Recent situation and restrictions measures

The epidemiological situation in the Czech Republic has rather deteriorated in the last month and new corresponding measures have been adopted or re-adopted. Since October 5th, the government of the Czech Republic declared state of emergency for 30 days, which before others introduces restriction on mass events, and gathering of people. It is not allowed to have more than 10 persons indoor and 20 persons outdoors with some minor exceptions, where higher number is allowed (30 for weddings). Theatres, cinemas and other cultural events are taking place, but number of the visitors is restricted to 500 and only those where singing is not part of the show. There are other limits for religious events (100) and official sport and training events (130) for athletes, organizers and team employees only, without visitors.

Restaurants and shops are opened with some restrictions. Elementary schools are opened; higher levels of schools in the most hit regions are functioning in a restricted regime with a majority of lessons being provided in a distant learning form. Schools in other regions are considered one by one according the real situation in place.

Wearing facemasks is now compulsory in all indoor settings and public transport vehicles. At workplaces, it is compulsory unless one is working in one physical spot and can maintain at least a 2-meter social distance. Under this nation-wide measure, employers are not obliged to provide facemasks to their employees.

GENERAL SUPPORT AND RECOVERY MEASURES IN THE CZECH REPUBLIC

 Employment support
I) Targeted employment support program named “Antivirus”
Mode A – targeted at nationwide lockdown and quarantine requirements - 80% of the wage compensation (gross, including social contributions) for

• quarantined workers (they receive wage compensation of 60% of their average reduced earnings);
• close-down of an operation by a government decree (the workers receive wage compensation of 100% of their average earnings);
• Maximal amount of reimbursement is approx... EUR 1430

Mode B – targeted at closure/disruption of supply chain due to closure of borders or missing deliveries 60 % of the wage compensation (gross, including social contributions) paid to workers for hours not worked due to;

• Barriers to work on the part of the employer due to the order of quarantine or childcare for a significant part of employees (the remaining workers receive- wage compensation of 100% of their average earnings)
• Limitation of the availability of inputs (workers receive wage compensation of min. of 80% of their average earnings)
• Limitation of demand (workers receive wage compensation from 60% to 100 % of average earnings)
• Maximal amount of reimbursement is approx... EUR 1060

Mode C = remission of social security levies - but only to SMEs with max threshold of 50 employees.

The “Antivirus” C scheme has been terminated. Antivirus A and B have been prolonged by the Czech Government end of August, to be valid until end of October 2020, as the new “kurzarbeit” has been subject to negotiations since July 2020. The Czech Government wanted to apply the new short time work (kurzarbeit) since 1.11. 2020. Nevertheless, the scheme is currently pending legislative process and awaits its approval by the Czech Parliament. It is not sure if the new short time work rules will enter into force by 1.11. as announced.

II) Kurzarbeit should be a different setup where the state is reimbursing the wage to the employee him/herself (technically still through the employer) according the portion of the work that cannot be allocated to that specific employee. The crucial part of the discussion now are the concrete parameters. Especially what will be the minimum percentage of work that needs to be still allocated and payed by the company in order to be eligible for scheme? In addition, what will be the maximum amount (wage) that will be reimbursed under this scheme? This is very important for the employers. The parliament should deal with this bill on October 7.

Guarantee scheme SME loans

The Czech-Moravian Guarantee and Development Bank (CMZRB), together with the Ministry of Industry and Trade started the COVID (I, II, III…) program in April. CMZRB provides entrepreneurs with guarantees for commercial bank loans and contribute to the payment of interest. The program is financed from the Operational Program “Enterprise and Innovation for competitiveness” under the Ministry of Industry and Commerce.

This is a “de minimis” support, which is being provided in the so-called round calls. The guarantee can be up to 80% of the principal of a commercial loan, with guarantee period up to 3 years. The program can finance, through commercial loans, the cost of wages, energy, rent, payment of supplier-customer invoices, pre-financing of receivables, acquisition of material or inventory.

I) There is now COVID III round running. Guarantees for companies with up to 500 employees. Firms can apply guarantees for loans of up to approx... EUR 1, 83 mil. The program continues successfully, the allocation is still sufficient, we expect higher interest after the end of Antivirus and the end of other specialized reliefs.

II) COVID IV is under discussion for the next year. It is intended for SMEs and probably small-mid caps up to 500 employees as well. This program is so far at the stage of working discussion. The main change compared to the original COVID programs is that it should guarantee investment loans, not just operating loans.

Guarantee Enterprise Financing

The state Export Guarantee and Insurance Company (EGAP) is administering a relatively robust program in order to provide guarantees for commercial loans for the large companies. This program can provide guarantee up to EUR approx. 73 mil. and in the value of 80% of the overall loan maximum. The rest 20% is the risk taken by the crediting bank. There can be more financing banks at once if the overall sum stays within the limit.

It is targeting exporters, however there is a broad definition set (at least 20% of your revenues must be created by export, however if you are a sub-supplier export of your business partners is counted as well). It means most of the large companies are able to fit in. The loan can be used either for operating or investment costs.

It is running and functioning. EGAP has already approved guarantees for large Czech exporters for loans in the value of more than approx. EUR 365 mil. Around 50 cases has been already approved. The largest volume consists of loans for companies in the automotive and metallurgical industries.

Taxes and other relief measures

I) Most of those measures have already expired. Those were focusing on extending deadlines for filing tax declaration, remission of penalties for delays, remission of the some advances on the personal and corporate income tax, social system and health system contribution. However, this had been mostly just postponing your obligation and improving your cash flow by remission of advance payments.

II) There is a Loss carry back institute in place for both the physical and legal person’s income tax and legal person’s income tax for 2020. It will be redeemable in the tax return for 2019 and 2018.

III) There are other sectoral specific measures to provide relief to the extensively hit businesses: COVID RENT, COVID SPA (call open up to September 30), and COVID ACCOMODATION (call open up to October 30) and those are mainly intended to cover losses inflicted by the lockdown and government restrictions during this spring.

IV) In general state agencies and ministries (Trade promotion agency Czech Trade, Export Guarantee and Insurance Company, Ministry of Industry and Trade, Ministry of Foreign Affairs..) are providing let’s say non-financial “soft” help by introducing packages for exporters and other businesses in a form of intensive consultations, shortening terms of processes various applications (e.g. export credits) etc.

NATIONAL RECOVERY PLAN PROPOSED BY THE CONFEDERATION OF INDUSTRY OF THE CZECH REPUBLIC (SPCR)

SPCR’s Recommendations for a Restart and the Long-Term Renewal of Growth of the Czech Economy were published in July 2020. SPCR presents to the government a series of recommendations to support economic growth in the post-crisis period, which are perceived as a priority.

Among others, it is important according to SPCR to support the further development of digitization, not only in the state administration. The same emphasis needs to be paid to the systematic stimulation of research and development in both the public and private sectors, and to the long-delayed reforms in the field of education and training.

The business environment itself, including complex regulations, must also change according to SPCR. The economy will only recover and gain speed again if external conditions are favorable. SPCR thinks that it is also about time for the government to publicly declare that for the Czech open economy, which is so closely linked to the EU's internal market, the objective is to strengthen Czech position in the EU and create the conditions for adopting the euro.

It is also important to highlight that investment is crucial in the long run and as a way out of the crisis, and that economic growth and sustainability must go hand in hand.

Summary of key messages
1. The weakened economy needs to resume its growth.
2. Investment is crucial in the long run and as a way out of the crisis.
3. Economic growth and sustainability must go hand in hand.
4. Research and development must be a government priority.
5. It is necessary to accelerate the digital transformation of companies; the state administration must not lag behind.
6. The development of the economy requires educated and qualified employees.
7. The labor market must be flexible.
8. Regulation must be smart.
9. The prosperity of the Czech economy is based on its openness.
10. Adopt the euro.