Czech Republic Attracting Record Inward Investment

by Ulrika Lomas, Tax-News.com, Brussels

23 January 2007

In 2006, CzechInvest mediated for the Czech Republic a total of 176 investment projects, worth US$4.6 billion (EUR3.6 billion) - the largest inflow of foreign investment into the country in the government business and development agency's fifteen-year existence.

CzechInvest said that the 2006 figures "far surpassed" the previous year's inward investment volume, when the agency concluded 151 projects.

“In the Czech Republic, foreign investors find a highly skilled workforce, advantageous geographic location and favourable operating costs. Of course, all of these advantages are particularly beneficial for domestic companies that are gradually becoming significant players in the global market," announced Tomas Hruda, CEO of CzechInvest.

According to Hruda, the amount of money invested through the agency in 2006 was more than the level invested in 2004 and 2005 combined.

“Among the received projects, there is a very large number of projects with high added value," he continued.

"For 2006 we have a total of 44 projects involving technology centres and centres of shared services, which is the largest number of such projects in the agency’s history. These projects are among the most attractive because they bring technological know-how, attract top-notch specialists and reinforce the Czech Republic’s good name abroad," Hruda noted, adding that the agency intends to focus on attracting these sophisticated investments in the years ahead.

Most of the investment projects and the largest volume of investment (US$2.2 billion) were directed to the Moravia-Silesia region, in the country's industrial north-east. The second most attractive location was the Usti region, which borders Germany in the north, with a total volume of US$0.6 billion. The Moravia-Silesia and Usti regions are among the areas worst affected by structural problems.

Rene Samek, director of CzechInvest’s Investment and Applied Research Support Division, noted that much of the 2006 investment was used to expand existing businesses in the Czech Republic.

"This indicates that investors have been successful in the Czech Republic and want to further develop their operations here, and are decidedly not planning to leave the country,” Samek observed, adding: “We also successfully mediated orders for Czech companies. With our assistance, companies from the Czech Republic concluded supplier contracts worth nearly two billion Czech crowns (US$93.2 million).”

Since it was established in 1992, CzechInvest has been involved in 771 investment projects in the total value of US$18.566 billion.

The largest investment project in 2006 was that of South Korea's Hyundai Motor Company, which invested over US$1.2 billion into a plant in the Moravia-Silesia region, creating 3,000 jobs. Three Japanese companies were among the top five investors, represented by IPS Alpha Technology and Hitachi, manufacturers of electronic devices, and AGC, a glass maker. These companies invested US$120 million, US$102 million and US$115 million respectively, all in the Usti region. German company Automotive Lighting Reutlingen, an auto-part manufacturer, was the other top-five investor, putting US$106 million into the Vysocina region in the south-east.

In a bid to boost inward investment still further, the Czech government has been exploring a flat tax system, an idea that has caught on fast in the investment-hungry countries of the former eastern-bloc.

Earlier this year, a centre-right coalition of three parties dusted off plans for a single rate of income tax which were abandoned by last year's minority government in the face of opposition from the Social Democrats. Last August, incoming conservative Czech Prime Minister Mirek Topolanek had said that he would set aside his party's goal of introducing a flat rate of income tax, and pledged instead to simplify the tax system. However, the representatives of the Civic Democrats, the Christian Democrats and the Greens said after Christmas talks that they would introduce a 17% to 19% flat tax if they win the elections, to apply both to companies and to individuals.

Corporate tax in the Czech Republic was reduced to 24% last year, and personal income tax rates are levied at progressive rates between 15% and 32%. The standard rate of VAT is 19% for most goods and services, with a 5% discounted rate for certain specified goods.

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