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29 January 2019

The Czech Parliament proposes amending Investment Incentives Act: Taxpayers should consider investment under current Act

The Czech Parliament is in discussions now regarding an amendment to the current Investment Incentives Act that would significantly reduce the possibility of obtaining investment incentives by legal entities in the manufacturing industry.

A taxpayer with a manufacturing entity in the Czech Republic which is planning investment in excess of €4 million (or €2 million in selected regions) during the next three years, and the activity is not associated with research and development (R&D), should consider submitting an application under the current Investment Incentives Act. The benefit is corporate income tax relief corresponding to 25% of the qualifying investment expenses, available based on the amount of investment and type of activity.

The proposed amendment’s effective date is expected to be 1 April 2019, meaning application for support can still be filed under the existing law.

Under the proposed amendment, it appears that all investment incentives will be subject to government approval. Furthermore, the investment will need to pass a so-called “high-added value test.” In the area of manufacturing, this means that: (a) a certain threshold of employees’ wages would need to be achieved; and, at the same time, (b) a certain number of employees would need to have university-level education and be employed in the area of R&D, or the employer would need to cooperate in the R&D area with specified organizations. Although the amendment will eliminate the obligation to create an additional 20 jobs for manufacturing entities, a significant amount of investments supported under the existing law would likely not qualify for the subsidy (mainly due to the required connection to R&D).

The individual parameters (and their values), based on which higher added value will be quantified, are expected to be subject to further discussion between representatives of ministries and professional chambers. However, they are also expected to be tightened (rather than relaxed) according to information available.

For additional information with respect to this Alert, please contact the following:

Ernst & Young, s.r.o., Prague
  • Ondrej Janecek | ondrej.janecek@cz.ey.com
  • Martin Hladky | martin.hladky@cz.ey.com

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