Authors: David Krch, Kamila Chládková
Up until the summer of 2019, incentives were a popular tool for many companies seeking support for their investments. As a result of the tightening of the rules, the past two years have seen a significant drop in the number of submitted applications and a single-digit number of projects approved by the Government of the Czech Republic since September 2019. For 2022 and beyond, the outgoing cabinet has passed several major changes to investment incentives.
The first one is a new regional aid map setting out the percentage of aid granted in each region. In a large part of the Czech Republic, the conditions will be more favourable and the maximum aid framework will be increased. Unfortunately, the incentives provided will be restricted in some regions as a result of the new EU rules. Other changes will affect aid for strategic investments and projects with an active R&D element.
The main change affects the expected approval of a government regulation setting out the maximum permissible level of State aid in individual cohesion regions of the Czech Republic. After seven years, the percentage of aid granted is changing in connection with the new regional aid map approved by the European Commission. The map will apply for granted incentives or subsidies until 31 December 2027.
The previous regulation provided for a uniform rate of 25% of eligible costs for large undertakings from the whole country (Prague excluded). For small and medium-sized enterprises, the rates were 20% and 10% higher, respectively.
The new maximum aid for large undertakings will be as follows:
In the regions with reduced aid, large undertakings will be most severely affected by the end to incentives to expand their existing activities that have been most in demand in recent years. From 2022 onwards, large enterprises in these regions may only apply for aid for projects for a new business activity, i.e. a completely new establishment or an extension of an existing one, provided that the purpose of the extension is a NACE activity different from what the establishment has performed to date.
In regions where the aid is increased, applications submitted in 2021 that have not yet been granted the incentive by 31 December 2021 will receive aid at the original maximum rate of 25%. On the other hand, in regions with reduced aid or complete discontinuation of incentives, such applications will receive aid under the new regulation.
The second change is aimed at progressive industries and at support for projects with a higher added value. Investors in the manufacturing industry actively conducting research and development have so far been unable to obtain any investment incentive other than the corporate tax credit.
Now, selected projects approved by the government will be classified as strategic investment actions and will be eligible for an investment incentive also in the form of material aid for the acquisition of tangible and intangible fixed assets. This “cash” aid has increased from the current 10% up to 20% in the Ústí nad Labem, Karlovy Vary and Moravian-Silesian Regions. In addition, these projects will not be subject to the other restrictions for strategic investment actions (amount of asset acquisition and job creation).
All investments in the following areas will be considered strategic with the benefit of monetary aid without further restrictions:
Key technologies are defined as, for example, nanotechnologies, biotechnologies, photonics, microelectronics, nanoelectronics, artificial intelligence technologies, advanced material technologies and advanced manufacturing technologies.
For strategic investment that is not subject to the above condition, the government has reduced the minimum number of new jobs required from 500 to 250 in the amended regulation. At the same time, it has increased the minimum investment in fixed assets from the current CZK 500 million to CZK 2 billion, while at least CZK 1 billion must be used to purchase machinery.
It will be interesting to see whether the amended conditions will spur further investment and new incentive applications, or whether the incentives will continue to decline like in the past few months. What will be of decisive importance apart from the legislation is the new government making “positive” decisions when approving individual projects, and a possible major change in the basic conditions for investment projects.
Do not hesitate to contact us if you wish further details in this area or are considering having your projects supported through investment incentives. We will be happy to assist you to handle this agenda.
