Czech industry ministry draws up new investment incentives to soften blow from regional aid changes

Foto: Barbora Kmentová / Radio Praga

A new package of investment incentives is being drawn up with the onus on cutting company payments rather than forcing them to reclaim cash from the state. The new rules could cushion some of the impact of stricter European regional aid rules which are expected to blunt the Czech Republic’s use of this incentive for investors.

Photo: Barbora Němcová,  Radio Prague International
The Czech Ministry of Industry and Trade is looking to push through a simplified set of new investment incentives by the middle of this year.

Instead of putting the emphasis on companies claiming back cash from the state budget, the ministry is looking at making up it clear up front what tax holidays or other cost savings firms might qualify for.

‘Sending aid is complicated, it is much more advantageous when part of the contributions that they [companies] are obliged to pay are simply not levied,’ Zbyněk Pokorný, in charge of drawing up the new package told the Czech daily newspaper Mladá Fronta Dnes.

The new incentives package is still being worked on and has to be put to both the government and passed by parliament, the ministry confirmed.

The timing of the latest move is no coincidence. The new incentives are aimed at cushioning some of the blow caused by stricter European Commission regional aid rules which are expected to curb traditional Czech investment incentives much more than those in neighbouring countries, such as Slovakia, Poland, and Hungary. Brussels’ tougher regional aid framework should be in place by July.

One option being planned at the ministry is to offer companies creating highly skilled and high revenue posts savings on obligatory social and health insurance, whose level is linked to earnings. Those savings could amount to as much as a fifth of the normal payments for employees at technology or research and development centres.

One of the reasons for the change in emphasis is that traditional tax holidays have little significance for such cost centres which are making a contribution into what could well be a global research and development project whose final results might see a products and profit produced half way round the globe. In this context, it is much more interesting to offer savings on the labour costs of the high qualified graduates or other experts contributing to the research.

But there should still be room for the more traditional incentives, albeit in a smaller and more targeted form. Tax holidays under the new package could still cover up to a quarter of investment costs for firms investing as little as 50 million crowns in the worst unemployment black spots.

Property taxes could also be waived in areas with the highest unemployment. And existing incentives of up to 200,000 crowns for every job created in such black spots could rise to 300,000 crowns from next year. The highest unemployment areas are defined as those with a jobless rate around half as high again as the national average, or around 13 percent under the current Ministry of Labour and Social Affairs calculations.

Recently appointed trade and industry minister Jan Mládek has made job crating investment made one of his main missions after complaining that foreign direct investment was run down to derisory levels under the previous centre-right government.