Amendment to Investment Incentives Act passed by Chamber of Deputies

One of the most significant changes is the much stronger position of the government. While so far, the government only approved investments projects deemed strategic, it should now approve all projects. The amendment also moves a number of conditions from the law to a separate government decree, aiming to make decision-making more flexible if it becomes necessary to change the conditions for an investment project’s approval.

At the moment, the law defines rather clear criteria for awarding investment incentives. If these are met, investment incentives are awarded to the applicant, while the approval itself is often just an administrative matter; this means that investors can make decisions to place an investment based on quite reliable information. This will no longer be the case, once the amendment is passed.

In the future, investors will only gain an acceptable level of certainty that they will indeed be awarded an incentive once their project has been approved at the governmental level. The approval process will be fully within the competence of the government, which will assess the projects in terms of their compliance with the principles of increasing the Czech Republic’s competitiveness. In practice, this may mean losing many a quality project, as the firms will have to make decisions on their investments under time pressure. The subjective assessment of non-measureable criteria and, even more importantly, the time delay of up to several months compared to the current status, is bound to cause uncertainty on the investors’ side. In extreme cases, this may result in investments being placed in another country.

The most significant changes introduced by the amended act are:

• Applicants will have to quantify and support an investment project’s expected benefits for the region and the state.
• The duty to create at least 20 new jobs will be omitted from the act, as for manufacturing industry projects it rendered it virtually impossible to support investments in the automation of existing production.
• Only projects proving a higher added value are to be supported (only applies to investment projects outside the supported regions).

According to the working version of the government decree (its final wording may yet change), the following projects will qualify as higher added value:

• the investment incentive recipient has agreed on wages for work performed on 1 December of each calendar year at the latest for at least 80% of the employees performing work at the place of the investment project’s implementation in an amount equal to at least the average monthly wage in the region, and, at the same time
• the recipient actively collaborates with a research organisation or university/college in the research and development area, and the share of employees with a university degree at the place of the investment project implementation is at least 10%, or
• the share of research and development staff is at least 2% of the total number of employees (this conditions may be met even just for the place of the investment project’s implementation), or
• the recipient acquired machinery and equipment for research and development purposes in the amount of at least 10% of the expected eligible costs as given in the application to obtain an investment incentive (the machinery must be acquired at market price, must not have been manufactured more than two years before the initiation of its acquisition, must not have been depreciated or put in use more than two years before submitting the application and has not been included in the investment’s eligible costs).

Transferring the competence to approve the projects to the government will bring an element of uncertainty to their assessment, mainly because applicants will have to quantify and justify their projects’ expected benefits for the region and the state, while this component has not been clearly defined. Another novelty is assessing environmental aspects when awarding investment incentives: applicants will have to quantify their projects’ electricity consumption. Meeting the above conditions will be crucial for awarding investment incentives, while the manner of their assessment has yet to be specified in concrete terms. In view of the above, a dynamic decrease in awarded investment incentives is to be expected.

Applications for investment incentives filed before the effective date of the amendment will still be governed by the current law. If passed by the Senate, the amendment is expected to enter into effect at the end of August of this year.