Investment incentives and the impact of the coronavirus
- Petr Němec
- Martin Hahn
Investment incentives have been with us in the Czech Republic for more than 20 years. The investment incentives act (no. 72/2000 Coll.) has changed many times since it took effect in 2000 and it is not easy to find one’s bearings in what rules apply for what investment incentive, or which version of the act. The most recent legislative change in the area of investment incentives was influenced by the coronavirus pandemic, when on 3 November 2020 an amendment of the investment incentives act took effect and on 26 December 2020 a change in a government regulation (no. 221/2019 Coll.) took effect.
Prolongation of the deadline for meeting general conditions up to 5 years
The amendment reintroduces the option of prolonging the deadline for meeting the general conditions up to 5 years in justified cases, as a measure that would reduce the impact of the coronavirus pandemic on recipients of investment incentives.
An investment incentive recipient needs to ask the Ministry of Industry and Trade at least 30 days before the end of the original 3year deadline for meeting the general conditions to prolong this deadline. The request itself is no guarantee that the deadline will be prolonged, however, and the investment incentive recipient must prove that it was due to the spreading of the COVID-19 disease that he was not or is not able to meet the general conditions within the original 3-year deadline. The justification of the request is therefore very important. The request is then individually assessed by the Ministry of Industry and Trade.
Along with the investment incentives act, the income tax act has also been amended, which treats the most commonly used type of investment incentive, which is an income tax credit. Due to the amendment, the deadline (i.e. the ten-year period), within which the tax credit can be used, has been prolonged, too.
The above-mentioned amended stipulations also apply for investment incentive recipients, for whom a decision on investment incentives commitment had been issued before the given amendments took effect.
Let us recapitulate the above, using a simple example:
The investment incentive recipient obtained a decision on commitment on 11 November 2019. In general, he should thus meet the general conditions by 11 November 2022. The recipient will request prolongation of the deadline by 2 years and the request is granted. The recipient thus needs to meet the general conditions by 11 November 2024, and it would be possible to prolong the ten-year period for using the income tax credit until the end of the year 2033.
Lowering of the limit for investment incentive in production
In case of an investment in production, the limit for purchasing non-current assets has been reduced from CZK 100m to CZK 80m, and a minimum of CZK 40m needs to be spent on buying machinery.
This limit is newly reduced to one quarter, in case the entrepreneur is a small entrepreneur (previously it was only reduced to one half). For a medium entrepreneur, the limit is reduced to one half, no change has occurred here.
These changes apply to investment incentive proceedings that commenced after these changes took effect (that is from 26 December 2021).
Selected products of strategic importance for the protection of people’s life and health
The change in the government regulation also brings new simplified rules for investments in production, when it is production of products of strategic importance for protection of life and health. These products are defined in annex no. 2 of the government regulation and their scope is relatively wide (from face coverings, respirators, protective suits, protective glasses, surgical tools, various laboratory equipment to medicinal preparations). These fields are now favoured and do not need to meet some conditions (for example higher added value), which generally apply to investments in production. In the given cases, it is also possible to obtain material support up to 10 % of the eligible costs spent, in addition to the usual “income tax credit”. Nevertheless, it still applies that the maximum admissible level of public support reaches 25 % eligible expenses for large companies, 35 % for medium companies and 45 % for small companies.
The basic specifications of the individual types of investment incentives
At the links below, you will find an information leaflet of CzechInvest agency summarising the options for using investment incentives for small and medium companies:
and also for large businesses.
The issue of investment incentives is a complex area interlinking various legal regulations (the investment incentives act, the income tax act, the accounting act, the employment act, the regional development support act, the financial control act, code of control procedure, code of administrative procedure, the code of tax procedure, government regulations, EU legislation etc.). If you are interested in more detailed information on the individual legislative regulations or you are deciding whether or not to request an investment incentive, or you are not sure if you meet or have met the general and the special conditions, please, do not hesitate to turn to us. We have extensive experience with investment incentives and we are prepared to assist you from the original analysis of the possibility of obtaining an investment incentive, to compiling and submitting a request for its provision, to the development of strategic plans for using the given incentive including continuous control of fulfilment of the individual general and special conditions and efficient defence during tax and financial audits.