All employees, cooperative farmers and self-employed persons.

Prepared by Kooperativa pojišťovna. I SUMMARY Social Security Eligibility Retirement Age All employees, cooperative farmers and self-employed persons. Retirement age for men and women (irrespective of the number of children) will gradually rise to 73 by 2085. Currently, the retirement age is 62 and 10 months for men and between 56 and 4 months to 61 and 8 months for women, depending on the number of children. For generation born in or after 1977 the retirement age is 67. Contributions Employee: 13% of assessment basis (compulsory social and health insurance). Employer: 34% of assessment basis (compulsory social and health insurance). Self-employed: 42.7% of assessment basis (compulsory social and health insurance). Personal assessment basis for contributions: total income. Retirement The retirement reform introduced a 3-pillar system: First pillar Pay-as-you-go system Employees pay obligatory contributions for retirement benefits Second pillar Capital accumulation Individual billing by pension fund Voluntary decision to enter pension fund, but this decision is not reversible There is the possibility of choosing the investment strategy Third pillar Voluntary private benefit plans For this pillar there is government contribution and a tax incentive Disability Disability Pension is divided into basic assessment and percentage assessment. As of 2010, this pension is classified into three levels of disability, with benefits ranging from 0.5% to 1.5% of the monthly calculation base. Death Spouse s Pension: 50% of old age pension, disability pension or partial disability pension (widow, widower). Orphans pension s assessment base as for old age pension, but only at 40%. Medical All residents and those gainfully employed. Employee Reference Manual 2015-2016 - 1 - Swiss Life Network

Private Benefit Plans Eligibility Retirement Age All persons aged over 18 and domiciled in the Czech Republic. Depends on the insurance product maximum entry age is 70 years. Benefit payments can start as of age 60. Contributions Retirement Death Disability Medical Contributions to employee benefit plans with commercial insurance companies are generally financed by employer contributions. Normally paid as pension benefits. Normally paid as a lump sum. Normally paid as pension benefits. Private medical/health plans are paid as a daily allowance. Taxation Contributions State Insurance: Contributions are fully deductible. Non-compulsory plans with commercial insurance companies: Employer: Deductible up to CZK 30,000 Employee: Deductible up to CZK 12,000 (Provided certain conditions are fulfilled.) State Insurance: are exempt from income tax. Non-compulsory plans with commercial insurance companies: Endowment and old age pension: 15% of difference between benefit received and contributions paid is taxed. Employee Reference Manual 2015-2016 - 2 - Swiss Life Network

II INTRODUCTION Country Statistics Population/ growth rate Age structure 0-14 years: 15-24 years: 25-54 years: 55-64 years: 65 years and over: GDP purchasing power parity Real growth rate Agriculture Industry Services Unemployment rate Inflation rate Annual gross salary* Para-professionals Professionals Management Legal minimum wage Exchange rate on February 27, 2015 Currency: Czech Crown 10,627,448 (July 2014 est.)/ 0.17% (2014 est.) 14.9% 10.6% 43.6% 13.4% 17.6% (2014 est.) $285.6 billion (2013 est.) -0.9% (2013 est.) 2.4% 37.3% 60.3% (2013 est.) 7.1% (2013 est.) 1.4% (2013 est.) in CZK (000s) General: 249 Skilled: 357 Junior: 512 Senior: 733 Lower middle: 1,187 Upper middle: 1,839 CZK 9,200 per month, or CZK 55 per hour (2015) 1 CZK = 0.0408 USD 1 CZK = 0.0364 EUR *Source: Mercer s International Geographic Salary Differentials, Edition 2015 Legislation and Insurance Market Update in Brief The latest changes of the Czech legislation, which came into effect since 1 January 2013, are summarized briefly as follows: Solidarity contribution Introduction of the three-year solidarity contribution amounts to 7 % of the tax base over the social security payment cap (approximately CZK 103,000 a month). The solidarity contribution applies only on employment income and self-employment tax base. Individuals paying the 7% solidarity contribution will also have an obligation to file a personal income tax return for 2013. The standard filling deadline was 1 April 2014. Employee Reference Manual 2015-2016 - 3 - Swiss Life Network

Public health insurance premiums The limit for the payment of insurance premiums for public health insurance, currently approximately CZK 1.8 million per year, has been cancelled for three years. The limit for the payment of social security, which amounts to CZK 1,242,432 for 2013, is maintained. Taxation The ability to fully benefit from 30 and 40 percent flat-rate expenditure for self-employed persons and rental income will only apply to those with an annual income that does not exceed CZK 2 million. All self-employed persons and persons with rental income claiming any flat rate expenditure will not be able to use some tax discounts, e.g. for the wife/husband without their own income or child tax benefits. The limitation applies if the sum of partial tax bases where flat-rate expenditures were used is higher than 50 % of the total tax base. Pensioners will lose for three years the basic discount that every taxpayer is currently entitled to, i.e. maximum of CZK 24 840 per year. Withholding tax on income of foreign tax residents rises to 35 %. This rate will apply to income from sources in the territory of the Czech Republic, e.g. the interests and royalties that are paid to residents of countries with which the Czech Republic has not yet concluded a double tax treaty. Real estate transfer tax will permanently increase by one percentage point and since 2013 it is 4 %. Increase of the standard VAT rate to 21% and of the reduced VAT rate to 15% from 2013 till 2015. Contributions to Social Security While making pension savings premium payments to the second pillar, employers reduced social security payments made on behalf of the employee to the Czech Social Security Agency, the first pillar, by 3 percent. Employees participating in both the first and second pillars of the pension system thus pay a total of 8.5 percent of their assessment base (3.5 percent pension insurance and 5 percent pension savings). For both schemes, employers only pay the premium for the employee up to the maximum assessment base, which is the same as the maximum assessment base for social security (CZK 1,242,432). The employer s pension insurance contribution (25 percent) is not affected by the employee s participation in the second pillar. Employees participating in the first pillar only will continue to pay pension insurance at 6.5 percent of their assessment base in 2013. In terms of future trends, the future of pillar II remains uncertain given the current political situation in the Czech Republic. The government that pushed through the reform was forced to resign in June 2013 following a scandal, leaving an interim government in place to be replaced at the next election. Political uncertainty over the future of the system is one of the reasons cited for the low participation in the reforms. In late 2014, new government decided to close pillar II, but the date of efficiency was not estimated. There are two possibilities, January1st 2015 or 2016. The final decision should be done in middle of 2015. Employee Reference Manual 2015-2016 - 4 - Swiss Life Network

III SOCIAL SECURITY Background Information Since1 January 2013 the Czech Republic has a three pillar pension system, comprising the pillar I state pension insurance, voluntary pillar II plans and pillar III supplementary pension insurance. Both pillar II and pillar III pensions are written on a defined contributions basis. The future fate of pillar II is, from the point of view of the March 2015, uncertain. Pillar III plans were first introduced in 1994 on the basis of Act No 42/1994 Coll on supplementary pension insurance with state contributions. In addition to an individual s contributions a supplement is paid by the state depending upon the level of contribution made. Additional contributions may also be made by an employer, and it is estimated that approximately 70% of employers participate. There are also tax advantages associated with membership to pillar III. Pillar II pensions were introduced on 1 January 2013 as part of the pension reform. These plans are financed by a 5% deduction from an employee s gross wage. Membership to pillar II is voluntary and limited according to age: People aged over 35 could opt to join up until 1 July 2013 People aged between 18 and 35 years can opt to join by the end of the calendar year in which they reach 35. Once made, the decision is irreversible. As part of the pension reform, pillar III pension funds were required to be transformed to pension companies by the end of 2012, and apply for licences to operate pension business in pillar II and pillar III. The social security system (pillar I) covers pension insurance, sickness insurance, coverage of citizens serving in the armed forces or civil service and members of their families, and state social support. Eligibility All employees, cooperative farmers and self-employed persons. Contributions Social security benefits are financed by contributions from employers, employees and self-employed persons, and are subsidised by the state. Employee Reference Manual 2015-2016 - 5 - Swiss Life Network

Social Security Contribution Rates (% of the Assessment Basis): Employees Employer Self-Employed Voluntarily insured persons pensions Pension pillar I Pension pillar II Sickness insurance State employment policy 3.5 or 6.5* 5.0 - - 21.5-2.3 1.2 25.0 or 28.0*** 5.0 Voluntary** 1.2 28.0 - - Total 8.5 or 11.5* 25.0 29.2 (or 31.5) 28.0 * members of pillar II pay a reduced contribution of 3.5% to pillar I and 5.0% to pillar II. ** a 2.3% contribution to sickness insurance is voluntary for the self-employed. *** for self-employed participating in pillar II, a reduced contribution of 25% is paid to pillar I and 5.0% to pillar II. Assessment basis: Employees: Total income from employment as calculated by employer. Employers: Total amount of employees assessment basis. Self-employed: Arbitrary, but not less than 50% of monthly income after deduction of acquisition expenses and running cost in 2007. The maximum annual earnings are set at 48 times the average national monthly wage. The ceiling for 2013 is set at CZK 1,242,432 (based on the average monthly wage of CZK 25,884). Health Insurance Contribution Rates (% of the Assessment Basis): Employees Employers Self-employed 4.5 9.0 13.5 Retirement Retirement Age Currently, the retirement age (NRA) is 62 and 10 months for men and between 56 and 4 months to 61 and 8 months for women, depending on the number of children. For generation born in 1977 the retirement age is 67. The retirement age for men and women (irrespective the number of children) will gradually rise to 68 by 2044. Qualifying Conditions Old age pension (also called pension insurance): The minimum number of contribution years required for men and women retiring at NRA is gradually increasing from 25 years to 35 years (by one year each year) from 2010 to 2019 and is 31 years in 2015. Where an employee does not satisfy the contribution criteria at NRA, qualification may be attained at the NRA for a man of the same date of birth plus five years (for men and women); the minimum number of contribution years required has been gradually increasing from 15 years to 20 years from 2010 to 2014 and is 20 years now. Employees who reach NRA after 2014 with at least 30 years contribution are entitled to the old age pension, as are employees who have reached 65 years and satisfy the conditions of entitlement to the disability pension. Employee Reference Manual 2015-2016 - 6 - Swiss Life Network

Old Age Pension: The personal assessment basis determines the computation basis and is computed as the monthly average of the entire insured person s annual assessment basis for the 30 calendar years immediately preceding the year in which the pension is granted starting from age 18. Assessment basis for old age pensions: Personal assessment basis Computation basis Up to CZK 11,389 100% CZK 11,389 to CZK 30,026 27% CZK 30,026 to CZK 103,536 19% CZK 103,536 and above 6% The annual assessment basis of an insured person is determined by multiplying the total assessment basis for the calendar year by a growth coefficient set every year by government decree. The current coefficient was determined for 2009 (two years before the beginning of the pension payment) and became effective on January 1, 2012. This coefficient amounts to 1.0249 and is used to determine pension payments that begin in 2009. The old age pension is calculated as the total of the assessment basis plus the percentage basis. The percentage assessment rate is determined as a percentage of the computation base for the insurance period as follows: Before retirement age: 1.5% of the computation base for each whole calendar year. After retirement age: 1.5% of the computation base for every 90 calendar days of gainful activity without drawing the old age pension. Early Retirement Benefit: Persons become eligible for early retirement, if they have been insured for at least 25 years. There are two options: 1. Temporarily reduced early retirement benefit (available since 2006) for: Persons receiving a partial disability pension and who will reach retirement age within 2 years or Persons who will reach retirement age within 5 years and who received a full disability pension for at least five years but whose entitlement has ceased. 2. Permanently reduced early retirement benefit: The percentage assessment element will be reduced by 0.9% of the computation base for each 90 calendar day period from the day on which the pension is granted until the day when retirement age is reached. This applies to the period day 1 to day 360. From day 361 it is 1.2% and from day 721 it is 1.5%. The pension will also remain reduced after retirement age. The percentage assessment element of the old age pension is reduced by 1.3% of the computation base for every 90 days short of retirement age. When retirement age is reached, the full (normal) old age pension will be paid. Disability Qualifying Conditions Since 2010, disability is classified into three levels of disability: 1st degree (35% 49%) 2nd degree (50% - 69%) 3rd degree (70% or higher) Employee Reference Manual 2015-2016 - 7 - Swiss Life Network

In order to qualify for benefits, individuals aged 38 or older must have been in covered employment for at least 10 of the last 20 years before the onset of disability. Fewer years are required for individuals below age 38. The percentage calculation of a disability pension benefit for every complete year of insurance is: Level of disability 1st degree 2nd degree 3rd degree Percentage 0.50% of the monthly calculation base 0.75% of the monthly calculation base 1.50% of the monthly calculation base Death Qualifying Conditions There is entitlement to a widow s/widower s pension if the deceased spouse fulfilled one of the following conditions: Was the recipient of an old age pension or a full or partial disability pension? Met the conditions for entitlement to a full disability pension or an old age pension. Died as a result of an occupational injury or an occupational disease. The widow s/widower s pension is payable for one year after the death of the spouse. A widow/widower is entitled to continued widow s/widower s pension if he/she fulfils at least one of the following conditions: Is fully disabled. Is caring for a dependant or disabled child or parent. Has reached retirement age. Has reached the age of at least 4 years below the retirement age of a man of the same date of birth (M and F). Eligibility for widow s/widower s pension expires upon remarriage. Widow s/widower s Pension: The basic assessment amount of a widow s pension or widower s pension is CZK 2,330 (Since January 1, 2013). The percentage assessment element is 50% of the old age pension or full disability pension or partial disability pension to which the spouse was entitled at the time of his or her death. Orphan s Pension: A dependant child is entitled to an orphan s pension in case of death of the natural parent, adopted parent or guardian provided that the above person was the recipient of an old age pension, full or partial disability pension, or died due to occupational injury. The death of a foster-parent does not entitle to an orphan s pension. An orphan can only claim entitlement to the orphan s pension until the end of compulsory education and then until age 26 on condition of the following: Orphan is in further education. Due to sickness, injury or long term adverse state of health, further education is not possible or gainful employment is restricted. An orphan can claim entitlement to the orphan s pension after the end of compulsory education until age 18, if registered with an employment agency during search for employment. The basic assessment element is the same as for the widow s/widower s pension. The percentage assessment element is 40% of the percentage assessment element of the old age pension or full or partial disability pension to which the deceased was entitled on the day of death. Employee Reference Manual 2015-2016 - 8 - Swiss Life Network

Sickness Qualifying Conditions All employees are eligible under the Sickness Scheme Insurance Act. Four kinds of allowances are offered by the sickness insurance: Sickness benefits Support while nursing a family member Pregnancy and maternity compensation allowance Maternity benefits. There are no benefits provided during the first 3 days of incapacity to work. From day 4 a refund of the wages is provided. From day 22 the rate is decreased to 60% of the daily assessment basis (the regulation took effect on January 1, 2011). Medical/Health Qualifying Conditions The Health Insurance Act regulates the provisions of medical care. All residents and persons gainfully employed in the territory of the Czech Republic are eligible. The following expenses are reimbursed by health insurance: Diagnosis and medical care Preventative programs Supply of medication and therapeutic material Transport of patients Spa stays Health and medical equipment. Work Injury Social security does not provide workers compensation benefits but a disability pension is available under certain criteria. Employers must take out a mandatory private insurance. The government announced the abolition of the Ceska pojstovna and Kooperativa duopoly due to it being contrary to the EU free market principles. The abolition date was scheduled for 1 January 2015, but has been postponed to year 2017. It has yet to be decided whether this cover should be absorbed into the mandatory health insurance system or be transferred to a special purpose public insurer. Unemployment Contributions to the state employment fund cover the expenses of job applicants and other costs associated with the state s active employment policy. Employee Reference Manual 2015-2016 - 9 - Swiss Life Network

Qualifying Conditions Since January 1, 2012 the new law amendment has become valid. A person is eligible for an unemployment grant if: For at least 12 months in the given period (last 2 years before registering as unemployed) they have practiced an employment or another gainful activity that involved the obligation to pay contributions to social security and unemployment insurance. They have applied to the employment agency for employment or for unemployment benefit. They are not receiving an old age pension on the date when the unemployment grant will be payable. The condition of 12 months work period has to be also fulfilled by each school leaver requesting for employment. New Amendment of Labour Code: Any applicant registered permanently at the employment office, can be offered public employment up to 20 hours per week. If the applicant refuses this public employment without serious reason, they can be removed from the employment office register. No benefit is provided to applicants who receive redundancy payment. The overall supporting period is not reduced, but benefit payments just set in later. Applicants can choose an accredited retraining course for a set maximum sum of money. If the limit is exceeded, the applicant must pay the difference. The employment office may co-operate with the employment agency. The benefit (in percentage of average monthly net earnings of the recipient s last employment) is 50% during the first three months, 45% during the next three months. The unemployment grant is paid Up to 50 years of age: Age 50-55: Over 55 years of age: for 6 months for 9 months for 12 months After this period, the unemployed are supported in accordance with social security regulations. are based on the average monthly income of the last job, the amounts are as follows: 50% of average net income for the first 3 months 45% of average net income for the next 3 months 60% of income for the period of retraining Since January 1, 2013 the unemployment benefit has been restricted and cannot be higher than CZK 14,157 per month. Other State Social Support Some state social support allowances include allowances dependent on the income of the persons concerned: Child allowance Birth grant Social allowance Housing allowance Transportation allowance (for dependant child). Employee Reference Manual 2015-2016 - 10 - Swiss Life Network

Other allowances and grants: Parental allowance Maintenance allowance (for soldiers during military service) Foster care allowances and grants Maternity grant (not income-tested) Funeral grant (not income-tested). are granted to persons (and families) with permanent residence in the Czech Republic, and to foreigners with residence in the Czech Republic after a waiting period of 365 days from the date of registration. Taxation Pillars I and II Contributions to pillar I and additional employee contributions to the pension are tax deductible. paid as an annuity are tax deductible. Pillar III To receive tax relief the insurance period must be for a minimum of five years, and benefits cannot be taken before age 60. Member contributions are tax deductible up to CZK 12,000 per year. Taxation of benefits For lump sum payments, an employer s contributions and investment yields are taxed at 15%. Annuity payments are tax free. The changes in Income tax Act in late 2014 introduced tax penalties in case of misusing of tax deductibles. Penalties are in force when taking benefits before defined lump sum maturity in case the tax advantages has been used before. Other Information Indexation If the overall retail price index rises by at least 5%, pensions have to be increased. Reciprocal Social Security Agreements European Union and extended to the European Economic Area*, Australia, Canada, Chile, India, Japan, Macedonia, South Korea, Switzerland, Turkey and the United States. *The EU social protection system is extended to countries which are members of the EEA and takes precedence over bilateral agreements when more beneficial to citizens. Thus, this treaty also includes countries like Liechtenstein, Norway and Iceland. Employee Reference Manual 2015-2016 - 11 - Swiss Life Network

IV PRIVATE BENEFIT PLANS Background Information The pension law (the Supplementary Pension Act) became effective on March 21, 1994 (amended in 1999). There are currently 9 pension funds subsidised by the government to which companies and individuals may contribute. Pension funds generally offer old age pension, disability pension and survivors pension. It is possible to take out a supplementary coverage to the state insurance. Commercial insurance companies offer a relatively wide range of individual and group life, accident and pension plans. The following coverages are available: Individual and group life Old age pension Disability pension Survivors pensions Accidental death Accident Serious Diseases Endowment Medical Premium waiver. Eligibility Pillar II Membership is voluntary: People aged over 35 years could opt to join up until 1 July 2013 People aged between 18 and 35 years can opt to join by the end of the calendar year in which they reach 35. Once made, the decision is irreversible. Membership is until state retirement age or earlier death. The only mandatory employee insurance is work injury. Any other employee benefit plan or participation in a private pension fund is not compulsory. All persons aged 18+ and domiciled in the Czech Republic or persons with residence in an EU member state that participates in pension or public health insurance (social security) are eligible to join a pension fund. Pillar III Membership of supplementary pension insurance is voluntary and open to any permanent resident over the age of 18. The minimum contribution period for old age pension entitlement is 60 months. Funds are not allowed to impose minimum contribution periods in excess of 120 months. The minimum contribution period for a defined disability pension is 60 months. Employee Reference Manual 2015-2016 - 12 - Swiss Life Network

Contributions Pillar II A contribution of 5% of wages is deducted from payroll, comprising 3% which would otherwise have gone to state pension insurance, and 2% contribution from the employee Pillar III All pension contributions are voluntary. The minimum legal contribution is CZK 100 per month. The state supplement is only payable on contributions of at least CZK 300 per month. Contributions must be made monthly and can be varied. Employers are allowed to make contributions on behalf of their employees. Most employer contributions are from 1% to 5% of salary, with 3% of salary being typical. The usual level of the monthly member contributions (without the employer s contribution) is between CZK 300 and CZK 1,000. Above CZK 1,000 no further state supplement is added. In order to encourage voluntary pension provision, the state makes a supplementary contribution related to the amount contributed by the member. This ranges from CZK 90 on monthly member contributions of CZK 300 to CZK 230 on monthly member contributions of between CZK 1,000 and CZK 2,000. Member contributions are tax deductible up to CZK 12,000 per year. Retirement Retirement Age Pension funds: Retirement age for old age pension is 60 years (provided that the other conditions are also fulfilled). Pillar I Individuals have a choice of unitised funds in which to invest which vary dependent on risk: standard, dynamic, balanced and conservative. The accrued funds are to be used to purchase an annuity with a life insurer at state retirement age. Vesting is immediate. Pillar III Individuals have a choice to unitised funds in which to invest which vary dependent on risk. For new members guaranteed funds and government weighted investment bond funds are no longer available. Funds are allowed to offer only retirement pensions, disability pensions and survivor s pensions. Under the reforms pre-pensions are available in certain circumstances. Funds are not allowed to offer insurance benefits such as life insurance. Retirement pensions may only be offered on a DC basis. Disability pensions may be offered on defined benefit (DB) basis. Vesting is immediate. Disability Long-term disability benefits are not commonly provided in the Czech market. If provided, benefits are normally paid in monthly instalments. Employee Reference Manual 2015-2016 - 13 - Swiss Life Network

Death Death benefits are provided by the employers predominantly via life insurance. are normally paid as a lump sum. Sickness There is a need to compensate the loss of earnings during sickness as State benefits are low. However, this is not a typical benefit provided by employers. Medical/Health Private medical/health plans are not very common in the market. If at all, the following benefits are provided: Daily allowances in case of hospitalisation (due to an accident or an illness) Daily allowances in case of incapacity to work (due to an accident or an illness) Work Injury A mandatory work injury plan has to cover accidents which occur in the workplace. Other None. Taxation Contributions Since the introduction of the Income Tax Law on January 1, 2001, premium payments by employees and their employers are tax-deductible. The following limits apply: Employees can deduct premiums paid from their annual taxable income up to the amount of CZK 12,000. Employers can deduct premiums paid up to the amount of CZK 30,000 for each employee. The tax advantage applies only to insurance products with a capital part, such as: Capital life insurance (endowment) Pure endowment policy Retirement pension The changes in Income tax Act in late 2014 introduced tax penalties in case of misusing of tax deductibles. Penalties are in force when taking benefits before defined lump sum maturity in case the tax advantages has been used before. Pension funds: Employer contributions paid after January 1, 2000 are not taxed. Endowment and old age pension: 15% of difference between benefit received and contributions paid is taxed. Pension funds: Share on profit of pension fund in pension payment is taxed at 15%. Employee Reference Manual 2015-2016 - 14 - Swiss Life Network

Double Taxation Agreements Albania, Andorra, Armenia, Australia, Austria, Azerbaijan, Belgium, Bosnia and Herzegovina, Brazil, Bulgaria, Canada, Cayman Islands, China, Croatia, Cyprus, Denmark, Egypt, Estonia, Ethiopia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Jordan, Kazakhstan, Korea (North & South), Kosovo, Latvia, Lebanon Lithuania, Luxembourg, Malaysia, Malta, Mexico, Moldova, Mongolia, the Netherlands, New Zealand, Nigeria, Norway, Pakistan, Panama, the Philippines, Poland, Portugal, Romania, Russia, Serbia and Montenegro, Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Syria, Thailand, Tunisia, Turkey, Ukraine, the United Arab Emirates, the United Kingdom, the United States of America, Uzbekistan, Venezuela and Vietnam, Virgin Islands (British). Employee Reference Manual 2015-2016 - 15 - Swiss Life Network