www.czechinvest.org

25 September, 2003

Presentation Luxembourg

CZECHINVEST

SUPPORT OF NEW & EXISTING INVESTORS

HANDLING INVESTMENT INCENTIVES

DEVELOPMENT PROGRAMMES

TO CONTINUALLY ENHANCE THE

COMPETITIVENESS OF THE CZECH REPUBLIC

IN THE WORLD ECONOMY

OUR ACTIVITIES

OUR MISSION

Chicago

Silicon Valley

BrusselsLondon Cologne

Paris PragueYokohama

Hong Kong

ORGANIZATION

STEERING COMMITTEESTEERING COMMITTEE

INVESTMENT PROJECTS

INVESTMENT PROJECTS

INDUSTRIAL PROPERTIESAND REGIONS

INDUSTRIAL PROPERTIESAND REGIONS SUPPLIER

DEVELOPMENT

SUPPLIER DEVELOPMENT

AFTERCAREAFTERCARE

INVESTMENT INCENTIVES

INVESTMENT INCENTIVES

MINISTEROF INDUSTRY AND TRADE CR

MINISTEROF INDUSTRY AND TRADE CR

MARKETINGAND PR

MARKETINGAND PR

WHAT CAN CZECHINVEST DO FOR YOU?

COLLECT INFORMATION

IDENTIFY SITES AND BUILDINGS

SUPPLIER SOURCING & JV MATCHING

LIAISE WITH GOVERNMENT BODIES

HANDLE INCENTIVES APPLICATIONS

AFTER CARE

INTRODUCTION TO AFI

DOING BUSINESS IN

THE CZECH REPUBLIC

CZECH REPUBLIC : BASIC DATA

POPULATION

LABOUR FORCE 2000

UNEMPLOYMENT May 2003

GDP per capita 2002 (estimate)

GDP per capita at PPP 2002 (estimate)

GDP growth 2002 (estimate)

GDP growth 2003 – forecast

ANNUAL INFLATION 2002 (estimate)

ANNUAL INFLATION 2003 (forecast)

GOVERNMENT BUDGET BALANCE 2002 (estimate)

CURRENT ACCOUNT BALANCE 2002 (estimate)

CENTRAL GOVERNMENT DEBT 2002 (estimate)

10.3 million

5.2 million

9.4%

USD 6,700

USD 15,000

2.7%

3.3%

1.8%

1.6%

- 2.0% of GDP

- 4.1% of GDP

18.2% of GDP

Source: Ministry of Finance, February 2003

LIMITED LIABILITY COMPANY - (s.r.o.)

FOR COMMERCIAL AND NON- COMMERCIAL ACTIVITIES

FOR SMALL AND MEDIUM-SIZED COMPANIES

MAXIMUM = 50 PEOPLE

BASIC CAPITAL = MIN 200,000 CZK (APROX 7,000 USD)

SETTING UP A BUSINESS

JOINT STOCK COMPANY - (a.s.)

FOUNDING CONTRACT AND THE ISSUE OF SHARES

BOARD OF DIRECTORS AND SUPERVISORY BOARD

BASIC CAPITAL = MIN 2,000,000 CZK (APROX 70,000 USD)

AT LEAST 30% PAID UPON INCORPORATION

SETTING UP A BUSINESS

SETTING UP A BUSINESS

Foundation Deed • Name and seat • Partners specification • Business activity • Capital • Statutory body • Company bylaws (a.s.)

Notary office

Bank Account Initial Capital

Minimum CZK 200,000 (s.r.o.) CZK 2,000,000 (a.s.)

Czech or foreign bank registered in the CR

Trade certification

Foreigners must obtain: • residence permit • proof of fluency in Czech

language for responsible representative

• proof of impeachability of character Trade licensing office

Commercial registration

Identification number

ICO

Regional court

Tax Registration

• Required within 30 days of comm. registration

• VAT depends on turnover

Financial authorities

Investment

• full repatriation of profits guaranteed

Foundation Deed • Name and seat • Partners specification • Business activity • Capital • Statutory body • Company bylaws (a.s.)

Notary office

Bank Account Basic Capital

Minimum CZK 200,000 (s.r.o.) CZK 2,000,000 (a.s.)

Czech or foreign bank registered in the CR

Trade certification

Foreigners must obtain: • residence permit • proof of fluency in Czech

language for responsible representative

• proof of impeachability of character Trade licensing office

Commercial registration

Identification number

ICO

Regional court

Commercial registration

Identification number

ICO

Regional court

Tax Registration

• Required within 30 days of comm. registration

• VAT depends on turnover

Financial authorities

Investment

• full repatriation of profits guaranteed

ASSOCIATION FOR FOREIGN INVESTMENT – AFI

a group of Czech companies with local experience providing a wide range of specific services

WWW.AFI.CZ

TAXES AND DUTIES

Corporate Income Tax = 31%

Personal Income Tax = 15 – 32%

Withholding Tax = 1 – 25%

Direct taxes

VAT (Value Added Tax)

22% goods (standard rate)* 5% services* 0% exports* exempt from VAT**

* With some exceptions** training and education, medical services and products,

mail and broadcasting etc.

Indirect taxes:

Excise duties Spirits

Wine and beer

Tobacco products

Hydrocarbon fuels and lubricants

Indirect taxes:

Real estate tax land tax = different rate for for unimproved land

agricultures land etc.

tax on buildings = is based on the built-up square

meters Real estate transfer tax

5% of the higher of the purchase price or the appreised value*

* to be paid mostly by the seller

Indirect taxes:

LABOUR

EXCELLENT R&D CAPABILITIES

CZECH INVENTIONS:

- Soft Contact lenses

Prof. O.Wichterle

- Blood types (A,B,O) Mr. Jánský

- Street trams Mr. Křižík

- Micro-wave cooker Mr. Žáček

- 2 MOST SUCCESSFUL ANTI-AIDS DRUGS

1996 – Vistide (Cidofovir)

2001 – Viread (Tenofovir)

Dr. Antonín Holý

Source: http://www.cas.cz/aa/pages/wichterl.htm

GENERAL WORKING CONDITIONS

WORKING TIME:

40 HRS PER WEEK

VACATIONS:

GENERAL ALLOWANCE OF 4 WEEKS PER YEAR 12 NATIONAL HOLIDAYS / YEAR

BONUSES: MINIMUM WAGE: 6,300 CZK (200€) PER MONTH NO PREMIUM FOR WORKING THE SECOND SHIFT PREMIUM OF 5.40 CZK (USD 0.12) PER HOUR

FOR WORKING NIGHT SHIFT (10 PM - 6 AM) PREMIUM 25% IF WORKING OVERTIME PREMIUM 100% IF WORKING ON A PUBLIC HOLIDAY

SOCIAL AND HEALTH INSURANCE

  Employer-payable Employee-payable

Health insurance 9.0% 4.5%

Social insurance 26.0% 8.0%

pension fund 19.5% 6.5%

         sick pay 3.3% 1.1%

         unemployment fund 3.2% 0.4%

TOTAL 35% 12.5%

REGIONAL COMPARISON OF YEAR COSTS FOR AN EMPLOYEE (in EUR)

NET INCOME 4 000 EUR

EmployeeGross income 5 133 5 809 5 122 6 705SSHI paid by employee 657 1 087 640 838Tax Base 3 507 4 422 3 214 6 705Tax 476 708 482 1 867Net income 4 000 4 000 4 000 4 000

EmployerGross remuneration 5 133 5 809 5 122 6 705SSHI paid by employer 1 951 1 096 1 793 2 414Total cost for the employer 7 084 6 905 6 915 9 119

SlovakRepublic

PolandCzech

RepublicHungary

Source: Ernst & Young k.s., 2003

REGIONAL COMPARISON OF YEAR COSTS FOR AN EMPLOYEE (in EUR)

NET INCOME 7 200 EUR

EmployeeGross income 10 015 10 688 9 663 13 441SSHI paid by employee 1 205 2 000 1 208 1 680Tax Base 7 841 8 388 7 178 13 441Tax 1 610 1 461 1 255 4 651Net income 7 200 7 200 7 200 7 200

EmployerGross remuneration 10 015 10 688 9 663 13 441SSHI paid by employer 3 576 2 016 3 382 4 672Total cost for the employer 13 591 12 703 13 045 18 113

SlovakRepublic

PolandCzech

RepublicHungary

Source: Ernst & Young k.s., 2003

BENEFITS MOST FREQUENTLY OFFERED BY EMPLOYERS

96

82 8175

43 40

0

20

40

60

80

100

120

Meal allowances Refreshmentprovided at the

workplace

Sponsoredsocial, sport andcultural events

Longer vacation Pension scheme/ contribution

Allowancesduring sickness

%

Source: PWC, PayWell 2002

EMPLOYING FOREIGNERS

Principle of equal status assuming:

Work permit

Residence permit

Act No.1/1991 Coll. on Employment

EMPLOYING FOREIGNERS

Direct work relationship with domestic employer

Employment at branch office of foreign company

operating in the Czech Republic

Sent by foreign employer based on business or

other agreement with Czech entity

EMPLOYING FOREIGNERS

EMPLOYER1) PERMISSION TO RECEIVE EMPLOYEES

FROM ABROAD

Permission to receive employees from abroad -

ALWAYS with the exception of:

Elected or appointed positions

(§27 Labor Code)

Being sent by foreign employer based on business or other

agreement

Foreigners who have the right to employment regardless of

situation on labor market

Decided by local Labor Office in an administrative

procedure (express/30 days/60 days)

WORKING PERIOD

1 year,

Exceptions:

Borderline employees

Seasonal employees (max. 6 months per calendar

year)

Work for limited time in order to raise or

strengthen qualifications (“interns”) - max. for 1

year

OTHER EXCEPTIONS

Foreigners subject to international treaty

(e.g. Treaty on the Association of ČR to EC

No.7/1995 Coll.)

Core staff (senior management, top experts)

Students below age 26 (school exchange,

professional internship)

Employer does not apply for permit to employ

foreigner, there is legal right for permission to

employment.

PERMIT NEED NOT BE APPLIED FOR AT ALL

Foreigners with permanent residence in the ČR

Foreigners subject to international treaty

(especially treaty between ČR and SR)

Foreigners on short-term work stay

Not more than 7 consecutive days OR 30 days per

calendar year AND AT THE SAME TIME a

performing artist, student, athlete or person

supplying services, assembly, warrantee or repair

work, etc. (obligation to inform)

EU - FREE MOVEMENT OF PEOPLE

Free movement of people = complete cancellation of: border controls, visa obligations and work permitsGreat Britain, Ireland, Holland, Denmark, Sweden and

apparently Greece and Norway All accession countries

Other European countries: transition period towards ČR – length depends on bilateral agreements

Changes to take effect when CR joins EU