The government of the Czech Republic has approved a new decree concerning investment incentives. The new rules should bring significant changes not only for large investors, but also for small and medium-sized technology companies, which will now also be able to access direct financial support. The new rules will take effect as of 1 January 2022.
The Czech Republic has become an economy that is highly oriented towards industry, but with low added value. In the 1990s, the Czech government supported the model of maximizing the workforce, when the state attracted manufacturing companies to the Czech Republic which were intended to employ as many people as possible. However, this model has become inefficient against the backdrop of the modern economy. Therefore, the Czech government aims to provide subsidies to domestic and foreign companies which may create operations with a high added value for the Czech economy.
Possibility of obtaining direct payments
The amendments introduce substantial changes to the area of investment incentives, which aim to motivate and increase the efficiency of how investment incentives are used both in the field of advanced technologies and in deprived regions of the Czech Republic. One significant change is the extension of the possibility of obtaining direct financial support for strategic investment actions, which has proven to be a very effective motivational tool for investors to actually implement their project.
According to the amendments, an investor will be able to receive up to 20% of its investment costs (with no limit on the total amount), if it invests in the Karlovy Vary, Ústí nad Labem or Moravian-Silesian regions. In other regions, the incentive-to-cost ratio of the project remains at 10% and the total value of incentive is capped at CZK 1.5 billion (approximately EUR 60 million).
In order to obtain such a direct subsidy, the investor will have to create at least 250 new jobs and invest at least CZK 2 billion in total (approximately EUR 80 million), from which at least half has to be spent on the acquisition of machinery.
This means that in the relevant regions, if the investor invests at least CZK 2 billion in total and creates at least 250 new jobs, the state will directly reimburse the investor up to 20% of its costs, without any limit on this payment.
Advanced technology support
However, the above-mentioned conditions for investment incentives in the form of direct payments (i.e. a minimum number of new jobs and minimum value for a total investment) will not apply to privileged technological industries.
The government will support investments in the manufacturing of products of strategic importance for the protection of life and health (e.g. respirators, surgical instruments and defibrillators) as well as investments focusing on selected branches of the manufacturing industry involving a high level of technological complexity. This includes the production of pharmaceutical products and preparations, the production of computers, electronic and optical instruments and equipment, aircraft production and their engines, spacecraft and related equipment that are carried out by high added value activities (e.g. advanced materials technology, nanotechnology, advanced manufacturing technology, biotechnology, photonics, microelectronics, nanoelectronics and artificial intelligence technology).
In the best-case scenario, the technological industries mentioned above may obtain an investment incentive in the form of a direct payment amounting up to 20% (with no limit on the total amount of such direct payments), without the obligation regarding the total amount of investment and new jobs.
This change will provide substantial support to medium and small technological start-ups which are not able to invest a huge amount of money and employ many workers. Such start-ups may, however, carry out research and development and in this way create a modern economy with high added value in the Czech Republic.
Transformation of the Czech economy
The Czech Republic needs to take steps to become a modern high added value economy. But the new rules regarding investment incentives are not the only opportunity for investors to modernize their operations.
The Czech Republic has approved a National Recovery Plan setting out plans for reforms and investments, which intends to use funds under the European Recovery and Resilience Facility (RRF). The National Recovery Plan will allocate billions to digitalization, sustainable energy and safe transport, decarbonization, clean mobility, science and preventative healthcare. The National Recovery Plan will take effect as of 2022.
The Czech Republic is on the verge of major changes in the structure of its economy.
By Michal Janicek, Senior Associate, Matej Korduliak, Legal Advisor, Noerr