Taxes
4 September 2019

Stricter rules for investment incentives in effect

An amendment to the Act on Investment Incentives has been promulgated in the Collection of Laws and will enter into effect on 6 September 2019. According to the amendment, projects will be subject to governmental approval. Without it, investment incentives will not be granted. To obtain support, the project’s added value will have to be proven both in the application and in the project implementation.

Jan Linhart
Renata Kadeřábková

The characteristic feature of the amendment is that a number of provisions that used to be part of the act are being transferred to a separate government decree, approved on 26 August 2019. In addition to other conditions, the decree also defines the added value of a project.

An investment project with a higher added value is defined as follows:

  • An investment project in manufacturing where the wage of 80% of the employees amounts to at least the average monthly gross wage in the region in which the investment project is carried out.
  • Simultaneously, the investment incentive recipient must either:
    • cooperate with a research organisation while incurring at least 1% of the expected amount of total eligible costs and, and at least 10% of its workforce must be university graduates, or
    • have a share of research and development personnel of at least 2%, or
    • acquire machinery to be used for research and development amounting to at least 10% of the total eligible costs.

Governmental approval will be critical for all projects. Among other things, the government will take into account an analysis of investment benefits for the region and the state, which is a required appendix to the investment incentive application of each individual applicant.

On the other hand, the duty to create 20 new jobs will no longer be in effect when applying for investment incentives. In the past, this requirement was the main restriction for companies investing in the modernisation of production.

It is obvious that obtaining investment incentives under the new regulations will be quite difficult. In contrast with the previous practice, investment incentives will no longer be automatically granted to investors who fulfil clearly defined criteria. Instead, incentives will be provided only after an approval process that will depend on the government’s subjective opinion. It can therefore be expected that the process of preparation will be more demanding and the waiting period for a final verdict even longer.

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