In order to attract foreign direct investment in the Czech Republic, the Czech government has put together an investment incentives package. The package is codified in the Investment Incentives Act which took effect on 1st May, 2000.

The investment incentives available for foreign investors are:

• Corporate tax relief

• Job-creation grants

• Training grants

• The provision of low cost building land and / or infrastructure support

• Duty-free imports of machinery and equipment

These incentives are offered subject to the following conditions:

• The investment must be made into a manufacturing sector listed in the Act or any manufacturing sector providing that at least 50percent of the cost of the production line consists of machinery listed on a government-approved list of high-tech machinery

• The investment must be in relation to the acquisition or construction of a new production plant, or into the expansion or modernisation of an existing production facility to launch a new production activity

• The investor must invest a minimum of CZK 350 million (approximately USD 10 million). This limit is reduced to CZK 175 million (approximately USD 5 million) in areas of extreme unemployment

• At least CZK 145 million (approximately USD 4 million) of the investment must be covered by equity of a legal entity or from an individual’s own funds

• The investment in machinery must account for at least 40percent of the total investment amount

• The proposed production must meet all Czech environmental standards

Corporate tax relief

Tax incentives are available for both first-time manufacturing investors in the Czech Republic and expansion investments.

The centrepiece of the Czech government’s incentives package is a 10-year corporate tax break for first-time manufacturing investors. To qualify for this incentive, a new legal entity must be established.

Expanding existing firms or natural persons can claim a partial corporate tax discount. This incentive is, in effect, an undertaking by the government to cap the total amount of corporate tax paid by an expanding company during the 5-year period following the expansion investment.

Employment related benefits

The Czech government’s incentive package contains two employment-related benefits:

Job-creation grants ranging from CZK 80,000 to CZK 200,000 per employee; and

Training grants covering up to 35 percent of training costs per employee.

Job creation grants

The job-creation grants are weighted to offer investors the maximum benefits in areas of relatively high unemployment. The weighting is divided into four district groups, A to D. The highest levels of support, CZK 200,000 per employee, are available in the districts of Group A, where the unemployment rate is 50percent or more above the national average.

District Group > Unemployment rate > Grant per job created

A > over 50percent above the national average > CZK 200,000

B > 25percent - 50percent above the national average > CZK 120,000

C > 1percent - 25percent above the national average > CZK 80,000

D > below the national average > none

Training grants

The training grants cover a percentage of the specified costs of staff training. The grants are weighted to offer investors the maximum benefits in areas of relatively high unemployment. The weighting is divided into four district groups, A to D.

District Group > Unemployment rate > Grant per job created

A > over 50percent above the national average > 35percent of training costs

B > 25percent - 50percent above the national average > 30percent of training costs

C > 1percent - 25percent above the national average > 25percent of training costs

D > below the national average > none

Site support

This property-related incentive is available nationally, subject to the availability of suitable sites, and must be agreed with the respective local government before the application for incentives is made.

This incentive is granted through the respective municipality rather than directly to the investor. The municipality where the investment project is to be implemented will receive subsidies for the development of infrastructure on the site where the production is to be located and, if requested, will transfer land owned by the Land Fund of the Czech Republic at a nominal price. This will allow the municipality to sell the investor a fully-serviced building plot at a favourable price.

Programme for the Support of the Development of Industrial Zones

The main element of the Czech government’s development strategy is focused on support for a series of selected strategic sites in all regions of the Czech Republic. Over CZK 550 million in government funds has been used since 1999 to develop 51 sites which can be ready for potential investors within a minimal period of time and in which local authorities now offer land to manufacturing investors at a significantly reduced price.

CzechInvest

CzechInvest, is a quasi-independent body founded by the Ministry of Industry and Trade that is responsible for promoting foreign direct investment into the Czech Republic and is charged with handling all applications for investment incentives. CzechInvest was awarded the European Investment Promotion Agency of the Year 2000. All investors are required to pass their applications through CzechInvest.

In the period from April 1998 to May 2000, 33 firms have been granted investment incentives in the Czech Republic. Of there 33, 30 were supported by foreign capital. The total investment represented by such investors is at least USD 2.1 billion, together with the creation of 15,500 new jobs. At least a further 18 applications are in process including applications from Daiho and Matsushita of Japan.

For further information, please contact Radim Marusak at radim.marusak@cms-cmck.com or on +420 2 2109 8888.