Basic Information to Business in

the Czech Republic 2016

Table of Contents

Quick Facts...........................................................................................................................................2
Why the Czech Republic?....................................................................................................................2
Financial Information...........................................................................................................................3
Corporate Income Tax.................................................................................................................3
Value Added Tax.........................................................................................................................3
Payroll Taxes...............................................................................................................................3
Employment in the Czech Republic.....................................................................................................4
Employing Staff..........................................................................................................................4
Wages Rates................................................................................................................................5
Unemployment Rates..................................................................................................................6
Work Visas............................................................................................................................................7
EU Citizens.................................................................................................................................7
Non-EU Citizens.........................................................................................................................7
Contacts................................................................................................................................................8
Quick Facts

 Population – 10.6 million

 Capital City – Prague (population 1.3 million)
 Other Major Cities – Brno, Ostrava, Olomouc, Plzen
 Language – Czech
 Currency – Czech Koruna (CZK)
 Exchange Rate – 1 Euro = 27.025CZK (13/10/2016)
 Average Salary – 1 010 Euro per month.
 Unemployment Rate – 3.9%

Why the Czech Republic?

Hub for Foreign Investment - The Czech Republic is one of the most successful countries in
central and eastern Europe in attracting direct investment from foreign companies. The rate of
investment has been steadily growing since 1998 and was aided by the countries accession to the
EU in 2004. According to the Czech National Bank (CNB) there are more than 173 000 companies
supported by foreign capital.

EU Membership – As an EU member the Czech Republic has free access to the European single
market as well as the ability to take advantage of the visa free movement of labour.

Educated Workforce – The Czech Republic has a high standard of general education and is
traditionally strong in the sciences, engineering and technical disciplines.

Labour Cost - When compared with many other countries especially Western Europe the cost of
labour is relatively low.

Language Skills – The Czech Republic has a multilingual population with the most common
foreign languages being English and German.

Strategic Location – Located in the geographical centre of Europe close to the continent's
industrial core means that from a logistics/transport perspective the country is perfectly situated for
the production and supply of goods to the European single market. Additionally the Czech Republic
is often used as a gateway in to Eastern Europe, Russia and the CIS.

Liveability – Prague is home to a large expatriate population with a vibrant social life, good
infrastructure and amenities as well as a selection of quality international schools for non-Czech
speaking children.
Financial Information

Corporate Income Tax

The Czech fiscal year runs the same as the calendar year (ie. January to December) with income tax
being due by the 31st of March in the following year. In 2016 the corporate tax rate is 19%.

If in the previous tax period a profit was recorded and hence a tax liability incurred then advance
tax payments will be required either on a quarterly or biannual basis.

Value Added Tax

Companies with a turnover of over 1 000 000CZK (Approximately 36 500Euro) in a period of 12

consecutive months are required to register for VAT. (Companies may also register voluntarily prior
to reaching the mandatory threshold.)

The standard VAT rate is 21% with a reduced rate of 15% for foods, beverages and medical
treatments. A third rate of 10% is applicable for foodstuffs classified as essential for child nutrition,
pharmaceutical products and books.

VAT is paid either monthly or quarterly (depending on size of turnover) in arrears and is due within
25 days of the end of the period.

Payroll Taxes
Employees pay a flat income tax rate of 15% on gross monthly salary with an additional 7%
surcharge being applied for those with an annual income of over approximately 1 250 000CZK.
(cca. 46 000Euro.)

Additionally both the employer and employee will be required to make payment towards social and
health insurance. As can be seen in the table below the employers contribution amounts to 34% of
the employees gross salary.

Employee Employer's
Insurance Type Contribution Contribution
Pension Insurance fund 6.50% 21.50%
Sickness Insurance fund 0.00% 2.30%
Employment Insurance 0.00% 1.20%
Health Insurance 4.50% 9.00%
Total 11.00% 34.00%

All salaries, taxes and insurances are paid on a monthly basis no later than 15 days after the
conclusion of the month.
Example salary breakdown;

For the Employee

Gross Salary €1,000
Income tax 15.00% €150
Health Insurance 4.50% €45
Pension Insurance 4.50% €45
Net Salary €760

For the Employer

Gross Salary €1,000
Employment Insurance 1.20% €12
Health Insurance 9.00% €90
Pension Insurance 21.50% €215
Sickness Insurance 2.30% €23
Total cost to Employer €1,340

Employment in the Czech Republic

Employing Staff
An employment contract may be signed for either an indefinite time period (ie. permanent contract)
or a pre-defined time period. (eg. Six months.) However an employer may only use this type of
contract with the same employee in 2 consecutive time periods. If a further contract is offered it
must not be time limited.

The first three months of a contract are considered as a “trial period” during which time either party
may end the contract without notice. In the case of senior managers the trial period can be extended
to six months.

Termination by the Employee

After the expiration of the trial if an employee resigns then he/she is required to give 2 months
written notice, with the notice period commencing from the first day of the following month. In
practice it is fairly common that both sides will reach agreement that the employee be released
earlier.

Termination by the Employer

There are 2 main ways an employer may terminate an employment contract. The first being by the
issuance of written notice. To do this they must give a valid reason. The most commonly used
reasons are;
 organisational changes whereby the position is being eliminated and hence the employee is
redundant.
  all or part of the firm is being closed
 the employee has failed to meet specific standards of work performance and has received
written warnings from the employer within the past 12 months.

In the above cases the employer is required to give the employee 2 months notice plus a redundancy
payment of between 1 and 3 months salary depending on length of service.

Alternatively in order to avoid a messy or complicated situation the employer may decide to end the
contract by agreement with the employee. Usually in these cases the employee will take a lesser pay
out and in exchange the employer will not require them to actually work out the notice period.
Additionally they avoid having a negative mark on their employment record and can use the
employer as a reference when seeking future employment.

Finally there is provision within the law that under exceptional circumstances an employee may be
let go immediately without notice. However this is very rare and basically can only be invoked in
the case that the employee commits a gross breach of duty or a criminal offence.

Wages Rates

In the Czech Republic salaries are usually quoted on a monthly basis. (Not per annum as is the
custom in many other countries.) According to the Czech Statistical Office the average salary in
2015 was 26 467CZK per month. (980Euro) As of Quarter 2, 2016 this figure has risen to 27
297CZK. (1 010Euro) which is significantly below the European Union average of approximately 1
470Euro per month.

However it is important to note that salaries do vary quite significantly depending on the particular
region with wages in Prague being about 30% above the national average. See the map below for an
indication of average salary in each of the major regions for 2015.
 Additionally as would be expected there is also significant variance depending on profession. The
table below indicates the average monthly salary (in Euro) according to varies fields of
employment.

Unemployment Rates

The Czech Republic is currently experiencing somewhat of an economic boom meaning

unemployment has dropped to historically low levels. According to the Czech Statistical Office the
average rate for the year 2015 was 5.0%. However the overall trend was in a downward direction
with the year end rate being 4.5% and as of quarter 2, 2016 the preliminary figures show a further
drop to 3.9%.

From a recruitment perspective this level of low unemployment does not mean that there are not
good candidates available. But it will require more work to get them as traditional adverts are not so
effective. (Since there are less people actively seeking work.) Instead recruiters and their clients
need to work in close cooperation to attract passive candidates. (Those who are currently employed
but would be open to interesting new offers.)

Czech Unemployment Rate Since 2004

9.0
8.0
Unemployment Rate as %

7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
While unemployment is generally low, similarly to wage rate there are regional differences. As the
capital and largest city Prague had the lowest unemployment rate of 2015 at just 2.80% while the
Moravian-Silesian region had the highest at 8.14%. See the table below for a full breakdown of the
regions.

Work Visas
EU Citizens
The Czech Republic became a member state of the European Union on May 1 2004. From that date,
all citizens from other European Union member states have the same rights as Czech citizens.
Citizens of member states do not need any visa or other permits to be allowed to travel, live and
work in the Czech Republic. They can enter and reside in the Czech Republic without any
restriction.

Non-EU Citizens
For citizen's of countries outside of the European Union it will be necessary to apply for a residency
visa and a work permit. To gain residency a person must indicate a purpose of stay which will in
this context will most likely be either for the purposes of employment (A foreigner who wants to
work in the Czech Republic) or investment. (The individual will be either the owner or member of a
statutory body of a company registered within the Czech Republic.)
In the case that the purpose will be for employment then it will be necessary to apply for an
“Employee Card” which grants them the right to work in the Czech Republic.
The process is quite bureaucratic and will usually take 90 days from the initial lodging of
documentation. If required Dunross can recommend you a specialist immigration agency that can
help you to apply for any necessary visas or permits.
Contact

If you have any questions or if there is anything at all that we can help you with please do not
hesitate to contact us.

Dunross s.r.o.
Sudomerska 32, 130 00 Praha 3,
Czech Republic
Email: mike.gouteff@dunross.cz
Mobil: +420 603 167 910
Tel: +420 222 723 664
www.dunross.cz