Growing numbers of Czech firms move offshore

An increasing number of Czech firms are moving offshore. According to statistics compiled by a Prague-based business information provider, 2008 saw more than 2000 Czech companies register in some of the world’s most popular tax havens, 24 percent more than the previous year.

The Netherlands, Luxembourg, Cyprus and even Delaware in the United States are among the most popular destinations for growing numbers of Czech firms seeking low taxation. Last year, some 2153 companies moved offshore, a marked increase from the previous year. Alena Seoud is the head of Čekia, a Prague-based, Swedish-owned firm providing business information which compiled the statistics on Czech firms moving offshore.

Photo: Barbora Kmentová

“This is the fourth year that we have done the study, and we could clearly see that in 2009, compared to the previous year, there was a tremendous growth in the number of Czech companies moving offshore. In 2009, 24 percent more firms moved offshore than in 2008. This has been the highest increase in all the years we did this kind of survey.”

The major motivation behind the move seems to be rooted in the unstable political situation in the Czech Republic following the toppling of the centre-right government in March 2009. According to Alena Seoud, this is obvious from the fact that the number of companies that moved offshore rose dramatically in the wake of the government’s fall.

“We strongly believe that this is due to a very unstable political situation we witnessed last year. When you look at our statistics in detail, in the first six months of 2009, only 154 companies moved offshore. In the second half of that year, however, 2,000 companies moved abroad. So we believe this goes hand in hand with the political situation.”

Experts believe the drain might represent a loss of some 24 billion crowns, or more than 440 million US dollars for the state budget in tax revenues. This would further deteriorate the already ailing Czech public finances. The current caretaker government is planning to introduce severe cuts in public spending to cap the soaring deficit of the state budget. But the political government which will assume office after May’s general elections is likely to follow a different strategy. The head of the Social Democrats, Jiří Paroubek, in fact announced that if his party wins at the polls, they would raise the corporate tax from 19 to 21 percent. And this prospect could lead to even more Czech companies moving to tax havens abroad.

“Looking at the past four years, the process was the fastest last year. We are really concerned that if the nothing changes and the situation does not become stable and clear for business in the Czech Republic, the process might continue at the pace it did last year.”