Foreign investors can carry out their investment projects in the Slovak Republic with the assistance of (i) state sources (investment aid, employment aid and R&D incentives), or (ii) funds of the European Communities.
A. Regional (investment) aid is intended to assist economic development in disadvantaged regions by stimulating business activities and promoting employment.
Investors may apply for aid, provided that their investment project consists of: a) setting up a new establishment, b) extending an existing establishment, c) diversifying the output of an establishment into new products, or d) substantially changing the overall production processes in an existing establishment. Investment aid may be applied for in investment projects in the areas of: (i) industrial production, (ii) technological and innovation centers, (iii) strategic services centers, and (iv) tourism.
Investment aid may be granted in the form of:
(a) A cash grant for the acquisition of assets, partially covering the beneficiary’s expenditures for acquiring fixed assets and paid to the beneficiary after he has actually laid out the investment costs for his project and has demonstrated his expenditure. The assets must remain with the beneficiary for at least five years.
(b) Income tax relief, granted in a pro rata amount of the tax base over five consecutive tax periods.
(c) A cash grant for the creation of new jobs, partially refunding the investor’s cost of wages and government payments for employees hired to fill newly created jobs. These new jobs must be kept by the beneficiary for at least five years after they have been created.
(d) Transfer of real property from the state or a self-governing region to the investor at a price that is lower than the appraised price.
Investment aid for the respective regions cannot exceed the designated aid ceilings (intensity), meaning the maximum percentage of eligible investment expenditures which the state may reimburse to the investor. Recently, the thresholds have been set at 40 % for Western Slovakia and 50% for Central and Eastern Slovakia. Projects within the Bratislava region are not eligible for investment aid. Aid intensity for large investment projects (exceeding €100M) is further proportionally reduced according to a specific scaling down mechanism.
Investment aid covers expenditures laid out by the aid beneficiary in fixed tangible assets, fixed intangible assets, or costs of employees hired for newly created jobs. Several further conditions (in terms of employment, minimum amount of investment expenditure, acquisition of new modern technologies and others) must also be fulfilled in order to qualify for investment aid.
In practice, it is vital that the beneficiary commences his investment project after receiving written confirmation from the Economy Ministry of the Slovak Republic that the investment project is eligible for aid. Some of the investment projects require notification of the EU Commission, which may further prolong the approval process.
B. Promotion of employment and employee education is destined to support projects leading to (i) the creation of new jobs, (ii) the employment of disadvantaged persons and graduates, or (iii) an improvement in the level of knowledge and skills of employees.
From a practical standpoint, state aid for education has proved to be effective for foreign investments. A contribution may be requested for general education (where knowledge and skills are transferable to another employer or in another field), or specific education (where knowledge and skills are not transferable to another employer or in another field). Aid intensity is dependent on (i) the category of aid beneficiary (categorised according to number of employees, turn-over or net value, into micro-enterprise, small, medium, or large enterprise), and (ii) the type of education.
This aid is approved by the local office of labour, social affairs and family pursuant to an educational project submitted by the employer.
C. Incentives for research and development are used for the purpose of improving the level of research and development. The incentives may be requested in the form of: (i) financial subsidy from the state budget, or (ii) corporate income tax relief.
Incentives for research and development may be obtained for the projects of: (i) basic research; (ii) applied research; (iii) experimental development; (iv) technical feasibility studies; (v) projects for protecting industrial property; and (vi) projects for the temporary assignment of highly-qualified employees.
The actual amount of R&D subsidies is determined by size of the business/applicant for incentive, and by the type of research and development project they propose to carry out. In certain cases applicable legislation sets the maximum amount of aid that the project can be granted (e.g. basic research can qualify for €20M; applied research for €10M and experimental development for €7.5M).
D. Aid from the funds of the European Union means aid from the EU funds that have been allocated for the individual areas of assistance for the years 2007 – 2013. The funds may be drawn under 11 operational programs, out of which foreign investors are most often interested in aid for operational programmes of research and development, competitiveness and economic growth, and employment and social inclusion.
JUDr. Daniel Futej, PhD, LL.M. is a partner and JUDr. Marian Dzuroška is a senior associate with FUTEJ & Partners, s.r.o.
This article is of an informative nature only. For more information go to www.futej.sk
22. Nov 2010 at 0:00