The Czech Republic and Poland are two countries located in Central Europe, which has recently started to take pride in some of the EU’s fastest developing economies. Both countries enjoy stably growing GDPs, perfect links with Western and Eastern Europe, sophisticated infrastructure, and various economic incentives. While choosing your perfect European location for investment comes with challenges, it is best to know what each of the countries has to offer and how they compare with each other in terms of economic, social, and political motivations for expansion.
Investment in Czechia
The Czech Republic’s reputation as the European transition center comes from its perfect location in the European Union’s heart, one of the most sophisticated transportation systems in the region, and high-quality infrastructure. As of 2019, the Czech Republic has the lowest unemployment rate in the EU (2.7%) and a skilled, multilingual workforce – Czech education was ranked 15th best globally. It is also one of the most stably growing economies in the region, with the current GDP value of $242 billion, growing at an average annual rate of 2,7%.
The COVID-19 pandemic had an expected negative impact on the Czech economy, but economists predict the growth of 3,9% in 2021 and then 4,3% in 2022. The Czech Republic ranks high in the World Bank’s Doing Business scores – it received first place for the “Trading Across Borders” category, 16th for “Resolving Insolvency,” 32nd for “Registering property,” and 48th for “Getting Credit.” However, it ranked much lower than Poland in the “Dealing with Construction Permits” category – in 157th place. In 2019, the Czech Republic received the maximum 100 points for macro-economic stability from the Global Competitiveness Index, performing best along with 33 other countries. According to the World Bank’s Doing Business review, in 2020, the Czech Republic scored 82.1 out of 100 for starting a business, 81.4 for paying taxes, and 76.3 for ease of doing business. The country offers strong and transparent investment incentives with more than EUR 130 billion of FDI registered since 1993, according to CzechInvest.
Focus industries in Czechia
Despite the recent slowdown in growth, the automotive sector remains the largest industrial segment in the Czech Republic. According to CzechInvest, it accounts for 9% of the country’s GDP and 24% of Czech export. The Czech Republic is one of Europe’s leading hubs for automotive design with many big companies working in this industry. A few of the big names are Škoda Auto (Volkswagen Group), Hyundai Motor Company, and TPCA (Toyota, Citroen, and Peugeot).
The pharmaceutical industry in Czechia
The pharmaceutical industry is another key manufacturing sector in the Czech Republic with around 2,5 billion worth of government funds over the past ten years. Czech scientists are attributed with some of the world’s greatest discoveries, including the soft contact lens and the ways of heredity. Some of the big companies working in this segment in the Czech Republic are Novartis, Sanofi, and Roche.
Engineering in Czechia
The engineering sector saw a significant boost due to industrialization which completely transformed this Czech Republic segment. According to CzechInvest, the country is in the top 15 for global machinery tools production. The industry exports up to 90% of its production, highly valued in the global market. The Czech Republic also hosts R&D power engineering centers and pays strong attention to R&D projects. Some of the biggest companies are Siemens, Bosch, and Engel.
Criteria for investment eligibility in Czechia
The Czech state offers various types of aid in tax reliefs, cash grants, and many others. Investment incentives are granted for various projects in different industries, such as manufacturing, strategic service centers, software development, and technology centers. The amount of granted aid depends on the business’s size, the number of jobs created, and the chosen region. For example, for the manufacturing industry, the aid is distributed as follows:
- In special industrial zones (Mošnov/ Holešov/Most-Joseph), the minimum investment into assets for large businesses is CZK 40 m (1.5 m EUR), medium businesses – CZK 20 m (765 k EUR), small businesses – CZK 10 m (3.8 m EUR).
- In former military zones (e.g., Hradiště) or economically weak areas), the minimum investment into assets for large businesses is CZK 40 m (1.5 m EUR), medium businesses – CZK 20 m (7.6 EUR), small businesses – CZK 10 m (3.8 EUR).
- In developed regions, the minimum investment into assets for large businesses is CZK 80 m (3 m EUR), medium businesses – CZK 40 m (1.5 m EUR), small businesses – CZK 20 m (7.6 m EUR).
When it comes to cash grants, they are also distributed based on the area of investment. As such, according to the government’s legislation no. 299/2019 Coll., CZK 300,000 is provided in cash grants per one new job in an industrial zone. CZK 200,000 is provided in cash grants per one new job in regions where the unemployment rate is 50% higher than in the rest of the country. Detailed information on the regional aid, eligibility, and qualification for various business sizes can be found here.
Investment in Poland
According to the Polish Investment and Trade Agency, as of 2020, Poland is ranked third most favored foreign investment location in Europe and the tenth-largest European economy by nominal GDP. Stable economic projections with annual GDP growth of roughly 4.02, modern infrastructure, and a skilled workforce make Poland an attractive investment opportunity. Furthermore, perfect links with Central and Eastern Europe earned the country its first position in the World Bank’s Doing Business Score in the “Trading Across Borders” category, similar to the Czech Republic. Some other categories in which Poland ranked high were “Getting Credit” – 37th, “Resolving Insolvency” – 25th, and “Dealing with Construction Permits” – 39th. Unlike the Czech Republic, however, it received only 92nd place for “Registering Property.” Poland also takes pride in the second-lowest unemployment rate in the EU (3.2%) as of 2019, following the Czech Republic.
According to the World Bank’s Doing Business review, in 2020, the country scored 82.9 out of 100 for starting a business, 76.4 for paying taxes, and 76.4 for ease of doing business. In 2019, Poland also received a maximum of 100 points for macro-economic stability from the Global Competitiveness Index. In 2018, Poland struck the biggest number of M&A deals (323) in Emerging Europe, second only to Russia (605). Similarly, the country owned seven out of 20 largest property deals in Emerging Europe and one of the biggest manufacturing deals, according to the Emerging Europe M&A Report 2018/19. In 2019, Poland was positioned third in the European region for greenfield investment. Despite the pandemic, the Polish economy is expected to grow by 4.6% in 2021, thus exceeding the pre-pandemic levels, which is notable since most high-income economies are not projected to return to the original values in 2022.
Focus industries in Poland
Agriculture in Poland
After Poland joined the European Union, it saw a strong year-on-year increase in demand for its agricultural production. In 2019, Polish foreign agricultural exports increased by 5.8%, while imports increased by 5.2%. Similarly, business owners in this sector saw an increase in profit valued at 8.4% more than in the previous year. The private sector makes up for the biggest share of the farms and agricultural output – as much as 90%. This segment employs 13.1% of the country’s workforce and adds between 3.8% – 4.3% to Polish GDP. Some of the operating companies are Enexio Water Technologies GmbH, OTT HydroMet, and Landustrie Sneek BV.
The energy industry in Poland
Another large sector that constantly sees high demand is the energy segment. Polish authorities pay close attention to sustainable production and development. Therefore, about 20% of the capacity comes from renewable sources. Some of the key production lines are coal, natural gas, and lignite, yet both coal and lignite saw a decrease in 2019. At the end of the year, the Ministry of Energy presented an updated plan, “Poland’s energy policy until 2040 – a strategy for the development of the fuel and energy sector”, which outlines, assesses, and forecasts the development of the industry, taking into account ways of proceeding towards a greener and safer environment. Some of the largest players are The PGE Capital Group and PGNiG.
Automotive industry in Poland
The automotive segment is a significant contributor to the Polish economy, accounting for 10.5% of the total industrial manufacturing production. 342 businesses are working in this sector. According to the Polish Investment and Trade Agency, the annual production consists of (on average) 451,600 passenger cars, 202,100 commercial vehicles, and 5,900 buses. Some of Poland’s biggest companies working in this segment are Fiat, General Motors, and Volkswagen.
Criteria for investment eligibility in Poland
Poland has many investment incentives and regional aid suitable for various types of enterprises. According to Polish Investment and Trade agency, all businesses carrying out activities in traditional industries, as well in the IT industry, research and development in the areas of natural and technical sciences, auditing services industry, accounting, technical research industry, call centers, architectural industry, analysis services, and engineering services industries can qualify for tax exemptions. Several specific types that do not qualify can be found here.
The amount of state aid depends on the region of investment. For example, these are the regions offering the highest amount of aid possible (50%):
- Warmian-Masurian Voivodeship
- Lublin Voivodeship
- Podkarpackie Voivodeship
Predictably so, the lowest amount of aid can be received in Warsaw – only 10%.
Public aid is granted based on several factors, including the business’s size and the chosen area of investment. Enterprises working in several specific sectors, such as business services, are favored more and usually prioritized.
- In areas where the unemployment rate is below 60% of the national average, large businesses can receive aid in the amount of PLN 100 m (22 m EUR), medium businesses – PLN 20 m (4.4 m EUR), small businesses, R&D projects, and business services sector – PLN 5 m (1 m EUR), micro businesses – PLN 2 m 4.4 m EUR).
- In areas where the unemployment rate is between 60 – 100%, large businesses can receive aid in the amount of PLN 80 m (17 m EUR), medium businesses – PLN 16 m (3.5 m EUR), small businesses, R&D projects, and business services sector – PLN 4 m (8.8 m EUR), micro businesses – PLN 1.6 m (3.5 m EUR).
- In areas where the unemployment rate is between 100 – 130%, large businesses can receive aid in the amount of PLN 60 m (13 m EUR), medium businesses – PLN 12 m (2.6 m EUR), small businesses, R&D projects, and business services sector – PLN 3 m (660 k EUR), micro businesses – PLN 1.2 m (265 k EUR).
- In areas where the unemployment rate is between 160 – 200%, large businesses can receive aid in the amount of PLN 20 m (4.4 m), medium businesses – PLN 4 m (880 k EUR), small businesses, R&D projects, and business services sector – PLN 1 m (220 k EUR), micro businesses – PLN 0.4 m (88 k EUR).
- In areas where the unemployment rate is between 200 – 250%, large businesses can receive aid in the amount of PLN 15 m (3.3 m EUR), medium businesses – PLN 3 m (6.5 m EUR), small businesses, R&D projects, and business services sector – PLN 0.75 m (165 k EUR), micro businesses – PLN 0.3 m (66 k EUR).
- In areas where the unemployment rate exceeds 250%, large businesses can receive aid in the amount of PLN 10 m (2.2 m), medium businesses – PLN 2 m (4.4 m EUR), small businesses, R&D projects, and business services sector – PLN 0.5 m (110 k EUR), micro businesses – PLN 0.2 m (44 k EUR).
While the Czech Republic and Poland present different investment incentives, both have a lot to offer in terms of workforce, infrastructure, stable economy, and business protection. Either of them can become a perfect getaway to the European single market for your business and the opportunities that come with it. If you wish to establish your company in the Czech Republic, YeYe Agency can support you in the following ways:
- Establishing your company
- Supporting you in the incentives procedures and application for funds
- Recruiting your local employees
- Providing accounting and payroll services
- Providing access to an online platform that enables you to manage your European company from anywhere.