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Cablegate: Good News for American Expats in the Czech Republic

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

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