The purpose of the amendment is to increase the low number of projects which have attracted support in the area of technology and shared services centres. In respect of manufacturing projects, the goal is to focus on supporting production with greater added value. With regard to projects not fulfilling the greater added value criterion, solely those located in the territories of governmentally-supported regions are likely to obtain support; moreover, the beneficial treatment already applies to these projects under the current investment incentive regime.

The amendment also seeks to respond to the unavailability of investment incentives for small and medium-sized enterprises, which was subject to criticism in the past. As such, the amendment significantly minimises the required amount of investments in order to be eligible for the support. The legal obligation introduced by the previous amendment of having to create job positions under manufacturing investment projects is planned to be eliminated. This step appears to be logical, under the condition that projects generating greater added value will lower their requirements on the number of employees, and, on the other hand, will require greater professional qualifications and skills of employees.

A significant change introduced by the amendment involves distributing the criteria and obligations related to investment incentives among the Act itself and a governmental regulation. As such, the governmental regulation is supposed to determine in particular the minimum value of the required investment, the required number of newly-created job positions, and a particular method of providing evidence on the added value that is to be generated. The authors of the draft amendment have decided to make this change in an effort to maintain flexibility in amending the Act and the need to be responsive to the given economic developments. However, there is a question as to whether potentially frequent changes made by way of the governmental regulations will be sufficiently transparent for investors.

Finding the criteria based on which greater added value of manufacturing projects could be defined was a complicated task for the authors of the draft. Finally, the criterion was determined so that for 80% of employees of the investor aspiring to obtain the investment incentive, the salary has to be minimally equal to the average salary for the given region. In addition to this general criterion, the investors in question need to have (at least 2% of) employees engaged in research and development, or cooperate with a college/university or a research institute in terms of research and development. An alternative to performing research activities is employing minimally 10% of employees with a college/university degree. Currently, this parameter is inaccessible for most manufacturers.

The amendment is currently subject to interdepartmental comments by individual ministries. A number of the comments are material, such as that all investment incentives shall be approved by the Czech government (so far, this only has applied to strategic investments). Judging by other comments on the defined criteria for monitoring greater added value, a follow-up debate and additional changes in the amendment draft can be expected.

The Amendment to the Investment Incentives Act is anticipated to come into effect in spring 2019. At the moment no changes in the criteria applicable to investment incentives recipients defined by the Act on Income Taxes are foreseen. We will keep you informed on the developments.

The article is part of dReport – July 2018, Tax news; Grants and investment Incentives.