After lengthy discussions, the interdepartmental comment procedure for the long-awaited amendment to the Investment Incentives Act has been completed. At the same time, a new government regulation has been prepared that further specifies the conditions under which an investment incentive can be obtained. The amendment to the Investment Incentives Act has been discussed and approved by the Government of the Czech Republic on 22 March 2023 and will be submitted to the Parliament. What changes are to come in this area?
Approval process for investment incentive applications
A fundamental change is the removal of the obligation of a binding resolution of the Government of the Czech Republic for each application for an investment incentive, which was completely unpredictable and made the entire approval process highly non-transparent. As in previous years, the decision-making power should now be returned to the Ministry of Industry and Trade, which will, however, have to obtain a favourable decision from the ministries concerned.
The proposed tightening of the conditions for the application of the so-called higher added value of individual projects can be perceived as a certain counterbalance to the simplification of the process of approving applications for the investment incentive, as the percentage requirements for expenditure on cooperation with research and development organisations or employment of research and development workers will be increased. At the same time, it will be necessary to fulfil the condition of higher added value of the project in all regions of the Czech Republic except those where the unemployment rate is at least 7.5%. Strategic investment projects (except for the production of pharmaceutical products and preparations, computers, electronic and optical instruments and equipment, aircraft and their engines, spacecraft and related equipment) will be further exempted from the higher added value condition.
Applications for so-called strategic investments, which are linked to material support for the acquisition of fixed assets, will continue to be submitted to the Government of the Czech Republic.
Changes to the conditions for providing investment incentives
A very interesting change is the extension of the range of projects that have the possibility to be assessed as the above-mentioned strategic investment projects and to receive support for the acquisition of tangible and intangible assets without the need to make a minimum investment of CZK 2 billion and to create at least 250 new jobs.
In addition to large investment projects with investment limits exceeding CZK 2 billion, it is already possible to support projects for the production of products of strategic importance for the protection of life and health, projects with high technological complexity, such as the production of pharmaceutical products and preparations, the production of computers, electronic and optical devices and equipment, and the production of aircraft and their engines, spacecraft and related equipment.
Newly, the Government of the Czech Republic has addressed the promotion of the Czech Republic’s energy self-sufficiency goals and has included among its strategic projects investments aimed at the production of systems and equipment designed to produce or store energy from renewable sources, to increase energy efficiency or to reduce the energy consumption of buildings.
In view of the current international situation and fluctuations in the availability of key raw materials, strategic investment projects will also include projects of common European interest that have been notified to the European Commission and for which the European Commission has approved aid compatibility with the internal market. These projects will then be used to support production in key sectors in each Member State. At the same time, for projects of common European interest in technology and strategic service centres, the current condition of creating a minimum number of jobs will be abandoned.
Will investment incentives become attractive to investors once again?
It will become clear in the coming months whether the amendment to the Investment Incentives Act and the government regulation will be approved and whether this will remove many of the current obstacles. In the coming years, we will see whether the Czech Republic’s standing in the international ranking of countries that provide investment incentives will also improve.