TAPPING INTO THE EUROPEAN UNION: BEST BUSINESS OPPORTUNITIES IN CZECH REPUBLIC

--Priyamvada Lonial, Legal Specialist

Located in the heart of Europe and surrounded by some of the strongest economies in the Euro Zone, Czech is one of the fastest growing economies in the world. It offers a host of opportunities for businesses and start-ups alike, and boasts of lower costs of living and operations as compared to countries like France and Germany. It is one of the most viable options for people looking to do business in sectors like R&D, logistics, and transportation; and its EU membership ensures seamless access to the single European market consisting of over 500 million consumers.

THE CZECH BUSINESS ENVIRONMENT

Czech has a thriving economy, with a GDP exceeding $300 billion and a GDP per capita of $27,223. It boasts of a dynamic economy which is ever-growing, and offers high standards of living at a relatively affordable cost. Innovation and growth are supported here, with the government offering multiple incentives to individuals investing in technology centres, business support service centres, manufacturing industry, and manufacturing of strategic products. The sectors that receives the highest number of investment incentives is the manufacturing sector, followed by engineering, rubber & plastic, metalworking, electronics & electrotechnic, and chemicals & pharmaceuticals. 

Czech also offers a competitive tax regime, with the corporate tax rates standing at 21%, starting from 1^st January 2024. There is a special corporate rate of 15% levied on dividend income of Czech tax resident entities received from non-resident entities (unless subject to participation exemption). Furthermore, a 5% corporate tax rate applies to the income of certain investment funds. Similarly, personal income tax is levied at 15%, and the tax base is calculated on the gross salary, including social security and health insurance. If the tax base exceeds an amount which is 48 times more than the average salary, it will be taxed at 23%. Lastly, but most importantly, Czech’s major trade partners include big global players like France, Germany, the UK, and Spain, which further facilitates the growth and development of its economy. The key industries majorly include automotive, chemicals, AI, and defence, which have been discussed at length at a later stage herein.

START-UP ECOSYSTEM OF CZECH REPUBLIC

Prague has a robust start-up ecosystem which is valued at over $7.66 billion and shows no signs of slowing down anytime soon. Other upcoming start-up destinations in Czech include Brno, Ostrava, Plzen, and Olomouc; with the most high potential industries including e-commerce & retail, health tech, marketing & sales, and software & data. The country is home to 3 unicorns, more than 7700 start-ups, 13 incubators, and 44 investors; and there is further scope for growth since a scheme targeting early stage Czech start-ups is in the works. 

In order for your venture to be considered a start-up, the following conditions must be fulfilled:

• Must be less than 7 years old
• Must be developing an innovative product
• Must have potential for rapid growth
• May usually require investment to propel its operations and growth

It is noteworthy that Czech based start-ups may be entitled to several government backed incentives such as technology incubation, digital regulatory sandbox, etc which provide direct and indirect support to start-ups. 

KEY INDUSTRIES

The key industries that contribute significantly to the Czech GDP and drive the economy are as follows:

1. Automotive

The automotive industry employs over 180,000 people directly, and a total of half a million people overall. It accounts for 10% of the national GDP, and 20% of the total exports. The industry, though well-established, is still growing steadily, with production value having increased by 14% in 2023, which was seen by way of production of 1.42 million vehicles. Out of the many players, Skoda is perhaps the most popular and established; producing nearly 62% of all the passenger cars. The best locations for entrepreneurs in the automotive sector are Mlada, Boleslav, Kvasiny, Nosovice, and Kolin.

1. Defence

Czech is well-known for its defence industry, which exports 90% of the total products it manufactures. Before the Russian-Ukrainian conflict, the industry had an estimated turnover of over €2 billion, and currently exports most of its products to Ukraine. This industry is marked by 170 companies and more than 20,000 employees.

1. Space

Czech has one of the best aerospace industries in all of EU, and currently has more than 100 active companies and institutions. Companies herein are mostly involved in environmental monitoring, contribution to intelligent transport, and ensuring security in general. The industry is set to witness more growth owing to the continuous development of not only the overall capacity and capability, but also academia in terms of space activities.

1. Advanced Industrial Technologies

The manufacturing industry as a whole, contributes on an average, 25% to Czech’s total GVA. Out of this, the mechanical engineering sector is one of the most highly regarded not just in the European Union, but also the world. This can be evidenced by the presence of manufacturing operations of global giants like Bombardier, Daikin, Honeywell and Siemens, among many others. The country is also the 8^th largest exporter of machine tools in Europe, and the overall share of hi-tech products in exports exceeds the 20% mark. If your company is engaged in manufacturing electron microscopes, air guns and other advanced tools, Czech might be the right place for you.

1. Health-Tech

Health-tech is another rapidly growing sector that has the potential to contribute significantly to the Czech economy. In the past decade, the government invested nearly €3 billion in healthcare related research and development activities. Major cities like Prague, Brno and Olomouc have research centres set up for the advancement of the sector, and the government also offers tax incentives for R&D and investment incentives targeted at high value added activities. Major companies like Lonza and Johnson & Johnson setting up their regional operations in Czech is a testament to the rapidly growing health tech industry.

1. Artificial Intelligence

Artificial intelligence is one of the most dynamic fields worldwide, and has impacted every country to some extent; and Czech is no stranger to the same. The country has a vast network of skilled researchers at local universities, which attracts many companies to send their AI research teams there. Prague and Brno are the most popular locations for AI companies, and also host multiple events like AI days and Dny AI on an annual basis to accelerate the growth of the AI landscape in Czech. AI start-ups also receive comprehensive support, subject to the fulfilment of certain conditions, which SUO Consulting will help you navigate.

1. Creative Industries

This area encompasses industries like design, fashion, gastronomy, advertising, radio, digital, games, and many more. Czech is already known for its gaming industry, AR & VR, design and architecture. The gaming industry, in particular, receives support, with start-up growth being facilitated by incubation centres like Creative BIC, KUMST, and Gamebaze.

1. Eco-Tech

Czech is an up and coming destination for environmental technologies, with around 67 universities having multiple research facilities focused on this domain. Brno and Ostrava are the best destinations for this purpose, since many international companies working on environmental technologies having their headquarters in Czech. 

1. Chemicals

Though Czech accounts for a mere 2% of the EU’s total chemical production, the integrated chemical industry is the second largest industrial sector in the country (only behind automotive.) The industry is marked by the presence of multiple clusters, particularly in Bohemia (including Prague) and north Moravia. Foreign investors are key actors in the growth of this industry, which is touted to have the highest growth potential in the country as per multiple sources. This industry also plays a significant role in supplying raw material to several downstream domestic industries.

1. Semiconductors

The European Commission has accorded the first rank on Czech with regards to innovation in terms of important projects of common European interest on microelectronics and communication. Czech’s semiconductor valley produces more semiconductor wafers and integrated circuits than the German city of Saxony. The said semiconductor valley is part of the Silicon Europe Alliance, which is the largest EU cluster organization housing over 2,000 companies and generating 400,000 jobs. Moreover, the Czech National Semiconductor Cluster (CNSC) established in Brno plays a vital role in accelerating the growth of the semiconductor industry, thus making Brno the most viable options for entrepreneurs engaged in the semiconductor industry.

1. Business Support Services

Czech is home to over 370 shared service companies, with the sector employing over 160,000 people and growing rapidly at 12% per year. The top services delivered in this domain include IT research and development, fintech, data analytics, knowledge management, and HR services. While the top destinations for the same being Prague and Brno (contributing nearly 77% of the total revenue), upcoming centres include Ostrava, Olomouc, Plzen and Pardubice.

RELOCATION

If you are a non EU national looking to relocate to Czech for the purposes of entrepreneurship or self-employment, you will need to obtain a long-stay visa which will be valid for a period of one year. However, getting your visa approved does not entitle you to reside in Czech, as you will need to get yourself registered at the Alien Police Inspectorate within 3 days of your arrival in the country. The permit can be renewed for a period of another year, provided that you continue to fulfil the conditions based on which you were granted the right to reside in the country. You can apply for permanent residence after 5 uninterrupted years of residence, and citizenship by naturalisation after 5 years of permanent residence. 

Moving on to expat friendliness, Czech is rather open to expats with nearly 10% of the country’s population being made up of expats. The most preferred destinations for expats include Prague, Brno, Ostrava, and Olomouc. Language barrier might cause an issue, since English proficiency is not that high. However, you can avail language and cultural integration courses to ensure an easier settling in process.

As far as start-up founders are concerned, if you are looking to relocate as a founder or key personnel of a Czech based start-up, the government offers visa support, provided that your entity fits in the definition of a start-up. You will be subject to priority at the embassy, faster visa processing time, a two year residence permit (as opposed to the usual one year) with the possibility of extension, and scope for family reunification. 

At SUO Global, we understand the complexities that arise with the visa application and settling in processes in a foreign country. Our aggregator model comprising a network of legal and immigration experts will help you with their expert advice and knack for achieving the best outcomes for clients.

CONCLUSION

Czech Republic is full of exponential potential waiting to be realised by skilled entrepreneurs. Many industries like automotive and semiconductors are already well established and even globally renowned, and the government also offers multiple incentives to investors, entrepreneurs, and start-up founders alike. Though living in Czech comes with its own set of challenges like language barrier, you can establish your venture and get profitable returns on your investment, provided that your moves are strategically planned and backed by sound legal advice.