Czech Republic: Why Investors Are Setting Their Sights On The Czech Republic

Last Updated: 23 September 2014
Article by Frederic Labiche

Having lived in the Czech Republic for nearly 18 years now, TMF Group Czech Republic's Managing Director Frédéric Labiche has an insider's view of its changes and developments – and more recently, its struggles. But with the country on an upward climb, he looks at what businesses need to consider when expanding to this Central European gem.

A cloud has been lifted in the Czech Republic following the announcement that a more sustained recovery is expected next year, with some predicting GDP to grow more than 2% in 2014. So, with positivity reigning supreme and businesses looking to this budding country, it's important to highlight some of the prevailing points companies should be aware of.

Business culture

The power of culture should never be underestimated and as a Frenchman living in the Czech Republic I can sympathise with the difficulties of expatriation.

Firstly, the language is hard; in fact, it is seen to be the most complex of the Slavic languages and relatively speaking it is spoken by very few around the world. But this is counterbalanced by the Czech people's linguistic fluency. You will be hard pushed to find a young person who does not speak English, with German also being a popular second language for Czech nationals.

Business-wise language is certainly not an issue, with many expats having been running successful businesses for years despite not speaking Czech.
Working with Czech people is very easy, partly because of their proficiency in speaking English, but also because of their approach to business. Hierarchy is respected and the people are conscientious in delivering what is requested of them.

Business appeal

Despite some political instability over the years, a coalition government is currently in place and it is doing its utmost to attract investors. The Finance Minister is particularly well regarded thanks to his adoption of policies and practices to revolutionise the business culture.

Further evidence of the country's upward turn is the recent partnership agreement with the European Union (EU). The agreement will see €22bn ploughed into growth and employment over the next six years, giving the country's economic outlook a healthy boost and waving a red flag at potential investors.

There are also a number of appealing incentives from the country and the region. But it is worth pointing out that these are much easier to access if you set up outside of the country's capital, Prague, as the thresholds are lower.

The benefits of looking outside Prague don't end there. Given its very low unemployment rate, which is currently around 3%, it is actually far easier to recruit talented staff elsewhere. Running costs are also noticeably cheaper, which is one of the reasons new investors are choosing different Czech cities. Given that the Czech Republic is a mere 300km from north to south, you are never far from the capital anyway.

Another reason many businesses are drawn to the Czech Republic is its historical industrial presence. While it was part of the Austrian Empire, 70% of the empire's industry was based in the Czech Republic and in 1918 it was the 10th most industrial country in the world. This culture is still very prevalent, with industry representing about 40% of the country's GDP. In recent years we have seen a peak in the number of IT companies, research and development centres and shared services centres settling all over the country.

The challenges

Like anywhere, there are some snags to operating in the Czech Republic, not least the frequent changes to the law, which are often done at the last minute. Companies must be both proactive and reactive in order to first learn about the changes and to then implement them.

A recent example of a major change is the introduction of a new Business Corporations Act, replacing the old commercial code since the beginning of the year. Companies were obliged to align their corporate documentation with the new regulatory framework, which was no mean feat. And to pile on yet more pressure, the responsibility for these changes sat with executives, meaning they could be found personally liable if the changes were not properly implemented.

We were able to manage this whole process for our clients - it's always worth thinking about working with a partner who can support you through major changes like this.

Investors are also often unaware that all correspondence with the state authorities is done through an electronic online data box. Every company is assigned one and you will be given special access. It must be accessed frequently - at least once a week - but everything is in Czech, making this the one area in business where knowledge of the language is essential.

You will need to decide who to entrust with access to and management of the data box; extremely confidential information about the company can pass through it, so this will need careful consideration. The language and the sensitivity of the information lead lots of companies to adopt a partner to assist them with managing the data box – it's a service the vast majority of our clients request from us.

The future

Now the recovery is really kick-starting stable growth is sure to follow. On top of that, the country offers a fantastic lifestyle that's ideal for those moving because of business. The country certainly has a bright future – otherwise I wouldn't be here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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