the Ministry 
of Industry and Trade, the inflow of FDI for the first three 
quarters of 2009 fell 60 percent when compared to the same period in 
2008, primarily due to the global economic slowdown.  Another recent 
trend has been that the bulk of new U.S. foreign investment has come 
from companies already well-established in the Czech Republic with 
very little originating from first-time investors to the country. 
The upswing in investment since 1998 is generally attributed to the 
introduction of investment incentives, as well as the Czech 
Republic's central location and well-educated and relatively 
inexpensive labor force. 
 
By sector, from 1993 through 2008 foreign direct investment stock 
was divided into manufacturing (USD 40.2 billion or  32.9 percent of 
total FDI), financial services (USD 19.3 billion or 15.8 percent); 
real estate and business activities (USD 16.6 billion or 13.6 
percent); trade and repairs (USD 10.8 billion or 8.8 percent); 
electricity, gas and water (USD 8.4 billion or 6.9 percent); 
transportation and telecommunications (USD 6.4 billion or 5.2 
percent); construction (USD 1.4 billion or 1.1 percent) and hotels 
and restaurants (USD 0.8 million or 0.7 percent).  The stock of 
Czech direct investment abroad totaled USD 9.3 billion at the end of 
¶2008.  The flow of Czech investment abroad was USD 1.9 billion in 
2008 alone, with principal destinations of the Netherlands (28.9 
percent), Cyprus (13.7 percent), Germany (13.2 percent) and France 
(7.3 percent)--0.7 percent of 2008 outward Czech investment flows 
went to the United States. 
Some of the largest US investments in million USD: 
Procter&Gamble       150 
GE Real Estate + Crestyl Group     140 
Guardian         70 
Tiger Holding Four        45 
Honeywell         27.5 
Commercial Vehicle Group      27 
Donaldson       20.6 
Ingersoll Rand        20 
GE Aviation       7.8 
FEI Company       3.0 
JNJ Global Business Services    2.7 
Rannoch        2.5 
Rockwell Automation      2.0 
NovaSoft        0.75 
SDE (SW Development Europe)    0.7 
Autobaterie       0.5 
IBM     (amount not available) 
eBay     (amount not available) 
Microsoft    (amount not available) 
Skype    (amount not available) 
OnSemiconductor  (amount not available) 
 
Other Countries: 
Significant foreign direct investments (in USD): 
Hyundai    Korea   1.2 billion 
Toyota/PSA    Japan/France  850 million 
Volkswagen    Germany   710 million 
Robert Bosch    Germany   361 million 
Matsushita    Japan    335 million 
Nemak      Mexico   317 million 
Denso     Japan   254 million 
Daikin      Japan   244 million 
Panasonic    Japan   235 million 
LG Philips     NL    201 million 
DHL     UK    190 million 
Siemens     Germany   179 million 
Faurecia     France   156 million 
Knauf Insulation   Germany   131 million 
Tivali     Israel   131 million 
Automotive Lighting  Germany   106 million 
Kronospan    Cyprus   102 million 
Teva     Israel   55.5 million 
Sources of data for this report included the Czech Statistical 
Office, the Czech National Bank, CzechInvest, OECD, IMF and Central 
European Advisory Group. 
THOMPSON-JONES