In early September 2022, the Government of the Czech Republic prepared a draft Government Decree amending Government Decree No. 221/2019 Coll., on the implementation of some stipulations of the Investment Incentives Act, as amended.

Increase in added value

The aim of the proposed measure is to respond to the current economic developments in the Czech Republic and the government’s ideas on the future direction of public support, and thus to support the creation of a long-term competitive advantage of the Czech Republic based on the use of knowledge and innovation. 

For this reason, the government proposes to tighten the conditions for obtaining investment incentives as follows:

• extending the condition of higher added value to all regions of the Czech Republic, except regions with at least 7.5% unemployment (currently only in the Karviná district),
• tightening the conditions for higher value added, as follows:
  
  • increasing the level of R&D expenditure by doubling the requirement for expenditure on collaboration with a research organisation to 2% of eligible costs,
  • increasing the share of R&D staff in the workforce from the current 2 percent to 3 percent.

This setting aims to provide stronger incentives for companies to invest in other corporate activities, especially in activities relating to research and development, which will help companies increase productivity and value added and thus cope better with rising prices and wages.

Certain strategic investment actions will be exempted from these higher value-added limits.

Energy transformation in the Czech Republic

The new government also seeks to further contribute to the fulfilment of the energy goals of the Czech economy and the energy self-sufficiency of the Czech Republic through more targeted support for the production of technologies and equipment that will contribute to energy savings and energy transformation. A list of these selected products is given in the newly added separate Annex No. 4 to Government Decree No. 221/2019 Coll. These are mainly products, for which a shortage or partial unavailability on the market has been identified and there is a need to support the increase of their production capacity directly in the Czech Republic, thus contributing to greater self-sufficiency of the Czech Republic in the production of these products. However, the applicant will also need to demonstrate that, in the case of the intended investment, the products are intended for the production or storage of energy from renewable sources, for increasing energy efficiency or for reducing the energy consumption of buildings. 

Increased support for the production of these products will be ensured by the following change in the setting of support conditions:

• investments focusing on the production of these products will be able to obtain an investment incentive in the form of material support for the acquisition of tangible and intangible fixed assets for strategic investments without having to reach an investment of CZK 2bn and create 250 new jobs,
• the degree of this material support for strategic investments would be increased up to 20 percent of eligible costs in all regions (currently, this level of material support is only available in the Karlovy Vary, Ústí nad Labem and Moravia-Silesia regions), this being the maximum possible rate, but the specific amount of material support will continue to be decided by the government according to the current possibilities of the state budget and the importance of a given investment for meeting the energy goals of the Czech economy,
• if the investment is approved by the government as a strategic investment, it will not have to comply with the higher value-added limits mentioned above.

The proposed modification of the conditions should better support the investment activity of private entrepreneurs in the field of selected products of energy importance for the Czech Republic and contribute to the localisation of their production in the Czech Republic. Similarly, it is also intended to support the increase in production capacity of existing domestic producers, because the conditions are the same for both domestic and foreign applicants.

The proposal undergone an external comment procedure (23 September 2022). We will inform you about any further development.

Author: Petr Němec, Martin Hahn