As referred to in our March / April Czech News, the Czech government reviewed and have now approved the country's first formal package of national investment incentives since before 1989.
The major investment rivals Poland and Hungary have had formalised incentive packages in one form or another for some years, but investors into the Czech Republic have previously only been able to negotiate individually for incentives, mainly at a local government level.
Per CzechInvest, the Prague-based national investment promotion agency, the package should enable the Czech Republic to compete on equal terms with countries such as Poland and Hungary for prime mobile direct investment projects, where the investor is looking for a low-cost location with a highly skilled employee base in Europe. It should also be noted, in addition, that these incentives are also available to Czech firms, as well as to foreign investors.
The investment incentive package applies only to firms investing more then USD 25 million into a manufacturing operation, which can be either wholly owned or in a joint venture. It is not yet fully defined what is allowed to be included in the USD 25 million minimum, but machinery and equipment may essentially only be included if it has not been used before in the Czech Republic. As reported by CzechInvest, the package includes the following points.
Corporate taxation
Waiver of corporate income tax during the first five years conditional on specified investment targets being met, plus a tax credit equal to the tax waived against taxation in the following years.
Customs and VAT
Zero customs duty on imported machinery and equipment and deferral of initial VAT payment by 90 days, the latter to allow clear rights to entitlement to reclaim the input VAT. To obtain this exemption, at least 40% of the total amount invested must relate to new machinery and equipment.
Customs Zones
Based on the investor's request, in special cases the government will establish a Customs Zone.
Training grants
An interest-free loan, convertible to a grant if qualifying conditions are met (in areas of training, retraining and employment levels), can be claimed to cover 50% of overall job training costs.
Job creation in under-developed regions
A special job creation grant will be made available to firms locating in under-developed regions (still to be designated).
Provision of land
Provision of land by selected municipalities will be sold to incoming investors at a nominal price.
The next stages in the development of the incentives outlined above are for the relevant Czech Ministries to define and interpret more closely the broad provisions set out, and for new legislation to subsequently be introduced implementing the changes. It is understood that, in the meantime, investors may apply for incentives, and that formal contracts with relevant government Ministries and bodies would be signed which would be binding for any new government.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
For further information on the above, please contact Mr Richard Fletcher by telephone on +420 2 2440 1300 or E-mail directly to Click Contact Link
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