Top 10 challenges of doing business in Czech Republic

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Czech Republic has laid the welcome mat out for foreign investors, but doing business in the country can be a troublesome task without having local help on board.

With a strategic location, educated workforce and competitive infrastructure, Czech Republic has long been an appealing destination for overseas firms looking to grow in Central and Eastern Europe (CEE). It is one of the most successful CEE countries in terms of attracting foreign direct investment, with over 173,000 Czech firms across all sectors now supported by foreign capital.

Located close to Europe’s industrial backbone, Czech Republic’s central location is considered the best choice for investments in transport and logistics because of its proximity to consumption and production zones. This, together with its EU membership, makes the country a perfect gateway to the single European market of 502 million consumers. Supporting this strategic location is one of the most advanced transport networks in CEE which has been ranked among the world's best in terms of transport-network density. This makes it an ideal supplier base and an excellent distribution centre.

Strong economic performance throughout the global downturn adds to Czech Republic’s strong credentials, but despite a spate of public and private modernisations, the country is still considered to be a difficult place in which to conduct business, and having local help when expanding is a must.

Starting a Business
The World Bank and International Finance Corporation (IFC) rank Czech Republic in 140th position in the world for ease of starting a business, largely down to the barrage of bureaucratic procedures companies face when starting up. Among other processes, businesses must liaise with the Czechpoint Offices, the Trade Licensing Office and the Regional Commercial Court.

Dealing with Construction Permits
There are 33 procedures to complete when dealing with construction permits, which take an average of 120 days. From the municipality to the local electricity provider, the local telecommunications provider, the local trade license authority, the road management agency, the local street lighting provider and many more inter-governmental departments, companies have to navigate a spate of disparate departments.

Getting Electricity
Electrical connection is another area in which the World Bank and IFC rank the Czech Republic poorly. PreDistribuce, the state provider, conducts inspections and completes the works. Getting a connection contract and awaiting approval of the connection can take half a year on average to complete.

Registering Property
In terms of obtaining a premises, registering property is by far the most streamlined task. Still, it takes 24 days to complete on average, with most of that spent applying for registration at the Cadestral Office.

Getting Credit and Protecting Investors
Thanks to good private bureau coverage, it is relatively easy to get credit in Czech Republic. On the other hand, investor protection is not so strong, with the disclosure and director liability index far lower than the OECD average.

Paying Taxes
Although there are only eight corporate tax payments to make each year, the time to process them can be anything up to 413 hours of business time. Social security contributions take 217 days to process alone and corporate income tax and VAT can also take a considerable amount of time to work through.

Trading Across Borders
Trading across borders is a time consuming affair. It takes 16 days to process goods when exporting and 17 when importing, with up to seven documents to prepare before goods can be moved.

Enforcing Contracts
It takes 611 days to enforce a contract and requires 27 procedures to be navigated. Trial and judgement and the enforcement of the judgement can be very slow.

Resolving Insolvency
The recovery rate from insolvency cases stands at 56.3 cents on the dollar, which is lower than the OECD norm of 70.6 cents. It takes 3.2 years to resolve insolvency all told.

Czechs are non-confrontational and can be quite indirect in their approach. Rather than giving upfront ‘yes’ or ‘no’ answers, business people can often skirt around a direct answer, which can be difficult to grow accustomed to at first. It is important not to be impatient and allow businesses to work at their natural pace.

TMF Group
We have the local knowledge to help you navigate these minefields. Whether you want to set up in Czech Republic or just want to streamline your Czech operations, talk to us.