29. mája 2009 PROSPECTS FOR OBTAINING INVESTMENT AID IN SLOVAKIA

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1 FUTEJ & Partners, s.r.o. Grösslingova BRATISLAVA SLOVAKIA TEL: 421/2/ FAX: 421/2/ futej@futej.sk mája 2009 PROSPECTS FOR OBTAINING INVESTMENT AID IN SLOVAKIA This memorandum will provide basic information regarding the prospects for obtaining advantages when starting a business in Slovakia, especially the possibilities for obtaining investment aid from the state. Primary Legal Regulations The primary legal regulation governing state aid when starting a business in Slovakia is Act 561/2007 Coll. on investment aid (hereinafter Investment Aid Act ). Besides this law investment aid is regulated also by: Act 231/2001 Coll. on state aid (hereinafter Act on State Aid ), Act 5/2004 Coll. on employment services (hereinafter Employment Services Act ), Act 595/2003 Coll. on income tax (hereinafter Income Tax Act ). In addition to these national regulations, the relevant legal regulations of the EC also apply to this issue. In general, it can be said that the Act on State Aid is a relatively generic regulation which governs some of the general rules for the provision of state aid for businesses or in connection with conducting business, mainly the rule that there is no legal right to being granted state aid. It further sets out the fields for which aid may be granted 1 and the forms in which state aid is granted 2. The specifics of granting aid are governed in separate legal regulations; in the case 1 4 of the Act on State Aid sets out that state aid may be granted to support a) economic development of regions where the standard of living is exceptionally low or where the rate of unemployment is high, b) realization of an important project of common European interest or to remedy serious deficiencies in the economy, c) development of certain economic activities or areas where this aid will not essentially affect the conditions of trade so as to be in conflict with the interests of the common community market, d) culture and preservation of cultural heritage, if such aid will not affect the conditions of trade to where they would be in conflict with the interests of the common community market. State aid may be granted, for example, for regional development, employee education, to support the employment rate, for research and development, for the steel, shipping or automobile industries, or for other types of support if so decided by the Council. 2 The form of state aid may be: a) subsidy, contribution, grant, b) compensation for interest or part of the interest on a loan granted to an undertaking, c) repayment of part of the loan, d) repayable financial assistance, e) state guarantee or bank guarantee, f) tax relief or relief from penalties, fines, interest or other sanctions, g) sale of real property owned by the state or town at a price lower than the market price, h) consultancy services free of charge or at a discounted rate, i) deferment of payment of taxes or a payment schedule for payment of taxes. 1

2 of granting investment aid for regional development 3, the specific legal regulation is the Investment Aid Act. Investment Aid from the State for Regional Development Where may investment aid be granted? The goal of investment aid from the state for regional development (hereinafter also investment aid ) is to aid in the expansion of business by supporting - initial investments and - creation of new jobs. Forms of Investment Aid Investment aid may be granted in the following forms: a) subsidy for the acquisition of long-term material and long-term immaterial assets, b) income tax concessions, c) contribution for the creation of new jobs, d) transfer of real property or exchange of real property at a price lower than the general value of the property. Investment aid as set out under a), c) and d) is granted pursuant to a contract concluded between the grantor of the investment aid and the recipient of the investment aid.the grantor of the investment aid is Ministry of Economy in case of investment aid in the form under a), Ministry of Finance in case of investment aid in the form under b), Ministry of Labour in case of investment aid in the form under c), or owner/administrator of the real property in case of investment aid in the form under d). Legitimate Costs Legitimate costs for an investment project are: a) long-term material assets such as land, buildings, machines, b) long-term immaterial assets up to a maximum of 50% of the value of the long-term material assets, and c) the pre-tax wages of employees hired for jobs created in connection with the investment aim, including payroll deductions, calculated for a period of two years. Material and immaterial assets which are to be deemed legitimate costs must be acquired under market terms and conditions from parties which are not related with respect to personnel or economically. The recipient cannot set off against the legitimate costs pursuant to subsection 1a) and b) any long-term material or immaterial assets for which state aid was granted. 3 As set out in Commission Regulation (EC) No 1628/2006 of 24 October 2006 on the application of Articles 87 and 88 of the Treaty to national regional investment aid. 2

3 Types of Investment Projects Eligible for Investment Aid The law separates investment projects eligible for investment aid into 4 categories: - industrial production - technological centres 4 - strategic services centres 5 - tourism Each of these project categories has individual conditions which must be met in order for the investor to apply for state aid. According to our information, the investment in Slovakia would involve industrial production. We have therefore focused the following text on the conditions for granting investment aid for industrial production. If you desire detailed information on the other categories, please do not hesitate to ask us. Conditions for Granting Investment Aid for Industrial Production The Investment Aid Act sets out several conditions to be met in order to be granted investment aid for industrial production. Those conditions are as follows: a) setting-up a new establishment, the extension of an existing establishment, diversification of the output of an establishment into new additional products or a fundamental change in the overall production process of an existing establishment or the purchase of an establishment, b) acquiring new manufacturing and technological equipment which is intended for manufacturing purposes at a cost of at least 60% of the total value of the acquired long-term material and immaterial assets, Important amendment to the Act on investment aid has brought intertemporal provision saying that if an applicant submits an investment aim to the ministry by 31 December 2010, this above mentioned value shall be decreased to 40%. By this the conditions for reaching investment aid in Slovakia have been eased. c) minimum amount of investment one of the conditions is also the acquisition of long-term material and long-term immaterial assets in at least a specified minimum sum. This sum depends on the rate of unemployment in the given region where the investment aim is to be carried out. The minimum sum in the case of industrial production projects is: 4 A technological centre is a place where the aid recipient carries on activities which improve or alter products, productions processes and technology used in the production process; the production process is not considered an activity of the technological centre. 5 A strategic services centre is a place where the aid recipient provides services with high added value which support employment of qualified experts in centres for development of computer programs, expert solution centres, centres for repair of superior technologies, customer support centres and headquarters of supranational firms. 3

4 - SKK 800M in a region where the rate of unemployment is lower than the national average, - SKK 400M in a region where the rate of unemployment is higher than the national average, - SKK 200M in a region where the rate of unemployment is at least 50% higher than the national average. The investment of the undertaking must be at least 50% of the total amount of the investment. Also in this case amendment brought interteporal provision saying that if an applicant submits an investment aim to the ministry by 31 December 2010, amounts stipulated in this paragraph c) shall be lowered down to the half. It means that till the end of 2010 there is bigger chance to receive investment aid in Slovakia. d) meeting the conditions concerning environmental protection, e) a share of at least 80% of revenues from the business activities stated in the investment aim of the total revenues of the recipient. Act on investment aid stipulate special conditions also for technological centres ( 5), strategic services centres ( 6) and tourism ( 7). In case of tourism the amendment also brought several changes which shall make investment aid in Slovakia more simple to receive. Limits for Granting Regional Aid The matter of granting investment aid is dependent on the grantor who grants the aid varyingly according to region (according to the so-called Regional Map for the years ). At this time, Slovak regions are divided based on the intensity of regional aid as follows: - Bratislava region no aid as of Western Slovakia 40% - Central Slovakia 50% - Eastern Slovakia 50% Therefore, if an investor wants to invest in Slovakia, there are differing chances for obtaining aid based on the region where the investment is to take place. Currently there are no possibilities for obtaining investment aid for investments in the Bratislava region. 4

5 Right to Investment Aid Investment aid has a general rule there is no legal right to being granted investment aid. This means that even if the investor meets all the requirements for being granted investment aid, the investor will not necessarily get this state aid automatically. The state has the right to freely decide which investment aim 6 it will support and which it will not. The amount of state aid in specific cases will depend primarily on the contribution the project will make to the given region and the assessment of whether the aid will disturb economic competition, but also on the amount of the investment, number of new jobs created, the educational structure of such jobs and the region where the investment is intended. 6 An investment aim for the provision of investment aid is a project aimed at an initial investment or the creation of jobs which are immediately related to the investment aim realized by one enterprise or several enterprises over a period of three years. 5