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Viewing cable 06PRAGUE1511, GOOD NEWS FOR AMERICAN EXPATS IN THE CZECH REPUBLIC

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Reference ID Created Released Classification Origin
06PRAGUE1511 2006-12-14 11:44 2011-08-25 00:00 UNCLASSIFIED Embassy Prague
VZCZCXYZ0000
RR RUEHWEB

DE RUEHPG #1511/01 3481144
ZNR UUUUU ZZH
R 141144Z DEC 06
FM AMEMBASSY PRAGUE
TO RUEHC/SECSTATE WASHDC 8359
INFO RUEHFDY/SOCIAL SECURITY ADMIN BALT MD
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
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