Amendment to the Czech Investment Incentives Act

An amendment to the Czech legislation regulating granting of investment incentives by the Czech government to investors entering into/expanding in the territory of the Czech Republic has recently been passed and officially published. This amendment made changes to the Czech Act on Investment Incentives and to Income Tax Legislation dealing with tax relief granted as part of the incentives.

The amendment will come into effect once the country enters the EU, i.e. May 2004. The most important changes introduced by the amendment are:

* the limit for the minimum value of investment that must be made to qualify for investment incentives has been reduced from CZK 350 million (EUR 11 million) to CZK 200 million (EUR 6.3 million); for investments in the districts with the highest unemployment rates the limit has been set at CZK 100 million (EUR 3.2 million),

* in the incentives package, investors can now also benefit from incentives in the form of reimbursements for the cost of employee's training; the other forms of incentives (i.e. income tax relief, subsidies on creation of new jobs etc.) remain in effect

* the maximum term for benefiting from investment incentives which have been granted for an expansion of a business already established in the Czech Republic has been extended from 5 to 10 years

* the power to define the permitted level of state aid granted to particular investors has been transferred from the Czech Anti-Monopoly Office to the Ministry of Industry and Trade, which is also in charge of the whole incentive grants process and issues the final decision on granting the incentives to particular applicants

* the maximum level of the incentives granted as a percentage of the total value of the investment, shall be set out by a government regulation, which has yet to be issued

* to be entitled to receive the incentives the investors will be obliged to keep their investment in the country for at least 5 years

The amendment and the forthcoming government regulation aim to define the terms and conditions under which investment incentives will be granted in accordance with the European rules for state aid, so that the European Commission should not need to approve each project individually.

The amendment will be effective as of 1st May 2004, and the investment incentives pursuant to the amended act may be granted as of the same date. Therefore it is of most relevance to potential investors planning to invest in the Czech Republic after this date.

Those investors who have already entered the Czech market and been granted incentives may benefit from the new rules relating to reimbursement of staff training costs from incentives that have already been granted.

Existing investors should also consider the possibility of obtaining incentives for the expansion or the modernisation of their current operation.

For further information please contact Lukáš Janíček on +420 221 098 833 or at [email protected]