The Czech Republic is grappling with deteriorating business conditions. The primary issue for companies is high energy costs, which have contributed to the country’s sixth-place ranking among the 27 European Union countries in terms of the worst business environment.
Compared to last year, the Czech Republic dropped two places, according to the analysis of the Prosperity and Financial Health Index.
Additionally, at the beginning of this year, the corporate income tax increased. The analysis also points out that the low market capitalization of the Prague Stock Exchange limits funding for companies and startups. “As a result, businesses are more often forced to take on debt or completely give up control of their companies,” the report states.
While the Czech Republic, along with Slovakia, Romania, Italy, Hungary, and Croatia, ranks among the countries with a less business-friendly environment, Scandinavian countries such as Finland, Sweden, and Denmark, as well as Estonia and Germany, offer significantly better conditions.
“Perhaps Finland, with its better business environment, boasts a larger number of startups, relatively low corporate taxes, or the lowest electricity prices for businesses,” the authors of the analysis note. High energy prices are likely the biggest burden on Czech businesses right now.
“Even in 2021, companies consuming between 500 and 1999 megawatt-hours paid, on average, a tenth of a euro per kilowatt-hour, but by 2023, the price had more than doubled. Czech companies now rank 13th in terms of electricity prices in the EU. While this figure is close to the European average, the issue remains the aforementioned sudden rise,” said Milan Maržík, an analyst with the “Europe in Data” project, which compiled the Prosperity Index in collaboration with Česká spořitelna.
The corporate income tax was increased as part of the consolidation package, from 19% to 21%, aligning with the EU average. The analysis reminds that in the early 1990s, the corporate tax rate was 45%. It was gradually reduced to 19% by 2010.
Analysts also highlight the low market capitalization of the Prague Stock Exchange, which ranks eighth in the EU.
