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Home » Countries » Europe » Czech Republic

Global expansion is a step to make for any business, regardless of what you wish to achieve. The opportunities that can come with an expansion can be both incredibly exciting as well as intimidating and confusing, especially when you consider all of the registration procedures that needs to be done and documentation required.

Expanding to countries such as the Czech Republic – which is characterized by a skilled and well-educated workforce, multifaceted employment and tax laws, an extensive infrastructure network linking to the rest of Europe, and leading sectors in agriculture, manufacturing, and services – can bring both excitement to the possibilities, but also significant stress to ensuring the entity with the country’s rigorous legal structures and laws.

Ensuring compliance without the sufficient knowledge of the country’s laws also adds to the stress of getting your new entity off the ground and ready to test new markets. Going at it without the proper support can increase the costs, time and risks involved.

Each new markets bring new challenges, and these can be worked through more efficiently and cost-effectively with the support of an International Professional Employer Organization (PEO) such as Bradford Jacobs, especially through our Employer of Record (EOR) framework. This can be best utilized when businesses are just beginning their expansion process and require more information before committing to incorporating an entity and fully establishing themselves in that market.

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Czech Republic – The Economy

The economy of the Czech Republic is a developed export-oriented social market economy based in services, manufacturing, and innovation that maintains a high-income welfare state and the European social model.  It uses its own currency, the Czech koruna, instead of the euro.

The Czech Republic is also a member of the Organization for Economic Co-operation and Development (OECD), NATO, the European Union, OSCE, and the Council of Europe. It participates in the European Single Market as a member of the European Union and is therefore a part of the economy of the European Union.

The three main sectors of the Czech Republic’s economy are the industry sector (accounts for 37% of the economy), services (61%) and agriculture (2%). The principal industries are high tech engineering, electronics, and machine-building, steel production, transportation equipment (automotive, rail and aerospace industry), chemicals, advanced materials, and pharmaceuticals. The major services are research and development, ICT and software development, nanotechnology, and life sciences. Its main agricultural products are cereals, vegetable oils and hops.

The Czech Republic has one of the lowest unemployment rates in the EU at 2.6%, and the poverty rate is the second lowest of OECD members, following Denmark.

The Czech Republic ranks 21st in the Index of Economic Freedom (ranked behind Chile), 24th in the Global Innovation Index (ranked behind Australia), 32nd in the Global Competitiveness Report, 41st in the ease of doing business index and 25th in the Global Enabling Trade Report (ranked behind Canada). The Czech Republic also ranks 12th in inequality-adjusted human development and 24th in World Bank Human Capital Index, ahead of countries such as the United States, the United Kingdom or France. The largest trading partner for both export and import is Germany, followed by other members of the EU. The Czech Republic has a highly diverse economy that ranks 7th in the 2019 Economic Complexity Index.

Small and Medium-Sized Companies

In the Czech ‘non-financial business economy’, SMEs play a particularly important role. They account for 56.0% of total value added and 66.4% of employment, very similar to the respective EU averages of 56.4% and 66.6%.

In recent years, Czech SMEs in the ‘non-financial business economy’ have generated steady growth. In 2014-2018, SME value added increased by 32.9%, with micro and small firms experiencing particularly strong growth of 39.3% and 38.7%, respectively.

Annual productivity of Czech SMEs, calculated as value added per person employed, is €24,400, considerably lower than the EU average of €44,600. SMEs in Czechia employ an average of 2.4 people, which is much lower than the EU average of 3.9. The most important SME sectors, both in terms of employment and value added, are manufacturing and wholesale and retail trade.

CountryThe Czech Republic/Czechia
No. of States/Provinces13
Principal CitiesPrague, Ostrava, Brno, Plzen, Liberec, Olomouc, Usti nad Labem, Ceske Budejovice, Hradec Kralove, Pardubice
Local CurrencyCzech koruna (CZK, Kč)
Major ReligionIrreligious/Unaffiliated
Date Formatdd/mm/yyyy
Time ZoneCentral European Time (GMT+2)
Country Dial Code+420
Population10.7 million
Border CountriesPoland (north and northeast), Slovakia (east), Austria (south), and Germany (west and northwest)
Tax YearJanuary 1 – December 31
VAT %21%
Minimum WageCZK 16,200 per month
Taxpayer Identification NumbersCompany Registration Number (Identifikačné číslo organizácie – IČO)
Taxpayer Identification Number
VAT ID Number (Daňové identifikační číslo – DIČ)
Leading Sectorsmanufacturing, services, agriculture, engineering, electronics, motor vehicles, metallurgy, machinery, chemicals, pharmaceuticals
Main importsBroadcasting Equipment, Vehicle Parts, Office Machine Parts, Computers, and Packaged Medicaments
Main exportsCars, Vehicle Parts, Computers, Broadcasting Equipment, and Office Machine Parts
Main trading partnersGermany, Slovakia, Poland, France, Austria, China, and Netherlands ($7.41B).
Government TypeUnitary parliamentary republic
Current Prime MinisterMiloš Zeman (President), Petr Fiala (Prime Minister)

The Main Sectors of the Czech Republic Economy

The Czech Republic focuses on the following key sectors, which all have a significant impact on the country’s economy:

  1. Manufacturing – The manufacturing industry is the main pillar of the Czech’s economy. There is great output from high-tech engineering, machine engineering, and automotive engineering. The Czech Republic is the 12th largest global car exporter and has employed over 150,000 people. One of the largest and most significant products is Skoda Auto which is over 100 years old in automotive history.

  2. Services – Approximately 60% of the employees in the Czech Republic work in the service sector just close to the European average of 75%. This percentage of employed persons qualifies a country to be called highly developed.

    With the increase in competition in the automotive industry from countries like Japan, Germany, and Mexico, the service sector has risen to be among the most productive industry in the Czech Republic.

    The focus in the services sector is on research and development, ICT and software development, nanotechnology, real estates, consultancy, business (such as finance), and life sciences.

  3. Agriculture – Agriculture contributes dismally to the economy of the Czech Republic at about 3.9%. However, the country has prioritized agriculture by categorizing it as one of the key areas in the national economy. This strategy aims at increasing agricultural production to ensure food security.

    The ever-increasing demand for safe and nutritious food has presented an opportunity for this sector to thrive by producing even more to feed her growing population.

    The agricultural sector also focuses on sustainable methods of agriculture. In most cases, farming is practiced on the farms occupying about 800 hectares of land.

  4. AI & Digital – The Czech Republic is one of the best European destinations for investments in information and communication technologies (ICT). This is confirmed by the strong inflow of projects with high value added from leading global companies in this area and the local tradition of outstanding technical fields. The list of successful investors in the country includes, for example, Microsoft, Skype, Tieto, Red Hat, SolarWinds, IBM, Cisco, Oracle, and MSD IT.

    In addition to foreign companies, however, a full range of ICT companies of Czech origin, such as Avast, GoodData, Y Soft,, Socialbakers and STRV, operate in the Czech Republic. These companies have succeeded in expanding and are now known practically worldwide. The Czech Republic is also home to several top-level research centres that have achieved outstanding results and won awards in the area of information and communication technologies.

  5. EcoTech – The Czech Republic is a signatory of international commitments aimed at environmental protection and stands side by side with the other countries of the EU-27 in the fight against global threats. It has also joined ambitious climate and energy commitments of the European Commission and believes in industry based on clean technologies. This is confirmed by rising government investment in environmental and energy research.

  6. Advanced Engineering – Since the early 20th century, the engineering industry remains one of the cornerstones of the Czech economy. Stable economic environment, high level of manufacturing technological maturity and cutting-edge R&D programs contribute to the creation of the optimal climate for business establishment and further development. This fact has been recognized by the world´s major players such as Siemens, ABB, Honeywell, or Daikin, who have invested in various facilities in the Czech Republic.

    The Czech Engineering sector employs over 126 000 workers and around 85% of manufactured products is being exported. More than 5200 machinery companies are manufacturing even the most sophisticated components, which makes the Czech Republic 2nd most specialized in Industrial Machinery, equipment, and tools in the world. That makes the Engineering sector one of the three most important industry sectors in the Czech Republic.

  7. Life Sciences – The Czech government set development of new pharmaceutical treatments and diagnostics as one of the top priority areas and allocated public funding of over EUR 2.5 billion in the last decade to strengthen the sector’s research infrastructure. New state-of-the-art research facilities have been completed in Prague, Brno, Olomouc and Plzeň to complement the existing institutes of the Czech Academy of Sciences and universities.

    Czech research teams are internationally recognized for their quality research in molecular genetics, immunology, analytical and pharmaceutical chemistry and biochemistry, cardiology, neurology, metabolic diseases and, more recently, medical applications of nanotechnologies.

    The success of companies and research institutes operating in the Czech Republic in the life-sciences sector stems from the country’s track record in R&D and high-quality education. According to Ministry of Education statistics for 2016-2017, more than 50,000 students are enrolled in natural science study programs at universities, including Charles University in Prague, which was established in 1348 and thus ranks among the oldest universities in Europe.

Compliance Highlights

  • The Financial Administration Tax Office – Tax Offices represent regional and organizational units of the first level in the Financial Administration, working under the Ministry of Finance. Tax Offices provide the following activities:
    • perform the administration of taxes
    • carry out the proceedings about administrative offences
    • transfer collected tax incomes
    • perform supervision over lotteries and other gambling games
    • keep records and registers, which are needed for the performance of activity of the financial administration bodies
    • collect and enforce pecuniary compliance imposed by them
    • perform financial control
    • perform investigations according to the Accounting Act and imposes fines,
    • fulfill a role of Liaison Office for the recovery of financial claims and provide international assistance in the administration of taxes
    • review the economy of Regions, the Capital of Prague and regional councils of regions cohesiveness and performs a supervision over the reviewing of economy of municipalities, voluntary associations of municipalities and the city districts of the Capital of Prague
  • The Financial Administration Specialized Tax Office –Specialized Tax Office represents the Tax Office on the national level, working under the Ministry of Finance. The Specialized Tax Office is a respective Tax Office for the selected taxpayers. The seat of the Specialized Tax Office is Prague. Specialized Tax Office provides similar activities to the Tax Offices for selected taxpayers. The selected taxpayers are:
    • bank institutions
    • insurance companies
    • legal entities with turnover higher than CZK 2,000,000,000.
  • The Ministry of Labor and Social Affairs (MoLSA) – is responsible for social policy (e.g. people with disabilities, social services, social benefits, family policy), social security (e.g. pensions, sickness insurance), employment (e.g. labor market, employment services, employment of foreigners), labor legislation, occupational safety and health, equal opportunities for women and men, migration and the integration of foreigners, the European Social Fund and other social or labor-related issues.
  • The State Labor Inspection Office – the authority under the Ministry of Labor and Social Affairs competent to supervise the enforcement of labor legislation.

Labor Contracts Law

The Czech Labor Code is the main influence on employment law and contracts, supplemented by government acts, statutes, and European Union (EU) directives. Employees’ mandatory minimum rights are strictly protected and cannot be downgraded unilaterally. The State Labor Inspectorate ensures companies comply with regulations – plus health and safety and workplace conditions – and can stage summary inspections of employers’ premises.

Employers must provide a written contract at the start of employment detailing the type and scope of role, location where the work will be undertaken and the start date. Other details not covered in the initial contract must be provided in writing within one month of work commencing. These include remuneration, overtime, working hours and breaks, paid vacations, notice periods, termination, and severance agreements.

Outside of ensuring contracts at least comply with the Labor Code, employers can provide benefits above the mandatory minimums. Any internal policies or work codes regarding employees’ responsibilities must be in writing. Modifying such work codes or workplace policies requires the relevant labor union’s permission.

A contract must be in place before Czech or foreign employees start work. The minimum information which must be on the initial contract includes the type of work, the location/locations where the employment will take place, and he start date of employment. At this point the employee is entitled to all statutory rights. Within one month of starting work, the employer must supply written confirmation of other details including:

  • Detailed job description
  • Working hours and entitlement to breaks
  • Paid vacations
  • Confirmation of payment schedule

Changes to the contract’s terms have to be mutually agreed in writing. Although not legally required, contracts should be bilingual for foreign employees with one in Czech as the State Labor Inspectorate may demand to see them during an inspection.

Payroll – Tax Contributions and Benefits

Income Tax:

Individuals are considered tax residents if their permanent home is in the Czech Republic, or they usually reside there. Individuals who stay in the country for 183 days either continuously or in separate spells in a calendar year are liable for taxes.

The tax and immigration authorities share information on individuals’ moving in and out of the country and there are no tax concessions for expats. Residents must declare worldwide income from full- or part-time employment, rents, investments, and all other remuneration.

Health and Social Insurance: Mandatory participation in the Czech healthcare system applies to all Czech nationals; employees of employers based in the country; employees from other European Union countries; employees working for companies based in other EU countries and the self-employed from other EU nations. Employer / employee social insurance contributions go towards pension, unemployment and sick pay funds, health insurance covers medical care.

Employers contribute the equivalent of 24.8% of employee earnings towards social security and 9% for health insurance. Employees contribute 6.5% to social security and 4.5% to the health fund.

Sick Leave: During the first 14 days of illness the employer pays 60% of the individual’s salary. Under the Sickness Insurance Act, the relevant authority takes over payments from the 15th day.

Paid Vacations: Full time employees working a 40-hour week receive 160 hours annual leave (four weeks). Those in the public domain are eligible for five weeks and employees in academia eight weeks. Since January 2021 a pro rata formula calculates leave for those who have worked less than a year.

Public Holidays: Workers receive 13 statutory paid public holidays each year, which are not included in their annual vacation entitlement. Public holidays and other holidays are non-working days. An employee who does not work on a public holiday is entitled to wages in an amount equal to the employee’s average earnings.

Maternity leave: Female employees are paid for 28 weeks (37 for multiple births) with six to eight weeks pre-natal. The minimum permitted term that can be taken is 14 weeks; post-natal leave must last for a minimum of six weeks.

Maternity Benefit: This is 70% of average gross salary of the preceding year, if the employee has paid social security insurance for 270 days before leave begins, capped at CZK 43,470 (€1,700, US$1,961) monthly.

Paternity Leave: Set at 70% of employee’s daily earnings, capped at CZK 8,575 (€334; US$387) for the seven-day leave which can be taken post-natal at any time during first six weeks but as one period.

Parental Leave: This can be granted to both parents until the child is three, starting after completing maternity leave. However, benefit can be taken until the child is four, providing they are not at day care/school, to a limit of CZK 300,000 (€11,785; US$14,280). Although both can share the leave, only one parent, at any one time, can receive benefit which is paid from tax revenue.


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