Possibilities for Business in Czech Republic

Abstract

The Czech Republic began rapidly grow after the separation of the Czech and the Slovak Federal Republic into the Czech Republic and the Slovak Republic and the adoption in the European Union. Nowadays it takes 33 place in section presents the Ease of Doing Business rank among 189 economies according to the World Bank Group. Referring to the three factors: initial capital, legal framework and future opportunities, the Czech Republic is a suitable place for novice entrepreneurs. Assuredly, there are some cons in the Czech economy, for example, high taxes and dealing with construction permits that the Czech government works to prevent and minimalize. Also, there are many pros, which the Czech government wants to maintain and prevent. The objective of this paper it to find the strengths and weaknesses in business development in the Czech Republic. This may be of interest to businesspeople, who want to start up and operate their business in Central Europe.

Thesis: Entrepreneurs can start-up and operate their business in the Czech Republic because of its low initial capital, stable legal framework and future opportunities.

Start-up business in the Czech Republic

The Czech Republic is safety and quiet country in Central Europe, and it gives many capabilities to businesspersons to begin their business. A convenient location of the country gives a chance to cooperate with such countries as Germany, Austria, Slovakia and Poland. Prague is the capital of the CR and the center of tourism. Millions of tourists from different countries visit Prague every year, because of its ratio of price and quality. The national currency is the Czech Koruna that also gives opportunities because this exchange rate has no sharp jumps and drops. The Czech Republic ranked 33 place in section presents the Ease of Doing Business 2015 rank among 189 economies according to the World Bank Group. There are 16.767 Czech companies owned by citizens of Russia according to the exclusive data of international analytical agency Bisnode published in newspaper Prague Telegraph (Kashapov, 2015). The Economic situation in the Czech Republic is progressive and positive, because annual GDP growth is two percent for 2014, according to the World Bank. The Czech government offers some benefits to small and medium businesses because they are the driving force of entrepreneurship, growth, innovation and competitiveness. The minimum share capital for Limited Liability Company is one Czech koruna. Entrepreneurs can start-up and operate their business in the Czech Republic because of its low initial capital, stable legal framework and future opportunities.

There are some negative aspects of developing business in the Czech Republic. First of all, it is necessary to learn the Czech language or to pay to the translators, because many documents printed in Czech. There is a problem to communicate with people in Foreign Police or the Ministry of the Interior because some of them do not speak English. Moreover, there is a problem with getting a business visa because it takes a long time to consider a visa in the Embassy. After overcoming these difficulties at the beginning of starting a business in CR, there are two significant factors, which can interfere with the business such as higher taxes and dealing with construction permits.

According to the World Bank Group, the Czech Republic takes 123 place in the section of paying taxes among 189 countries. Value added tax (VAT) is 21 percent in the CR. It is a high tax, although the situation is even worse in some European Union countries, such as VAT in Hungary is 28 percent. At the end of the reporting year (before April 1 following the period year), a company pays income tax that is 19 percent. In addition, the income tax was 45 percent in 1993, but every three years it has decreased. Sole trader in the Czech Republic pays income tax, which is 15 percent. If the annual turnover of the entrepreneur is less than 400.000 CZK, the income tax is not paid. Also, the entrepreneur is obliged to pay the social insurance contributions. The property transfer tax is four percent, which is paid by the seller.

According to the Doing Business date, the Czech Republic ranks 126 position in the area of dealing with construction permits. Required to undergo a 21 procedure for the construction of some object in the CR. A procedure is an interaction of the employees and managers of the company with external parties. Approximately 247 days required for the issue of documents to start the construction of the object. On the example of Germany, there are only nine procedure and approximately 98 days.

However, the Czech government is working on the development of their economy, therefore CR ranked the first place in trading across boundaries. The Czech Republic has the lowest cost and time to export and import than other 189 countries, according to the Doing Business date. Nowadays, nuclear reactors, boilers, machinery and mechanical appliances export in Germany, while the Germans delivers parts and accessories of motor vehicles. Main trading partners is Germany, more than 30% of the total export and import. Czech Republic economy: Business climate overview (2004) considers that there are two most attractive features of the Czech Republic: “close proximity and well-developed transport links to EU markets, especially Germany; and an abundance of skilled technical workers.” More than ten years have passed, and the Czech Republic still maintains its position and eliminates the defects of their economy. The size of the foreign trade per capita of the country is higher than in Japan, the United Kingdom, France and Italy.

One of the reasons why the Czech Republic is a suitable place for starting a business because it does not require first significant investments. According to the Organization for Economic Co-operation and Development (OECD, 2015), there are “roughly 1.1 million active enterprises in the Czech Republic, most of them being small and medium entrepreneurs with less than 250 employees (99.8% of all enterprises as of 2013), employing almost 1.8 million people (60.0 % of Czech Republic’s workforce employed in enterprises regardless size).” Financial small and medium enterprises (SMEs) and Entrepreneurs lead data “distribution of firms in the Czech Republic 2015” which shows that there are 1 115 053 number of all firms. Micro firms, which have from one to nine employees, occupy 92.5 percent. Small firms (10 – 49 employees) and medium firms (50 – 249 employees) take only 7.3 percent. Large firms with more than 250 employees just have only 0.2 percent of all firms. Based on OECD (2015), there is a reduction of venture capital that “peaked in 2008, and then declined dramatically up to and including 2013 by a factor of more than ten.” This is a negative fact because the reduction of investments means that there is less money to invest in developing or bankrupt companies. The Czech government minimalizes the initial capital for the business establishment. Nowadays in the CR, if an entrepreneur wants to be registered as a sole trader, he or she needs only one Czech koruna as capital. The most common variant of business in Prague is a newsagent in the center, which can generate income for 500 – 800 dollars per month, with the first capital of 5000 dollars. Cafes and restaurants are in demand in the city center because there are many tourists from different countries. Beauty salons and sports gyms also bring decent income, but it requires more costs.

The second reason is the regulating structure of the Czech government that control entrepreneurship within the state. The Czech Republic differs from other countries by confidence and stable system. Czechoslovakia was one of the most developed economies, before the Second World War. According to the Economist (1994), in 1937 “income per head there was about the same as in France, and far higher than in Italy or Austria”. The Czechoslovak government made the right decisions to improve their economy of the country. According to the business review of DeFillippi (1995), the greatest implication of small enterprise development was “the 1990 "small privatization law" which authorized the auctioning of 100,000 small state-owned service businesses to Czechoslovak citizens.” Foreigners were not allowed to participate; therefore there is a significant growth of private ownership of the country. After the separation of the Czech and the Slovak Federal Republic into the Czech Republic and the Slovak Republic and the adoption in the European Union, the Czech Republic began rapidly grow. Nowadays, The Czech government offers some benefits to small and medium enterprises. According to the Czech Business Web Portal, created by the Czech Trade agency, there is a program based on support to small and medium-sized businesses. Operational Program Enterprise and Innovation is one of the Czech government support to SMEs. The goal of the program, which is managed by the Ministry of Industry and Trade, is to promote innovation in manufacturing and services, energy use and ICT in business.

There are some other government supports in the Czech Republic, according to the OECD (2015). The Revit program is focused on support to regions with low economic activity and higher unemployment. SMEs can get preferential loans and financial contributions. The Inostart program is oriented to supporting start-ups of small business, which face difficulties to raise funds to finance its operations because of higher risk, financial past and low bail. The program provides access to loan guarantees of up to 60 percent of the outstanding amount of the loan for start-up entrepreneur’s innovations. The program also allows using consulting services to improve strategy and development of the company and the development of a business plan. The Guarantee program uses the assets from termination of former contracts and repaid credits. Guarantee fund “is administered and managed by Czech-Moravian Guarantee and Development Bank that is under full control of the Czech Republic from 2012”. The CMZRB collaborate with “the contractual basis with private partner banks and provides SMEs with partial guarantees.” (OECD, 2015).

The third reason is future perspectives doing business in the Czech Republic. The key indicators of the CR are a skilled workforce, reliable infrastructure, cost competitiveness and high educational level. According to the article the Good, the Bad and the Ugly to Conducting Business in the Czech Republic, Delaney interviews Michael Grant, who is an international business professional in international marketing, communication and business relationship development. Grant states that the Czech Republic is like “a jumping-off point for either the larger European Union markets, the "wilder" parts of eastern Europe or both.” The CR propose modern infrastructure, convenient location, educated and low-cost workforce and government incentive investments. Gant considers that the Czech Republic is “a good place to experiment, get your feet wet, make your mistakes and learn from them before making a bigger investment in the larger markets.” Start-up business in the CR is to gain a foothold in the market and save money for future investments. The entrepreneurs can expand their business in Germany, in France or Italy. The German market is more profitable and extensive and their currency is the euro, which is more powerful than the Czech koruna.

Some businesspeople want to grow and develop their business only on the territory of the Czech Republic. Gant recommends following three steps to operate a business successfully. There first step is “do you homework” (Delaney). The purpose is to monitor the market trends of the product and its purchasing power in West Europe and Asia. The second step is “begin contacting potential local distributors or representatives” (Delaney). The purpose is to display at the exhibition and organize a service that will allow identifying and arranging meetings with potential buyers. The third step is “found a local partner you are comfortable with” (Delaney). The purpose is to make a detailed list of costs and proceed with the development of local marketing plan. Indeed, these steps relate to the purchase and sale business. The most current enterprises is buying property, but it has a long payback period. It is not enormous future opportunities, but it helps to live and support a family. Future perspectives mean extraction and development, not only in the country, but also throughout the world.

Despite the negative aspects because the Czech government works to prevent and minimalize them, there are great opportunities for doing business with low investments and government support. There are many opportunities for profitable investment in the Czech Republic today. It all depends on the amount of funds and the willingness to take risks. No one cannot guarantee that the investments will pay off and the business will become profitable, but almost all conditions in the country for this purpose. The Czech government provides different programs to support enterprises and improve their trading routes. Small and medium enterprises are the main components of the Czech economy. It is not the place where businesspeople can make mistakes and get their feet wet; it is the country where entrepreneurs can start-up and realize their ideas.

Summing up, there are many industries in developing business in the Czech Republic, such as trading, building, purchasing and sale. A beginning entrepreneur, who wants to start his business in Central Europe, can choose between various commercial areas and find the best solution in the Czech Republic, because of its low initial capital, government framework and perspectives.