Investment incentives to increase in some regions, decrease in others

An amendment to Government Decree No. 221/2019 Coll. implementing certain provisions of the Investment Incentives Act aims to improve the targeting of investment incentives to progressive industries and investments that are in the strategic interest of the Czech Republic.

Strategic investments

The concept of strategic investments has been part of the investment incentives scheme since 2012. Strategic investments are significant investments for which the state provides a more advantageous combination of investment incentives, primarily in the form of a higher proportion of cash grants. This type of investment is being changed as follows:

If a project meets the definition of a strategic investment, it can receive a subsidy for the acquisition of fixed assets of up to 10% of eligible costs, but not more than CZK 1.5 billion. Under the amendment, the state will favour the Karlovy Vary, Ústí nad Labem and Moravian-Silesian regions, where a subsidy for the acquisition of fixed assets will increase to 20% of eligible costs, with no absolute value limit. The remaining part of the investment incentive will continue to be provided in form of a tax credit.

All investments in:

will be deemed strategic investments without any further restrictions. 

According to the government, key technologies are, e.g., nanotechnology, biotechnology, photonics, microelectronics, nanoelectronics, artificial intelligence technologies, advanced materials technologies, and advanced manufacturing technologies.

For other industries, the government is reducing the required minimum number of new jobs that must be created from 500 to 250. In contrast, it increases the limit for the minimum investment in fixed assets from the current CZK 500 million to CZK 2 billion, while at least CZK 1 billion must be spent on the acquisition of machinery (previously, CZK 250 million was sufficient).

The amended decree is effective from 1 January 2022 and will apply to applications for investment incentives submitted after that date.

 

Deriving from EU rules, the government has also approved a decree on the change in the public aid intensity with effect from 1 January 2022. This involves setting a maximum rate of the incentive or subsidy granted in relation to eligible costs (i.e., for example, based on the investment amount). The existing decree provided for a uniform rate of 25% for large enterprises throughout the country (with the exception of Prague) and 45% and 35% for small and medium-sized enterprises, respectively. Under the new decree, the rate for large enterprises will be as follows:

The bonification for small and medium-sized businesses remains the same.

Under the transitory provisions, the aid intensity in effect until 31 December 2021, i.e. 25%, shall apply to investments in the Karlovy Vary, Ústí and Labem, Liberec, Hradec Králové, Pardubice, Zlín, Moravian-Silesian and Olomouc regions, but only to projects whose applications for support were filed before 1 January 2022 and which have not received a decision on granting an investment incentive by that date. 

Compliance with the EU rules

The government decrees have not yet implemented all the changes resulting from the new EU rules for public aid (New European rules for public support | KPMG Czech Republic (danovky.cz)), which will also become effective from 1 January 2022. From this date, the Czech legal regulation of incentives will thus not be fully in line with the European one. Where the conditions of the European regulation are stricter than those of the Czech regulation, the EU rules shall be directly applied, as they have been several times in the past (e.g. the impossibility to support a simple expansion of production in certain regions).

Please note that unlike the Czech regulation under which the date of filing an application is relevant for deciding whether to follow the existing or the new rules, the European regulation takes as a basis the date on which a decision to grant the investment incentive was issued. Therefore, the new EU rules will apply to all projects for which an investment incentive was applied for in 2021 but no decision on the investment incentive was issued by 1 January 2022.