Prague, Czech Republic. Shutterstock photo
I last wrote about the Czech Republic on May 29, 2015, and decided to revisit the country after reading the article “Czech Economy Growth Highest Since 2007” from the Prague Post. Another impetus was the article I wrote last Friday about the Irish economic renaissance led by the low corporate tax rates. In the article, I mentioned that some developing European countries have tried to emulate Ireland’s economic model in order to attract foreign corporations. The Czech Republic’s corporate tax rate of 19% is one of the lowest.
Did that have anything to do with the increase in GDP? I was struck by the explanation given in the Prague Post article: “Demand components, particularly household consumption and increased investment activity, significantly contributed to the growth in GDP.” Increased investment activity. Sounds promising, doesn’t it? Obviously this required more of an in depth analysis to see whether the Irish economic model had been adapted by the Czech authorities.
I found a wealth of information in a publication titled, “Investment in the Czech Republic” written by KPMG. Included in their list of incentives for foreign investors is “corporate income tax relief for up to 10 years”. To qualify for that, businesses must be involved in an approved industry including aerospace ̶ GE Aerospace (GE) and Honeywell (HON) qualify on those grounds ̶ information technology, automotive, life sciences, and the list goes on.
So really, a multinational would be hard pressed not to qualify. Page 51 of the report lays out the applicable tax rates. Wow, maybe we in the U.S. should adopt their economic model.
In an article from World Property Journal titled, “Central Europe Enjoys Record Setting Commercial Investment Activity,” author Michael Gerrity writes that €1.9 billion was invested in the Czech Republic in 2015. “The largest single property transaction in CE in 2015 was the acquisition of a majority share in the Palladium Shopping Centre in Prague by Union Investment for €570 million.”
I think we are getting somewhere. A quick scan of the multinationals setting up manufacturing facilities in the Czech Republic bears this out: Foxconn (2354:TT), Hyundai (005380:KS) and Budweiser (BUD).
Having painted a rosy picture about this economy, I hasten to caution investors that the Czech Republic is part of the European Union, though thankfully not part of the Eurozone, and as the European Central Bank tinkers with quantitative easing, any negative impacts of that, and boy there will be, will affect the Czech Republic. However, this is definitely a country following the Irish economic model and not that of France.