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Czech Republic: Country and Foreign Investment

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Czech Republic Geography

The Czech Republic is a landlocked country in central Europe. With an area of 78,900 sq km, it shares borders with Germany and Poland to the north, Austria to the south and Slovakia to the east. It enjoys a temperate climate, with warm summers and cold winters with significant snowfall. The country is not mountainous, with flat plains to the west and extremely hilly terrain to the east. The highest point is Mt. Snezka (5,250 feet (1,603 metres)). The country does have mountain ranges at its borders (notably the Carpathian Mountains to the south-east). Three major rivers flow through the Czech Republic – the Vltava (the longest river in the Czech Republic), the Elbe and the Oder.

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Czech Republic History, Population, Language and Culture

The lands that form the modern-day Czech Republic (Bohemia and Moravia) have been part of European culture for over 1,000 years, and date back to the first Slavic settlements in central and eastern Europe. Its modern history has been somewhat turbulent. The state of Czechoslovakia was formed at the end of World War I and remained united until 1993, when the republic separated into two independent states: the Czech Republic and Slovakia.

In 1938, the so-called Sudetenland (comprising the regions of Czechoslovakia bordering Germany) was annexed to Germany and during the following years, Hitler invaded the remainder of the country. Czechoslovakia was overrun by Soviet forces as World War II neared its end. In 1968, the radical and reformist leadership of Alexander Dubcek caused considerable Soviet concern and the joint forces of a number of Soviet-bloc countries invaded the country to quell the regime. The “Velvet” revolution of 1989 brought about the collapse of the Communist Party in Czechoslovakia, which coincided with the demise of the Soviet-bloc.

The population had risen to 10.5m at June 30, 2009 (an increase of 21,000 in the first half of the year). The Czech capital of Prague (population 1.22m) sits on the River Vltava and is now a major tourist destination for those seeking cultural city breaks. Other major cities are Brno (population 367,000) and Ostrava (population 336,000).

The principal language is Czech, a West Slavic language, and this is spoken by 96% of the population. The language is also spoken in some parts of Austria and Poland and is similar to the Slovak language. The Czech Republic is not a particularly religious country, with around 59% of its inhabitants claiming to be agnostic or atheist in their beliefs. Just over a quarter are Roman Catholics.

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Czech Republic Government

The Czech constitution divides the state into three administrative divisions: a two-tier legislative assembly, an Executive, and the Judiciary.

The legislative assembly, or parliament, is formed of the lower Chamber of Deputies and the upper Senate; members of both of these chambers are elected by the public. The Chamber of Deputies has 200 members elected for a term of four years. The Senate has 81 members who are elected for a term of six years. The main political parties are the Civic Democratic Party, the Social Democratic Party, and the Christian and Democratic Union (or Czechoslovak People’s Party).

The Executive is composed of the Prime Minister and his ministers and is the supreme political entity in the country. The Prime Minister is appointed by the President, who also appoints ministers, and these ministers form the government of the Czech Republic. The Judiciary is the third and final tier of power and is administered by independent courts.

Jan Fischer is the current Prime Minister of the Czech Republic (elected May 2009) and the President is Vaclav Klaus (since March 2003 and re-elected in February 2008).

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Czech Republic Economy and Currency

The official currency is the Czech Koruna (crown). The country has one of the strongest economies of the emerging nations with a GDP per capita of USD26,100 in 2008. Public debt stood at 29.4% of GDP in 2008. Inflation was 2.9% in 2009 and the country has a labour force of over 5.3m, many of whom are highly skilled. Unemployment was 6% in 2008. Not surprisingly, neighbouring Germany is its biggest import/export partner. Principal industries include the automotive industry, metallurgy, and machinery and equipment manufacture. Service industries contribute by far the most to GDP (59%), with industry contributing 38% and agriculture 2.8%.

The Czech Republic joined the European Union in 2004. There is political resistance to adopting the Euro as its currency and it seems unlikely that this will occur within the next decade.

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Czech Republic Entry and Residence

The Czech Republic’s state boundaries fall within the Schengen Area, and this allows relatively free movement for those travelling to other countries defined as being within the Schengen Area. Necessary ID is required when entering the Czech Republic from international destinations via main airports or other termini.

Long-term and short-term visas may be issued for the purposes of employment or tourism. Individuals can apply for a long-term residence permit if they intend to remain in the country for more than 90 days for the same purpose they entered under either a long-term or short-term visa.

For tax purposes, anyone who has a permanent home in the Czech Republic or stays in the country for more than 183 days in a calendar year will be classified as a resident and therefore will be liable to tax on their income in the Czech Republic and elsewhere in the world. A person who is employed by a foreign company that does not have a permanent business base in the country, and who stays in the country for less than 183 days in a calendar year, will be exempt from tax.

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Czech Republic Business Environment

Telephone exchanges are being upgraded to facilitate Internet access, and 86% of exchanges are now digital. There are 2.3m landlines in use, although take-up has slowed due to the proliferation of mobile technology – there are 13.8m mobile phones (more than one per head of population). Mobile phone take-up has been prolific in recent years. Six million people have Internet access.

The Czech Republic has a modern transport system that is growing rapidly. Prague has a major international airport that handles the vast majority of passenger and freight transport by air. There are also airports at Brno and Ostrava. There are over 55,000 km of roads and motorways in the country and 9,600 km of railways. Modernisation of the railway network is ongoing and should be completed soon. International connections by road and rail are good. Prague has a comprehensive transport system, utilising metro (underground), buses and trams. There are also navigable waterways (664 km), notably on the three major rivers.

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Czech Republic Investment Incentives

The Czech government may make incentives available to companies (new or existing), whether owned by Czech nationals or foreign investors. Total or partial income tax exemption may be available for the first 10 years in the manufacturing sector, backed up by finance to subsidise employee’s wages and training costs where new jobs are created.

The Investment Incentives Act (2004) has made investment in the country more attractive to investors. In addition to tax exemption, the government may also facilitate moving to a specialised industrial or manufacturing zone at discounted prices and the money available to subsidise employee costs is up to CZK200,000 per employee for the creation of new jobs and up to 35% of any training costs.

Minimum capital investment is required in order to qualify for these incentives and this can be between CZK100m and CZK200m, depending on the area and prevailing unemployment rates.

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