Expert articles

Types of Investment Aid

State investment and support are some of the most decisive factors and incentives for improving the business environment. The amount and structure of investment from the state are undoubtedly among the main factors which influence the decisions of local and foreign investors over where to locate their investments. Without access to such subsidies, the Slovak Republic could lose significant numbers of enterprises and the hundreds of jobs which these businesses provide. Companies which are supported by state aid currently employ more than 54,000 people directly and many more indirectly within the wider network of sub-contractors.

The importance of investment aid is primarily reflected in the direction of investment towards the less developed regions of Slovakia –significant geographical differences and structural and regional unemployment are among the main negative features of the Slovak economy and therefore one of the most important roles of the state is to encourage investors to locate their new enterprises directly in such disadvantaged areas of the country and to support their economic development and the creation of new jobs. A further positive result of state aid is the opportunity to create job opportunities for graduates and the development of business opportunities for local businesses.

State investment aid may be provided by relevant ministries (for example the Ministry of Economy, the Ministry of Transport, the Ministry of Construction and Regional Development, the Ministry of Finance and the Ministry of Labour, Social Affairs and Family) or the Slovak Land Fund, but also by municipalities, regional bodies or by other relevant organizations. This aid is available to Slovak legal entities which are investing in the Slovak Republic, employ Slovak citizens and pay taxes in the Slovak Republic regardless of whether the entity is a Slovak or foreign owned enterprise.

Projects which can be supported by investment aid fall into four categories: industrial manufacturing, technology centres, strategic service centres and tourism enterprises. Each of these categories has a set of defined conditions which must be met in order for an enterprise to be eligible for state aid. One of the most critical conditions for the granting of subsidies is that the entity must provide a specific level of minimum initial investment into eligible costs and a minimum share of new technological equipment. Eligible costs are considered to be long term tangible assets in the form of land, buildings, engineering and technological equipment, or long term intangible assets such as patents, licences, rights, know-how or unpatented technical expertise. The wage bills for work positions created on the basis of the investment over a two year period can also be considered as eligible costs. The amount of eligible costs is dependent on the type of investment project involved, the level of unemployment in the local district and also upon the classification of the applicant (either as a small, medium or large enterprise). The influence of local competition is also taken into consideration in this regard – enterprises benefiting from state aid should not be competitors for existing local companies, but should instead work to involve local companies in their supply chains.

The first category of supported project is industrial manufacturing. Among the types of activity covered by this category are the establishment of a new business; the expansion of production in an existing business; the diversification of an existing business into new production or a substantial change in the production process in an existing business. An investment of this type must be implemented in a single location and must fulfil all requirements of environmental protection. The minimum level of investment in this case depends upon the locality of the enterprise. In regions with unemployment rates below the national average, the minimum investment is €10 million and the enterprise is also responsible for at least 60% of the costs for new technology as part of the eligible costs. In regions with unemployment rates higher than the national average, the minimum investment is €5 million and the share of new technology costs is 50%. In regions with an unemployment rate more than 35% higher than the national average, the minimum initial investment is €3 million and the share of new technology costs is 40%. An additional condition is the requirement to create a minimum of 40 new work positions (or a minimum of 10 positions in the least developed regions). In the case of the expansion of existing businesses, there must be an increase of at least 15% in production in comparison to the average production of the last three financial years. In terms of investment aid, a distinction is also made between large enterprises and small and medium enterprises (SMEs) – the conditions for awarding grants are more favourable for SMEs, requiring only half of the total sum of minimum investment and offering SMEs the possibility of more intensive investment aid by up to 20%. According to The List of Certificates of Significant Public Investments (Zoznamu osvedčení o významných investíciách vo verejnom záujme), some of the most successful examples of investment into industrial manufacturing include Volkswagen Slovakia, Kia Motors Slovakia, PSA Peugeot Citroen Slovakia and AU Optronics (Slovakia)

 A further category of project eligible for investment aid is that of technology centres; premises in which the beneficiary is focused on development in technology, technologically advanced products, or innovative production processes. The minimum initial investment in such a project is €500,000 (a non-negotiable sum) and 50% of the acquisition must be covered by equity. The investment must generate a minimum of 30 work positions, of which at least 70% will be filled by employees with a university education. Examples of technology centres include SAMSUNG Electronics Slovakia (a production, logistics, service and development centre), BSH Drives and Pumps (an expansion of a technology centre into electronic development), and CEMM THOME SK (an expansion of a technology centre into the development and design of car interior lighting).

Strategic service centres are locations in which beneficiaries of investment aid provide high value-added services, employing qualified experts in computer programming development centres, specialist solution consultancies, centres for the preparation of modified specialized technology and customer support centres, primarily in the fields of finance, purchasing, IT, human resources and customer care. This type of project requires a minimum initial investment of €400,000 (regardless of the locality of the project). The company must employ at least 60 university educated employees and create a minimum of 40 new work positions. One example of such a strategic services centre is Holcim Business Services.

In the sector of tourism enterprises, distinctions in support are made according to the unemployment rate of the region in which the enterprise wishes to operate. In regions with unemployment rates below the national average, the minimum investment is €10 million and a 40% share of the costs of new technology; in regions with unemployment rates above the national average, the minimum investment is €5 million and a 20% share of the costs of new technology; in regions with unemployment rates at least 35% above the national average, the minimum investment is €3 million and a 20% share of the costs of new technology.

Investment aid can reach specific maximum values or intensities of state aid (GGE) – the share of the current value of investment aid to the current value of the eligible costs. The intensity of investment aid in individual regions cannot exceed fixed levels; 25% in western Slovakia (excluding Bratislava region) and 35% in central and eastern Slovakia. Forms of investment aid include grants for the procurement of long term tangible and intangible assets. According to the Report on State Aid in the Form of Investment Incentives and Investment Projects, since 2011 the Slovak state has supported 40 investment projects through such subsidies, primarily in Košice region (13 investment projects) and in Nitra region (7 investment projects).

A further form of assistance is income tax relief. In the period 2002-2015, this category accounted for 45% of all state aid provided by the Slovak state and was approved for 89 investment projects at a total sum of €430 million, primarily in Trenčin region (19 investment projects) and in Košice region (22 investment projects).

A third form of state aid is state contributions towards the creation of new jobs. In 2011, aid of this type was approved for 44 investment projects, primarily in Košice region (11 projects) and Nitra region (8 projects). The final form of state aid is the granting of land or the sale of land at a price lower than the actual market value of the land.

The coming years will see the construction of the Jaguar Land Rover Slovakia car assembly plant in Nitra region and the expansion of the Yanfeng Slovakia Automotive technology centre for the development of car interior components in Trenčin region, both of which were the beneficiaries of investment aid.