SME Policy in Czechia

Almost three-quarters (72%) of Czech enterprises consider the complexity of administrative procedures a major barrier to doing business in Czechia, compared with the OECD average of 66%. The Czech government has introduced simplification reforms in recent years, mostly involving the digitalisation of administrative processes such as business registration, trade licenses and building permits. The government has also reduced the number of professional activities for which a trade license is needed, making further strides in its simplification agenda. Possible additional reforms would include setting up a one-stop web portal to submit all business forms online, a streamlined VAT registration process, and simpler insolvency procedures.

The Czech government has also made tax compliance easier for businesses, especially for the self-employed. Since 2021, sole traders with an annual turnover below CZK 2 million (i.e., about EUR 80 000) can opt for a flat tax, which increases certainty about tax duties and eases compliance. Communication with tax authorities has also been increasingly digitised. Going forward, the government could consider simplifying taxation also for employer SMEs, with a view to lowering compliance costs for a larger segment of the SME population and supporting the transition from non-employer to employer status.

Like most OECD countries, Czechia has recently experienced an increase in interest rates to tackle surging inflation, which has led many SMEs to either postpone investments or to use retained earnings to finance such investments. Against this backdrop, the offer of government-backed credit guarantees, which could have supported debt finance at a time of tight credit market conditions, has instead shrunk. One reported reason is that the national development bank, which is in charge with the management of this scheme, has also been tasked with the delivery of many targeted interventions in the national recovery and resilience plan, which has stretched its implementation capacity.

As to equity finance, venture capital investment is low in Czechia, which limits the growth potential of innovative start-ups and SMEs. While some funds-of-funds have been launched with EU financial and institutional backing, Czechia’s VC market remains underdeveloped. Policy reforms such as tax incentives for equity investors, new regulations allowing pension funds to participate in the VC market, and a stronger role of the national development bank in this asset class would support the further development of the Czech VC market.

Czech SMEs increased their export volumes by approximately 30% between 2012 and 2022, much more than peers in most other EU countries. However, the number of exporters has not changed dramatically, thus suggesting that more could be done to enhance the export readiness of a larger group of SMEs. Czech SMEs with export potential also find it difficult to access high value-added segments of global value chains (GVCs), especially in highly competitive sectors such as automotive and machinery, which reduces their ability to contribute to national exports indirectly through participation in GVCs.

CzechTrade’s initiatives, notably its growing network of export incubators, economic diplomacy projects, and sector-specific initiatives (e.g. the Design Centre), play a key role in supporting the export activities of Czech SMEs. Nevertheless, the sector and country coverage of some of these measures could be expanded, while underrepresented groups in business internationalisation (e.g. women entrepreneurs) could be better targeted through bespoke training and networking events. The offer of export finance (e.g., export credits and export guarantees) could also be scaled up, but it is currently constrained by the institutional setting governing the two public agencies charged with this mission. Finally, supplier development programmes, which have a strong tradition in Czechia (e.g., automotive industry) could be re-launched in emerging national sectors like electronics and semiconductors.

Fewer Czech adults than the EU average participate in training. While this is partly the result of a strong labour market, which makes the need for training less immediate, it may hinder the adaptation of the domestic workforce to new skills demands in the longer run. One of the mains skills policy priorities of the Czech government has been strengthening the digital skills of the workforce. The Czech government has also buttressed its offer of micro-credentials, which are short-term courses to address targeted skills needs. Micro-credentials are especially important at a time when skills profiles change rapidly due to the twin (digital and green) transition, and where this change often entails the development of new skills in existing jobs rather than the full development of new professional occupations.

Czechia’s entrepreneurship ecosystem has expanded rapidly in the last decade, with an increased involvement of CzechInvest, the national investment agency, in start-up support. Nonetheless, the overall quality of the entrepreneurship ecosystem is heterogenous. For example, half of the existing business incubators/accelerators are not active, and another sizeable share only offers online/remote services. The offer of entrepreneurship education is also at an initial stage in Czechia, although there are some interesting initiatives both at secondary (e.g., “fictitious company” programme) and tertiary levels (e.g., Brno’s regional innovation centre).

Czechia’s innovation performance is close to the EU average, but business R&D spending remains relatively low, particularly among SMEs, which reduces the ability of the national business sector to introduce radical innovations. Czechia’s Smart Specialisation Strategy sets out the main national innovation policy objectives and technology priority areas, which are closely followed by most government innovation programmes, regardless of the implementing ministry or agency. Public funding for R&D and innovation has also increased in recent years, although this is mostly due to external funding, especially from EU sources, rather than national funding.

Going forward, there is scope for streamlining the offer of government-funded innovation programmes, which is currently highly fragmented, although this might require merging some of the EU-funded national Operational Programmes. The national R&D tax credit policy, which is hardly used by Czech SMEs, could also be overhauled to make it more attractive for this business segment. In particular, the government could consider moving from a system where the tax base is corporate income to another where the tax base is payroll spending (e.g. for R&D-related personnel). This change would ease policy access for SMEs, especially those having no profits against which to claim a tax credit based on corporate income. Finally, Czechia could strengthen industry-university linkages by providing more stable funding for technology transfer offices and piloting industrial Ph.D. programmes.

Czechia has made notable progress in digitalisation, with 81% of companies having internet speed above 30 Mbit/s in 2023; however, access to high-speed broadband (100 Mbit/s) is still patchy. To drive the digital transformation, the Czech government has introduced a Strategic Plan for Digitalisation, while the national recovery and resilience plan has allocated EUR 662 million for supporting business digitalisation through different programmes.

The flagship initiative in this area is the network of six European Digital Innovation Hubs (EDIHs), which offer services related to digital skills and digital innovation to businesses, especially SMEs. Available evidence suggests that the EDIHs are functioning effectively. However, their longer-term impact is constrained by the current funding sunset clause in 2026. The government could also consider the development of additional hubs, potentially through a mixed-funding approach combining public and private resources.

Czechia has made important headways in the decarbonisation of the economy by improving energy efficiency and increasing the share of renewables in the national energy mix. However, it is still one of the most energy-intensive countries in the EU, which is a consequence of the comparatively heavier weight of manufacturing in the economy and wider use of coal in national electricity generation. Czech SMEs account for between 41-48% of business-sector greenhouse (GHG) emissions, in line with the EU average. However, only 14% of SMEs had a climate strategy in place in 2024, compared with 21% at the EU level.

The national government has actively encouraged energy efficiency, the uptake of renewable energy sources, and circular-economy practices by SMEs through a suite of programmes mostly funded by the national recovery and resilience plan, which will come to an end in 2026. Securing post-2026 funding for green programmes will, therefore, be one main challenge for the Czech government. The national energy audit system will also need reform, as energy audits are currently not followed up by the preparation and implementation of measurable energy-saving action plans by the audited firms. Finally, the Czech government could develop a more systemic approach to green skills development and provide SMEs with stronger guidance in compliance with new sustainability reporting requirements.