25 September, 2003 Presentation Luxembourg

CZECHINVEST SUPPORT OF NEW & EXISTING INVESTORS HANDLING INVESTMENT INCENTIVES DEVELOPMENT PROGRAMMES TO CONTINUALLY ENHANCE THE COMPETITIVENESS OF THE CZECH REPUBLIC IN THE WORLD ECONOMY OUR ACTIVITIES OUR MISSION

ORGANIZATION STEERING COMMITTEE INVESTMENT PROJECTS INDUSTRIAL PROPERTIES AND REGIONS SUPPLIER DEVELOPMENT AFTERCARE INVESTMENT INCENTIVES MINISTER OF INDUSTRY AND TRADE CR MARKETING AND PR

WHAT CAN CZECHINVEST DO FOR YOU? COLLECT INFORMATION IDENTIFY SITES AND BUILDINGS SUPPLIER SOURCING & JV MATCHING LIAISE WITH GOVERNMENT BODIES HANDLE INCENTIVES APPLICATIONS AFTER CARE INTRODUCTION TO AFI

DOING BUSINESS IN THE CZECH REPUBLIC

CZECH REPUBLIC : BASIC DATA POPULATION LABOUR FORCE 2000 UNEMPLOYMENT May 2003 GDP per capita 2002 (estimate) GDP per capita at PPP 2002 (estimate) GDP growth 2002 (estimate) GDP growth 2003 – forecast ANNUAL INFLATION 2002 (estimate) ANNUAL INFLATION 2003 (forecast) GOVERNMENT BUDGET BALANCE 2002 (estimate) CURRENT ACCOUNT BALANCE 2002 (estimate) CENTRAL GOVERNMENT DEBT 2002 (estimate) 10.3 million 5.2 million 9.4% USD 6,700 USD 15, % 3.3% 1.8% 1.6% - 2.0% of GDP - 4.1% of GDP 18.2% of GDP Source: Ministry of Finance, February 2003

LIMITED LIABILITY COMPANY - (s.r.o.) FOR COMMERCIAL AND NON- COMMERCIAL ACTIVITIES FOR SMALL AND MEDIUM-SIZED COMPANIES MAXIMUM = 50 PEOPLE BASIC CAPITAL = MIN 200,000 CZK (APROX 7,000 USD) SETTING UP A BUSINESS

JOINT STOCK COMPANY - (a.s.) FOUNDING CONTRACT AND THE ISSUE OF SHARES BOARD OF DIRECTORS AND SUPERVISORY BOARD BASIC CAPITAL = MIN 2,000,000 CZK (APROX 70,000 USD) AT LEAST 30% PAID UPON INCORPORATION SETTING UP A BUSINESS

ASSOCIATION FOR FOREIGN INVESTMENT – AFI a group of Czech companies with local experience providing a wide range of specific services

TAXES AND DUTIES

Corporate Income Tax = 31% Personal Income Tax = 15 – 32% Withholding Tax = 1 – 25% Direct taxes

VAT (Value Added Tax) 22% goods (standard rate)* 5% services* 0%exports* exempt from VAT** * With some exceptions ** training and education, medical services and products, mail and broadcasting etc. Indirect taxes:

Excise duties Spirits Wine and beer Tobacco products Hydrocarbon fuels and lubricants Indirect taxes:

Real estate tax land tax = different rate for for unimproved land agricultures land etc. tax on buildings = is based on the built-up square meters Real estate transfer tax 5% of the higher of the purchase price or the appreised value* * to be paid mostly by the seller Indirect taxes:

LABOUR

EXCELLENT R&D CAPABILITIES CZECH INVENTIONS: - Soft Contact lenses Prof. O.Wichterle - Blood types (A,B,O) Mr. Jánský - Street trams Mr. Křižík - Micro-wave cooker Mr. Žáček - 2 MOST SUCCESSFUL ANTI-AIDS DRUGS 1996 – Vistide (Cidofovir) 2001 – Viread (Tenofovir) Dr. Antonín Holý Source:

GENERAL WORKING CONDITIONS WORKING TIME: 40 HRS PER WEEK VACATIONS: GENERAL ALLOWANCE OF 4 WEEKS PER YEAR 12 NATIONAL HOLIDAYS / YEAR BONUSES: MINIMUM WAGE: 6,300 CZK (200€) PER MONTH NO PREMIUM FOR WORKING THE SECOND SHIFT PREMIUM OF 5.40 CZK (USD 0.12) PER HOUR FOR WORKING NIGHT SHIFT (10 PM - 6 AM) PREMIUM 25% IF WORKING OVERTIME PREMIUM 100% IF WORKING ON A PUBLIC HOLIDAY

SOCIAL AND HEALTH INSURANCE Employer-payableEmployee- payable Health insurance9.0%4.5% Social insurance26.0%8.0% pension fund19.5%6.5% sick pay3.3%1.1% unemployment fund3.2%0.4% TOTAL35%12.5%

REGIONAL COMPARISON OF YEAR COSTS FOR AN EMPLOYEE (in EUR) NET INCOME EUR Source: Ernst & Young k.s., 2003

REGIONAL COMPARISON OF YEAR COSTS FOR AN EMPLOYEE (in EUR) NET INCOME EUR Source: Ernst & Young k.s., 2003

BENEFITS MOST FREQUENTLY OFFERED BY EMPLOYERS Source: PWC, PayWell 2002

EMPLOYING FOREIGNERS

Principle of equal status assuming: Work permit Residence permit Act No.1/1991 Coll. on Employment EMPLOYING FOREIGNERS

Direct work relationship with domestic employer Employment at branch office of foreign company operating in the Czech Republic Sent by foreign employer based on business or other agreement with Czech entity EMPLOYING FOREIGNERS

EMPLOYER 1)PERMISSION TO RECEIVE EMPLOYEES FROM ABROAD Permission to receive employees from abroad - ALWAYS with the exception of: Elected or appointed positions (§27 Labor Code) Being sent by foreign employer based on business or other agreement Foreigners who have the right to employment regardless of situation on labor market Decided by local Labor Office in an administrative procedure (express/30 days/60 days)

WORKING PERIOD 1 year, Exceptions: Borderline employees Seasonal employees (max. 6 months per calendar year) Work for limited time in order to raise or strengthen qualifications (“interns”) - max. for 1 year

OTHER EXCEPTIONS Foreigners subject to international treaty (e.g. Treaty on the Association of ČR to EC No.7/1995 Coll.) Core staff (senior management, top experts) Students below age 26 (school exchange, professional internship) Employer does not apply for permit to employ foreigner, there is legal right for permission to employment.

PERMIT NEED NOT BE APPLIED FOR AT ALL Foreigners with permanent residence in the ČR Foreigners subject to international treaty (especially treaty between ČR and SR) Foreigners on short-term work stay Not more than 7 consecutive days OR 30 days per calendar year AND AT THE SAME TIME a performing artist, student, athlete or person supplying services, assembly, warrantee or repair work, etc. (obligation to inform)

EU - FREE MOVEMENT OF PEOPLE uFree movement of people = complete cancellation of: border controls, visa obligations and work permits  Great Britain, Ireland, Holland, Denmark, Sweden and apparently Greece and Norway  All accession countries uOther European countries: transition period towards ČR – length depends on bilateral agreements Changes to take effect when CR joins EU