Expected changes in investment incentives

If you are considering a major investment in the near future, for example in manufacturing, it may be worth waiting for the amendment to the Investment Incentives Act and the related government regulation. However, in view of the current economic situation and the necessary tax collection, we cannot expect any revolutionary changes that would make investment incentives – the most frequently applied of which is the income tax rebate – significantly more attractive.

The Czech Government will shortly discuss an amendment to both regulations prepared by the Ministry of Industry and Trade.

A fundamental change in the Investment Incentives Act will be that the Ministry of Industry and Trade will again approve the provision of investment incentives (except for strategic investment projects). Based on the amendment to the law effective from September 2019, all applications are currently approved by the government. This has significantly slowed down the process of granting investment incentives. Moreover, it is not even clear which criteria the government will apply to allocate incentives. It seems that it must be projects in the field of electromobility, chip manufacturing and so on. The expected amendment to the Investment Incentives Act is therefore intended to speed up the awarding of incentives.

In addition to the Investment Incentives Act, Government Regulation No. 221/2019 Coll. (the "Government Regulation") will be amended.

The amendment to the Government Regulation is intended to tighten the conditions for granting the incentive and, on the other hand, to provide more support for projects in the field of production or storage of energy from renewable sources, increasing energy efficiency or reducing the energy consumption of buildings. To this end, a new annex (Annex 4 to the Government Regulation) has been introduced. These products will now be added to the products of so-called strategic importance for the protection of life and health (Annex 2 of the Government Regulation), which are already eligible for subsidies of up to 20% for the acquisition of fixed assets.

So, how will the conditions for granting investment incentives be tightened? In 2019, a government regulation introduced so-called value added as one of the basic conditions. For an investment project to meet the value-added condition, the following must currently be met:

  • at least 80% of employees are paid at least the average wage in the region (now 100% of employees); and at the same time
  • the proportion of employees with higher education at the location of the investment project is at least 10% and the recipient of the investment incentive cooperates with a research organisation (registered in the list of research organisations) in the field of research and development and the costs of this cooperation amount to at least 1% of the eligible costs (now 2 %); or
    • the proportion of research and development personnel in the number of employees of the recipient of the investment incentive is at least 2% (now 3%); or
    • the recipient of the investment incentive has acquired machinery used mainly in research and development, at least 10% of the eligible costs planned under the incentive project (this must be new assets acquired no earlier than two years before the application for the investment incentive and in excess of the eligible costs).

The amendment to the Government Regulation will therefore increase the percentage conditions (see the data in brackets above). In addition, this added value will have to be met almost throughout the Czech Republic. According to the current situation, it must be fulfilled only in the so-called developed regions (which do not include, for example, the Ústí nad Labem Region, the Bruntál district and many other districts).

According to the original expectation, the amendment to the Government Regulation is to come into force in April 2023, while due to a more time-consuming approval process, the amendment to the Investment Incentives Act will not come into force until the second half of 2023.