It’s Relatively Simple to Do Business in the Czech Republic

When it comes to establishing your own business, there are numerous variables influencing the chances of success. Complicated tax systems, limited availability of loans, or lengthy legal procedures may come in the way of creating a company.

The dataset from the World Bank places Czech Republic at the 27th position worldwide, ranking it high in the simplicity of doing business. The research was divided into 10 distinct categories – topics every business idea starting from the scratch encounters.

Starting a New Business in the Czech Republic

This category comprises the minimum paid-in capital requirement to start a limited liability company (Czech “Spolecnost s rucenim omezenym”, s.r.o.), number of procedures it takes to have a running business, and time and costs. The Czech Republic ranks at 81st place which is, despite the number, a good indicator. The distance to frontier (DTF), which is the distance to the country on top of the list is 86.86%. Moreover, in early 2017 Czech government made starting a business easier, reducing costs and time for registering the business allowing notaries to directly register companies online.

On average, it takes about 21,000 CZK to register a business; most of the money goes to the public notary for doing the paperwork. The reason why the country scores at 81st place is that it takes more external party interactions for the founders to start a company.

Dealing with Construction Permits

Having a warehouse or any type of building is crucial if you have a need for physical presence in the market. Czechs rank at 62.76 DTF points. Descending down by 4 places from last year (being at 130th), it takes 95 days more to build a warehouse than for an average high-income country. Moreover, the number for various procedures to finalize the permits is almost twice as big. One would have to visit a number of organizations ranging from the local municipality’s departments to fire department and geodesic. There is a potential for improving the system in unifying the processes.

Getting Electricity

The nation ranks at 13th place having, astonishingly enough, procedures 40% cheaper than in the fellow high-income countries. Adding low processing time, being a government initiative to allocate more personnel for this issue, Czech Republic rises to a 13th place on the list.

Registering Property

Securing your rights to a piece of property is an important subject matter to any business. After all, existing on liabilities alone cannot provide stable growth. Getting 31st position worldwide, Czech Republic follows the average numbers of high-income countries falling behind on the time required to register a property only due to the Cadastral law, which gives a 20-day delay on the application for the property owner to object or alter the transfer.

Getting Credit

Being a member of the Eurozone, Czech Republic monetary policy is governed by the Treaty of the EU. Therefore, the inflation to be held is stable, around 2%, which gives lenders an opportunity for low interest loans. Moreover, despite having a lower position since the last year, the Czech government does a good job protecting the rights of borrowers, lenders and creditors’ bankruptcy possibilities.

Protecting Minority Investors

Czech Republic is a country of many nationalities, having only 63% of Czechs natives. Protecting the rights of the minorities is essential in promoting equal rights for Czech citizens, forming a unified society. Albeit lowering its position to the 53rd rank, Czechs still hold on the level with Spain, Denmark and Poland.

Paying Taxes

There are two thing certain in life… Unfortunately, Czech businesses have to pay 10% of tax on profit more than Poland and 20% more than the UK. The result is 50% of mandatory contributions from the share of the commercial profits, which ranks the state as # 53. Furthermore, it takes 30% more time to prepare and file corporate taxes for Czech companies than for the average of OECD high-income states.

Trading Across Borders

EU’s single market makes the Czech Republic a number 1 on the list along with most of the other Eropean states. The only minor issue Czech imports and exports have are the documents. The time for the documentary compliance is rated to be one hour only though.

Enforcing Contracts

Judicial system is a crucial part of economic activity of the country. Functioning as a democratic society, abiding rules and laws, there needs to be an intermediary for effective conflict resolution. On average, Czechs get 611 days for solving an issue, which is too much if you compare it to other developed countries. Plus, the fees of 33% from the costs of claim overshadow the 21.3% high-income average. Looking at the judicial processing system, there is a resolution for the high costs and time efficiency – small claims courts. These will not only reinforce the public trust in the system, but also provide a cost and time efficient legal mechanism for small and medium businesses.

Resolving Insolvency

Having a failing business is a daunting experience. Nevertheless, an effective insolvency regime should take its place in the life of business to counteract annihilation of the company. Creditors and stockholders should be able to recover the most out of their assets. Despite seeing a rise in the recovery rate, Czech Republic still experiences a low position in the ranking. The cost of the fees that the insolvency administration, auctioneers, and lawyers take for selling of the real estate is almost twice as high as in the other high-income countries and the recovery rate is significantly lower.

Prepared by: Taras Biletskyi

Data source: The World Bank

Picture credit.

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