GOOD NEWS FOR AMERICAN EXPATS IN THE CZECH REPUBLIC

UNCLAS PRAGUE 001511 SIPDIS SIPDIS STATE FOR EUR/NCE TREASURY FOR OASIA ANNE ALIKONIS COMMERCE FOR ITA/MAC/EUR MIKE ROGERS SSA FOR SCOTT CASH E.O. 12958: N/A TAGS: CASC ECON EFIN ELAB EZ SUBJECT: GOOD NEWS FOR AMERICAN EXPATS IN THE CZECH REPUBLIC ¶1. SUMMARY AND COMMENT: The Czech Parliament on December 12 approved an amendment to the Act on Sickness Insurance, which delays implementation of the Act that would have made it compulsory for all Americans working in the Czech Republic to pay in to the Czech social security system effective January 1, 2007. This is a great success story for both the Embassy and the American Chamber of Commerce (AmCham),which worked closely to lobby key government and parliamentarians for tangible benefit to American citizens and local businesses. The next challenge is to ensure that the U.S.-Czech Totalization Agreement, concluded in September 2006, is signed and ratified by both governments before the Act on Sickness Insurance goes in to effect on January 1, 2008. END SUMMARY AND COMMENT. ¶2. WHAT HAS CHANGED: The Czech Senate on December 1 proposed and passed an amendment to the Act on Sickness Insurance that would delay its implementation by one year and skip right to stage two of the three-stage implementation process. The Act on Sickness Insurance seeks to get companies rather than the government to pay for the first 14 days of an employee's sick leave, while reducing the amount companies pay into the government sickness insurance fund from the current 3.3% to 1.4%. The Act was to be implemented in three stages: In 2007, companies would continue to pay 3.3% into the sickness insurance fund and also pay for the first 14 days of an employee's sick leave (before paid entirely by the government sickness insurance fund) but have that entire amount refunded by the government. In 2008, company contribution to the sickness insurance fund would decrease to 2.3% with 50% of the 14-days of sick leave pay refunded; In 2009, company contribution to the sickness insurance fund would decrease to 1.4% with no refundability. ¶4. HOW EMBASSY AND AMCHAM SUCCEEDED: The Embassy and the local AmCham closely coordinated our lobbying efforts to get the amendment initiated in the Senate and approved by both chambers of Parliament, in time for the President to sign it in to law before January 1, 2007 when the Act is due to go in to affect. These efforts included the Ambassador and AmCham Executive Director meeting together with the Minister of Labor and Social Affairs, AmCham writing to key Parliamentarians to explain the benefits to Czech interests, and the Ambassador writing to the Speaker of Parliament for his leadership and support on this issue. In the end, the success can be attributed to effective lobbying and capturing the issue as a win-win scenario for both countries: (1) the amendment prevented the already problematic government deficit from growing by delaying the reduction in company contribution to the sickness insurance fund; (2) the amendment saves businesses significant administrative costs for implementing the new law; (3) the amendment means Amcits do not have to pay in to the Czech social security system until 2008. ¶5. VICTORY FOR AMCITS AND BUSINESS: This is great news for all expatriate workers from countries that do not have a bilateral "totalization agreement" on social security payments, which includes an estimated 4,000 American citizens working in the Czech Republic. Without this amendment, all American citizens working in the Czech Republic would have been forced to start paying into the Czech social security system effective January 1, 2007, regardless of contribution to the U.S. social security system and without a cap on the limit of contribution. Furthermore, because the Czech social security system has precedent over the U.S. system for American citizens working in the Czech Republic, and since foreign payroll tax reduces an individual's U.S. tax base, the Act would reduce the contribution (and eventual withdrawal) from the U.S. social security system. In addition, most American citizens on average stay in the Czech Republic three to five years, but you have to contribute for a minimum of 15 years to draw from the Czech social security system. It also benefits businesses across board by providing additional time to implement the new act. AmCham's back-of-the-envelope calculation estimated that businesses would have to absorb an estimated CZK 5 billion (USD 240 million) in administrative cost in 2007 to implement the new Act. ¶6. NEXT HURDLE: The hope is that this one-year reprieve will be sufficient time for signature and ratification of the U.S.-Czech Totalization Agreement concluded this fall. During his meeting with the Ambassador in late-November, Minister of Labor and Social Affairs Petr Necas informed that he had communicated to his working level people that he wants to speed up completion of the totalization treaty. He specifically noted Czech ratification of the treaty can be done "in a couple of months," and welcomed any expedited processing in the U.S. GRABER