Originally from:
International Protection of Foreign Investment 2nd Edition - Looseleaf
International Protection of Foreign Investment 2nd Edition - Electronic
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Czech Republic
Roland Behm and Mark Gardberg
Squire, Sanders & Dempsey
Prague, Czech Republic
Introduction
In General
In the nine years since the fall of socialism and the five years since its divorce from the Slovak Republic, the Czech Republic has generally enjoyed prosperous growth and a high volume of foreign investment. The transformation of the Czech economy has been the envy of the former socialist bloc. The government balanced its budget from 1993 to 1995, has kept inflation and unemployment rates relatively low (at approximately nine and 4 per cent, respectively), and for several years enjoyed a steady gross domestic product growth rate at between 4 and 5 per cent. Because of the ‘Czech economic miracle’, the country was:
• The first post-communist state to earn admission into the Organisation for Economic
Co-Operation and Development (OECD), and the 26th country in the world;
• The first to receive an investment-grade ‘A’rating from Standard and Poor’s, representing
the highest grade of all of the former Eastern bloc countries; and
• Among the first formally slated for early entry into the European Union (EU) and North
Atlantic Treaty Organisation (NATO).
In 1996 and 1997, however, the economic miracle lost some of its shine. Fundamental
inefficiencies in the economy and particularly the voucher privatisation process caused a
wide range of problems. In 1996, the trade deficit ballooned to US $6 billion—or 11 per
cent of that year’s nominal gross domestic product — while the 1997 gross domestic
product growth shrank to 1.5 per cent. The Czech currency, whose stability had been
touted for years by the Czech government as the symbol of the economy’s strength, was
attacked on the currency markets and de facto devalued by 15 per cent. The financial sector
reeled from a battery of white-collar crime scandals and massive defaults on loans,
causing the collapse of 12 Czech banks in a three-year period, with eight collapsing in
1996. Stagnant, non-transparent capital markets and ineffectual regulation and supervision
exacerbated the problems and undermined the public’s confidence in the economy
and the government.
Mirroring these twists and turns in the Czech economy has been a rise and fall in foreign
investment. The Czech Republic was, and is, among the regional leaders in attracting foreign
capital, pulling in approximately US $7.1 billion in the period between 1 January
Czech Republic
Introduction
In General
Laws and Investment
Opportunities for Foreign Investors
Regulation of Admission
Incentives to Investors
Governmental Policy, 1989-1996
Governmental Policy, 1996-Present
Incentives
Legislation
Business Licences
Common Forms of Entities
Taxation
Customs
Import and Export Licenses
Labour Law
Environmental Regulation
Intellectual Property
Treatment of Foreign Investment
Residency and Work Permits
Transfer of Funds
Unfair Business Practises
Protection of Foreign Investment
Nationalisation and Expropriation
Security Interests and Guarantees
Bilateral Treaties on the Protection and Support of Investment
Dispute Resolution
Domestic Courts
Arbitration
Roland Behm and Mark Gardberg, Squire, Sanders & Dempsey, Prague, Czech Republic
