In January and February 2014, companies considering investments in the Czech Republic will have a last opportunity to apply for investment incentives under a more favourable regime that allows for a ceiling of regional investment aid for large companies of up to 40%. New guidelines, issued by the European Commission and applicable to national regional aids, will come into force on 1 July 2014 and will lower that ceiling to 25%. In addition, the new guidelines will also come with a higher administrative burden placed on applicants for investment incentives, and with stricter rules for their granting.
Current state of play
Investors in the Czech Republic will have a last chance to apply for investment incentives granted in accordance with the more favourable Guidelines on National Regional Aid for 2007-2013i ("Guidelines"). The validity of these Guidelines has been extended until 30 June 2014. In order for the application to be approved by the end of June, it must be filed in the course of January or February at the latest.
Under these Guidelines, investment incentives to investors in the Czech Republic are provided up to the maximum amount of the ceiling of state aid intensity of 30-40%.
Forms of Investment Incentives
The following forms of investment incentives are provided to investors in the Czech Republic: (i) corporate income tax relief, (ii) transfer of land for favourable prices, (iii) job creation grants, and training/re-training grants in certain regions, and (iv) cash grants on capital investment in the case of strategic investments.
- Manufacturing Industry
Investment incentives are granted for the introduction or expansion of production in sectors of the manufacturing industry. To qualify for the incentive, an investment in long-term tangible and intangible assets must be made and have the following value (depending on the region of investment):
i) a minimum of CZK 50 million (approx. EUR 1.8 million), of which at least CZK 25 million (approx. EUR 900,000) must be invested in new machinery, or
ii) at least CZK 100 million (approx. EUR 3.6 million), of which at least CZK 50 million (approx. EUR 1.8 million) must be invested in machinery.
The machinery must (i) be acquired for market price; (ii) must not have been produced more than two years before acquisition; and (iii) must not be subject of amortisation. Further, at least half of the minimum investment amount must be financed with the investor's own capital.
For the investment to qualify as a strategic investment and thus be eligible for investment incentives in the form of cash grants on capital investment, the value of the above mentioned assets must be at least CZK 500 million (approx. EUR 18 million), at least 50% of which is invested in new machinery, and at least 500 new jobs have to be created.
- Technology centres
Investment incentives are granted for the construction or expansion of research, development and innovation centres.
The minimum investment value in assets as defined above is CZK 10 million (approx. EUR 360,000), at least 50% of which must be invested in new machinery. The other conditions as described above apply respectively, while it is necessary to create at least 40 new jobs.
For the investment to be qualified as a strategic investment, the value of the above mentioned assets has to be at least CZK 200 million (approx. EUR 7.2 million), at least 50% of which is invested in new machinery, and at least 120 new jobs have to be created.
- Business support services centres
Investment incentives are granted for the launch or expansion of the activities of shared-services centres, software-development centres, and high-tech repair centres.
To be granted investment incentives, at least 40 new jobs in the case of software-development centres or at least 100 new jobs in the case of other business support services centres have to be created. Strategic investments are not applicable to business support centres.
A time frame of three years is set from the date the investment incentive is granted in order to fulfil all these conditions.
Investment incentives under new guidelines
When the new Guidelines on regional State aid for 2014-2020ii enter into force on 1 July 2014, large companies in particular will find themselves in a worse position regarding the whole application process for investment incentives, as well as the amount of incentives granted. The maximum amount of the ceiling of state aid intensity will be lowered from the currently available 40% to a maximum of 25%. Moreover, it will be granted only for initial investments that create new economic activities, or for the diversification of existing establishments into new products or new process innovations. More generally, it can be said that an overall higher administrative burden will be placed on the applicant for an investment incentive and stricter rules for their granting will apply.
1 Guidelines on national regional aid for 2007-2013. Official Journal C 54, 04.03.2006, pages 13-45
2 Guidelines on regional State aid for 2014-2020. Official Journal C 209, 23.07.2013
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.