Top 10 challenges of doing business in the Czech Republic
11. 12. 2015 | Source: BusinessInfo.cz
The 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, the 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, the 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 the 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 the Czech Republic 93rd 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 notarise Articles of Association and Lease Agreements and also liaise with the Trade Licensing Office and the Regional Commercial Court.
Dealing with Construction Permits
There are 21 procedures to complete when dealing with construction permits, which take an average of 247 days. From the municipality to the local electricity provider, the road management agency, the fire department, the real estate registry and many more inter-governmental departments, companies have to navigate a spate of disparate departments.
Electrical connection is an area in which the World Bank and IFC rank the Czech Republic a bit better, at 42nd in the world. PreDistribuce, the state provider, conducts inspections and completes the works. Getting a connection contract and awaiting approval of the connection can take almost four months on average to complete.
In terms of obtaining a premises, registering property is a much easier and streamlined task. Still, it takes 31 days to complete on average, with most of that spent applying for registration at the Cadastral Office.
Getting Credit and Protecting Investors
Thanks to good private bureau coverage, it is relatively easy to get credit in the Czech Republic. On the other hand, investor protection is not so strong, with the disclosure and director liability index lower than the OECD average.
Although there are only eight corporate tax payments to make each year, the time to process them can be anything up to 405 hours of business time. Social security contributions take 217 hours to process alone and corporate income tax and VAT can also take a considerable amount of time to work through. In this area the World Bank and IFC rank the Czech Republic 122nd in the world.
Trading Across Borders
Trading across borders is an area where, in the World Bank and IFC rankings, the Czech Republic takes first place. It takes only one hour to process goods when exporting and one hour when importing, with four documents to prepare before goods can be moved and no costs have to be paid.
It takes 611 days to enforce a contract with costs a lot higher than the OECD average. Trial and judgement and the enforcement of the judgement can be very slow.
The recovery rate from insolvency cases stands at 66 cents on the dollar, which is lower than the OECD norm of 72.3 cents. It takes as long as 2.1 years to resolve insolvency.
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.
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