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Investment incentives

Effective as of July 2 2007, the Act on Investment Incentives, which forms the legal basis of the regime of investment incentives in the Czech Republic, has been modified. The original wording of the Act has been effective since May 1 2000, introducing a programme of granting of state aid in eligible regions in accordance with Article 87(3), parts (a) and (b), of the EC Treaty. This regime has been preceded by active support for investments in advanced industrial technologies, implemented in 1998 on the basis of a government resolution. The current regime based on the Act includes corporate income-tax relief, job-creation and training grants, and the transfer of land with infrastructure or owned by the Czech state at a discount.

The eligibility criteria stipulated by the Act have been modified to support the acquisition of new high-tech equipment (not older than two years) only, while reducing the limits for the minimum volume of an individual investment (a general limit has been reduced from Kc200 million ($10 million) to Kc100 million. The proportion of the investment to be made into machinery has been increased from 40% to 60%. The duration of the tax relief has been reduced from 10 to five years. However, the terms for incentives already granted will not be affected.

The amendment further simplified the assessment and approval process for granting the incentives. It has also aligned the Act with new EC Guidelines on national regional aid for 2007-2013 and the new Commission Regulation (EC) 1628/2006, on the application of Articles 87 and 88 of the Treaty to national regional investment aid, applicable for the period 2007 to 2013.

The general eligibility criteria are:

  • Launch of a new production or expansion of an existing one;
  • Minimum investment into long-term tangible and intangible assets (except leasing) of at least Kc100 million (or Kc60 million in regions with unemployment over 125% of the national average, or Kc50 million in regions with over 150%);
  • At least half of the above amounts must be covered by the equity of the investor;
  • A minimum of 60% of the total investment must be made into machinery;
  • The acquired machinery must be new (produced less than two years prior to its acquisition); and
  • The criteria above must be met within three years of the grant of incentives.

Pursuant to other criteria stipulated by the Act, the recipient of incentives may not begin work on the project before obtaining a confirmation of project registration from state agency CzechInvest, it must maintain the investment and the newly created jobs for at least five years, and the production must be environmentally friendly. At least 25% of the total volume of investment must be made without any form of state aid.

Corporate income tax relief may be provided up to the state-aid intensity ceiling, after the deduction of tangible job-creation aid and the difference between the market price and the purchase price of land (if land has been provided as one form of the incentives). The current state aid ceilings span from 0-10% of the volume of the supported investment for Prague and 30-36% for South-West Bohemia to 40% for other regions. The maximum duration of the corporate tax relief is five years.

Job-creating grants and training/retraining grants may be currently provided only in regions with unemployment rate higher than 150% of the national average. The grants are Kc200,000 per new job and 35% of training/retraining costs. Grants can be paid in accordance with an agreement concluded between the ministry of labour and social affairs and the investor on the basis of a decision on the grant of investment incentives. Grants usually relate to the creation of new jobs and training costs expended in the first three years of the project.

Michal Pravda

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