The Czech Republic offers both new and existing investors investment incentives and business support through several schemes. This document describes the system of national investment incentives offered by the government to investors in manufacturing facilities. As of the end of December 2010, 615 firms had been awarded incentives.
Manufacturing Sector
The system of investment incentives for the manufacturing sector is incorporated in the Czech legal system. By fulfilling minimum conditions (see the Eligibility Criteria below) specified in the Act on Investment Incentives, projects are supported in the form of corporate tax relief for a period of five years. Furthermore, projects located in regions that are affected by the worst unemployment rate can obtain tangible support for the creation of jobs and tangible support for training and retraining of employees. Provision of a suitable site for manufacturing facilities is another form of investment incentive.
Corporate Income Tax relief
The tax incentive has two forms. If a new company (legal entity) is established for the investment project, the new company is eligible for corporate tax relief for up to five years. If the investment takes the form of an expansion project within an existing Czech company (legal entity), the company is eligible for partial tax relief for up to five years. The tax relief is terminated when the company has reached the maximum level of eligible state aid - see the section below on compatibility of incentives with European Union regulations.
The current corporate income-tax rate in the Czech Republic is 19 %. Tax relief is provided up to the state-aid ceiling after the deduction of tangible job-creation aid and the difference between the market price and the purchase price of land
Employment related benefits
The Czech government`s investment incentives package includes two employment related incentives:
- Tangible support for creation of new jobs in selected regions
- Tangible support for training and re-training of new employees
The size of grants depends on the unemployment rate in the region where the investment is made. In 2009, a job creation support in selected regions amounts to CZK 50,000 per employee. The training and retraining support equals 25 %, 35 % or 45 %. 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 incurred in the first three years of the project. Training and retraining grants do not count towards maximum state aid and have their own maximum amounts.
Site support
The preferential transfer of a plot of land or a plot of land with infrastructure owned by the state, its administrative bodies (most commonly the Czech Land Fund), or municipalities to an investor is possible depending on the landowner's agreement with such preferential transfer.
Eligibility Criteria
- The investment has to be made in a manufacturing sector.
- The investment must be made in the launch of new production or in the expansion of existing production or its modernization.
- The investor must invest at least CZK 100 (approx. $5 million) in long-term tangible or intangible assets in regions with low unemployment, CZK 60 million in regions with higher unemployment and CZK 50 million in regions with the highest unemployment rate.
- At least half of the investment must be financed through the investor’s own equity.
- At least 60 % of the total investment must be made in machinery. All machinery must be new.
- All the above mentioned conditions must be fulfilled within three years from provision of the incentive.
- The proposed production must meet all Czech environmental standards.
Compatibility with EU Directives
The compatibility of the investment incentives regulations applied in the Czech Republic with EU state-aid legislation is evaluated by the European Commission. Each application for investment incentives must pass an evaluation by the Ministry of Industry and Trade, which also decides on the total amount of state aid available to each project. The actual aid available to each project is calculated as a percentage of the total value of the actual investment (i.e. capital expenditure on land, buildings, machinery, including limited expenditure on intangible assets) and it ranges from 0 % in Prague to 40 % in selected regions. Once the limit of state aid available to the project has been reached, the tax break is terminated and the company has to start paying corporate tax.
Application Process
- The investor prepares an application for investment incentives on a standard application and registration forms and submits it to CzechInvest, the Investment and Business Development Agency.
- CzechInvest evaluates the application within maximum of 30 days and forwards it to the Ministry of Industry and Trade.
The Ministry of Industry and Trade forwards the application to other ministries for their evaluation (Ministry of Finance, Ministry of Labour and Social Affairs, Ministry of Environment, Office for Protection of Competition). The total value of investment incentives available for each project is decided. This takes 2-3 months. - Upon receiving the comments from the ministries, the Ministry of Industry and Trade makes a proposal of a “Project Aid Decision” to the investor. The proposal lists all the incentives available for the project and lays out the conditions under which the incentives are granted.
- The investor has a period of 3 months to accept the proposal. Once the investor has accepted the proposal, the Ministry of Industry and Trade has one month to issue a formal “Project Aid Decision ”.
Technology Centres
In order to strengthen the Czech Republic’s position as a technology hub in Central Europe, the Czech government supports investments in development activities. Technology centres are defined as centres engaged in research, development and innovation of high-tech products and technologies if there is expectation that the output of such centres will be transferred and used in production. Aid for technology centres is provided via the Potential Programme. The cash subsidy may reach up to EUR 4 million and may be provided up to 60 % of the costs of long term tangible and intangible assets. Large investors must invest at least EUR 400,000, small or medium sized enterprises EUR 200,000.
Business Support Services Centres
In order to strengthen the Czech Republic’s position as an information hub in Central Europe, the Czech government supports investments in business support services centres. These are defined as centres engaged in selected activities with close ties to information technologies and a distinct international focus. ICT development and implementation centres, high-tech repair centres and shared services centres are supported via the ICT and Business Support Services Programme. The cash subsidy may reach up to EUR 3.2 million and may be provided up to 60 % of two years wages or 60 % of costs of long term tangible and intangible assets. Large investors must invest at least EUR 112 thousand, medium sized enterprises EUR 37 thousand and small companies EUR 18.5 thousand.
Further details on investment incentives are laid out in several documents available at CzechInvest, the Investment and Business Development Agency.
