Investment incentives have been provided in the Czech Republic since 1998. Their aim is to support economic development and creation of new jobs and they are therefore an important tool to support economic growth. According to the investment incentives act, and investment incentive is understood to mean:

1. Income tax credit (for a period of up to 10 years),
2. Transfer of plots including related infrastructure at an advantageous price,
3. Material support of creation of new jobs,
4. Material support of requalification of training of employees,
5. Material support for obtaining long-term tangible and intangible property for a strategic investment project, or
6. Exemption from real estate tax in preferential industrial zones.

As the world around us changes, investment incentives need to react to changes in the economy as well. An amendment of the investment incentives act is currently prepared in the Chamber of Deputies, and at the same time a draft government decree on implementation of some stipulations of the investment incentives act is prepared in the government. We will dedicate today's article to this decree.

One of the main reasons, why an amendment of the bill and a new government decree are being prepared, is the necessity of change of the attitude to investment incentives. The current rules for creation of new jobs can appear to be a very stressful criterion for a potential applicant requesting an investment incentive at present, when unemployment is very low. As Czech economy grows and demand for work increases, there is a tangible shortage of qualified labour for technical and other fields. In the processing industry, the condition of creation of new jobs is, moreover, going against the trend in the entire industry. At the same time, growth of productivity of labour is slowing down and it is lagging behind the rate, at which the average wages are increasing. In order not to weaken the position of Czech companies on foreign markets, the government has assessed it as necessary to introduce support of projects with higher added value. In the proposed change of investment incentives, the following changes are thus being planned:

• The aim investment support at projects with higher added value,
• To adjust conditions for creation of new jobs to the situation on the labour market,
• To maintain increased support in economically problematic regions,
• To improve accessibility of incentives for small and medium entrepreneurs.

Aiming investment support at projects with higher added value is intended to help increase the innovative potential of the economy. Higher added value is not understood to mean added value in the financial sense, but in generally an increase of value of the performed activity by means of qualified labour or advanced technologies. By introducing the “criterion” of added value, investment incentives should focus on support of production projects, the intention of which will be a shift from quantity to quality, whereby production projects with low added value should gradually be limited in the processing industry. The following indicators have been selected for assessing, if an activity has higher added value:

1. The level of employee wages
   This is a mechanism, which can be controlled well and which is intended to motivate the investor towards better remuneration for employees. With regard to the level of wages being different in the individual sectors of the processing industry as well as in the individual regions, this condition has been formulated as follows: “at least 80 % of employees performing their work in the place of the investment project have negotiated gross wages reaching, at minimum, the average monthly gross wage in the region, in which the investment project takes place. In case an employees has negotiated shorter working hours, his wage is calculated by corresponding proportion to the wage for full-time working hours.”
   
   
2. Education of employees
   The conditions relating to the required proportion of employees with university education has been selected as a simple transparent indicator for proving that this is an activity with higher added value due to the fact that higher education should be a prerequisite for the existence of more qualified job positions. In order to remove mere formal fulfilment of the number of such employees, another condition has been added - namely the condition of entering into a contract on cooperation with a public research institution or university. The condition thus reads as follows: “after entering into a contract on cooperation with a public research institution or state university, the recipient of an investment incentive actively cooperates with this institution or university in the area of research and development and at the same time the percentage of employees with university education in the place of realisation of the investment project reaches a minimum of 10 %.”
   
   
3. Number of employees in research and development
   Research and development is perceived as a very positive activity for achieving higher productivity of labour. For this reason, research and development have been selected as one of the conditions for higher added value: “the percentage of research and development workers in the place of realisation of the investment project reaches a minimum of  2 % per number of employees in the place of realisation of the investment project. A research and development worker is understood to mean an employee, whose main activity is continuous and demonstrable activity in the area of research and development of the recipient of the investment incentive”.
   
   
4. Obligatory sum of investment in technological equipment intended for the purposes of research and development
   In connection with research and development, high expenses are often invested in buying  non-current assets, which represent technological equipment: “the recipient of an investment incentive has bought machinery for the purposes of research and development, which will be used by the recipient of the investment incentive predominantly for research and development, and this machinery has been bought at a market price, was not producer more than 2 years prior to the beginning of its acquisition, was not subject to accounting depreciation prior to its acquisition, was not put into use earlier than 2 years before presentation of the intention to acquire an investment incentive and was not included in eligible costs within the investment project, with a value of a minimum of 10 % of the expected value of eligible costs stated in the intention to acquire an investment incentive.”

For assessing, if an activity has higher value, it is not necessary to fulfil all four conditions at the same time. Only the requirement regarding the level of employee wages has been set as an obligatory condition. One of the other requirements also needs to be met. The investor can thus choose, if, in addition to condition a), he will fulfil condition b) or c) or d). According to the analyses, which have been made in connection with the preparation of these regulations for investment incentives, small and medium companies should not be having a problem in general with meeting the requirements on higher added value, because they already employ a higher number of university-educated workers and spend more on research and development than large companies do. For this reason, no advantages for small and medium companies are being planned.

The changes in the condition of creation of new jobs should in the case of technological centres and strategic services lead to support of a transformation of the structure of jobs being created, so that higher-qualified job positions would be created. So the endeavour is not only to create other new jobs, but it is expected that it will be possible to cancel other jobs (for example the lower-qualified ones). The creation of a minimum number of job positions is newly proposed as follows:

• technological centres: 20,
• software creation centres: 20,
• data centres: 20,
• repair centres: 50,
• centres of shared services: 70,
• client support centres: 500.

In the case of production in the processing industry, no condition for the creation of new jobs is newly being set.

In order to increase support in economically problematic regions, which are formed by 57 municipalities with extended powers, it will not be required for production projects to meet the criteria for higher added value and the sum of the investment will be set at 50 % of the minimum required investment.

For better accessibility of incentives for small and medium entrepreneurs, a lowering of all requirements on new jobs and on the minimum investment in acquiring non-current tangible as well as intangible assets to one half is proposed.

At the end, we are adding a well-arranged table for orientation in the proposed changes, which has been prepared by the ministry of industry and trade.

If you are considering using an investment incentive, do not hesitate to turn to us. We are able to help you.

Author: Marie Rudolfová