Read our Q&A to learn:
- What is regional investment aid and who can apply.
- How to avoid basic mistakes and problems when applying for aid.
- What benefits for investors does the amendment to the on Regional Investment Aid Act bring.
To whom does the state provide regional investment aid?
Regional investment aid can be granted for projects in the industrial sector, for technology centers ("R&D projects") and for business service centers. All businesses that meet the conditions set out in the Regional Investment Aid Act may apply. It does not matter whether it is a new or existing company, whether the investments comes from Slovakia or abroad, or whether it is an SME or large company.
What does the amount of this state aid depend on?
The amount is determined by the district (okres) where the investment will be located. If the company decides to invest in a high unemployment district (mainly in Eastern Slovakia), the potential aid amount and the conditions for qualification are more favorable than in other parts of the country. In Eastern Slovakia, aid can be up to 50% of eligible costs. If it is a medium-sized enterprise (according to the EU classification of a "SME"), this ceiling may increase by another 10%, in the case of small enterprises and micro-enterprises even by up to 20%. So in certain cases it is possible to request from state investment aid up to 70% of estimated eligible costs.
Can you give an example of a company that can apply for this aid?
A company that is already operating in Slovakia, or that is only planning to operate in Slovakia, can apply for aid. It may be a plan to build a factory, either on a green field, or an old hall may be purchased, which will be further refurbished to the needs of the company. Of course, a company can apply for regional investment aid even when considering an expansion.
Which sectors are most represented when applying for this aid?
KPMG's client base is very diverse, from the automotive industry, which is the strongest, to the electrical industry, which is the second strongest, to technology centers and business service centers. In principle, all sectors can apply for regional investment aid. When talking about the automotive industry, it should be clarified that it also includes all suppliers.
KPMG had assisted large enterprises since they started investing in Slovakia, especially automotive companies. It's been around 25 years.
What does the process of obtaining investment aid look like?
In the first step, companies submit a questionnaire with the Slovak Ministry of Economy which includes key information of the investment project. The Ministry will then assess whether the investment project will pass the so-called regional benefit test. If the project meets this requirement, the Ministry may provide an preliminary indication of the investment aid amount and categories, which normally based on a percentage amount of eligible expenditure , either investment or wage costs or a combination. This depends on the amount of the investments, the number of jobs created, the district to which the investment is directed and the natue of the investment project. Subsequently, the preparation of the investment aid request will start. It includes, among other things, a detailed overview of the investment costs and production processes to be introduced, broken down over the years, detailed information about the investor, an analysis of the market segment, a projection of balance sheet and income statement and relevant environmental issues. A complete aid request, including the attachments, is submitted to the Ministry of Economy, where it first be assessed by the Ministry of Economy (including a financial viability test). In turn it will be send to the Ministry of Finance (provider of tax relief) and the Ministry of Labour (new job grants). On basis of the comments the Ministry will send a draft proposal to the investor who should formally agree with that draft proposal Last step is an assessment by all ministries and formal approval by the Government Council.
In what form will the applicant receive investment aid?
It is either in cash in the form of a financial contribution to newly created jobs or a contribution to procured technologies, or in the form of a tax relief. In most of the cases we have dealt with so far, it was a combination of at least two of these possibilities. However, when everything is added up: how much the investor will receive for newly created jobs, how much for new technologies, halls or other eligible costs and how much he will receive in the form of the tax relief, the total amount must not exceed 50% of his investment if we are talking about the east of our country. The limit is 40% in central Slovakia and 30% in the west. I already mentioned the bonus for small and medium-sized enterprises, which can increase these limits by an additional 10-20%.
What problems do investors most often encounter when applying for assistance?
The idea of an investor is usually that he is able to cover the entire issue himself from start to end. It's a bit deceiving. But in general, there are thee the most common obstacles that an investors encounter. The first is low awareness of the fact that investor may even qualify for the investment aid at all. Our experience shows that Slovak companies often think that this state aid is intended only for foreign companies. It's not like that. We have a lot of purely Slovak clients who applied for investment aid, received it and are successfully using it. The second obstacle is a lack of knowledge about how, where and under what conditions to invest. And thirdly, if the client wants to create the entire application himself, it is a rather large administrative burden for him. Of course, I don't want to underestimate anyone, but our experience shows that companies usually do not have enough relevant human resources to complete the questionnaires and calculations themselves. The application for investment aid is a very complex matter, in which financial, tax and legal matters come together. If the investor communicates with us from the beginning, we can identify when and in what form it would be ideal to invest. We also know how to correctly draft the application and the relevant attachments in order to significantly increase its chances of obtaining investment aid. We can also provide advice on what shall be avoided in the process in order to prevent non qualifying of the investor due to some mistake.
What does the amendment to the Regional Investment Aid Act bring? What are the specific changes?
The modification of the law was caused by the pandemic situation, as the recipients of investment aid faced serious and objective difficulties in fulfilling the original conditions for aid qualification, which were applicable at the time when the aid was granted. There has been a dramatic change in the economic environment in the market. The Ministry of Economy understood this very quickly and promptly prepared an amendment to the entire law. All changes in the amendment are intended to make it easier for the investor to comply with the conditions to which he has committed himself to the state, and we perceive it as a positive changes.
What does this mean for potential applicants? What specific benefits do they derive from it?
There are, of course, more advantages. I'll start with the most important:
- If the investor ran into problems, for example due to a drop in orders, he has an additional 12 months from now to start work on the investment project. Compared to the original one year, he now has two years to be able to renew business relations or contract other customers of his services and start the implementation of the project.
- The deadline for the completion of works was three years, now it has moved to five and, in the case of large projects, up to seven years. It is another clear consequence of the pandemic situation that was on the market.
- The minimum value of the increase in production or services in production expansion projects (so-called expansion) will be reduced from 15% to 5%, which is a clear advantage for the investor, since he is not under such a high burden.
- The minimum cost tolerance that the Ministry is willing to accept is more generous. Until now, if an investor committed to invest 10 million euros, he had to fulfill this value to at least 85% and thus in practice invest at least 8.5 million. The Ministry would still tolerate this decline. However, if he invested only 8.3 or 8 million euros, he did not meet the conditions for granting investment aid and had to return it with a penalty. After the adjustment, the investor can invest up to 30% less than he committed in the application for investment aid and will still meet the relevant condition.
- The same applies to the creation of new jobs by investors. State tolerance dropped from 90% to 80%. In this way, the investor will not lose the investment aid even if he filled only 80% of the jobs from the originally intended plan.
- From now on, the recipient of investment aid can also be a natural person, entrepreneur or legal entity that is in difficulties. Such entities were previously automatically excluded, they could not apply for investment aid. However, since many companies got into difficulties due to the pandemic situation, and thus through no fault of their own, this regulation was re-evaluated. Through to investment aid, some businesses could get out of the current situation more easily, and that is why the Ministry is now allowing them to apply for investment aid.
- In specific cases, the conditions for maintaining the created job will also be adjusted. Some investors do not need to create new jobs in order to be recipients of the investment grant help. However, the condition is to maintain existing jobs. Today, with the push for automation, the investor does not need to hire new employees.
KPMG had assisted large enterprises since they started investing in Slovakia, especially automotive companies. It's been around 25 years.
How many companies has KPMG already helped to get investment aid?
We are currently helping around ten companies with obtaining regional investment aid. A few of them are small and medium-sized enterprises, a few are large companies , including multinationals). The number of clients for the entire year can be around 120 (?). In addition to preparing an application for investment aid, which is undoubtedly the flagship of our portfolio, we also provide services related to the period following the aid decision. The client continues to have responsibility towards the Ministry of Economy or other state authorities, including the European Commission of required and must submit reports once a year on the progress of the implementation of the investment project, with which we help if the client is interested. Recipients of aid also quite often encounter various problems during the entire process, for example, they are unable to fulfill some parameters of the approved application and they subsequently have to be adjusted. These are very complicated things. Many issues may arise during the aid disbursement phase and the clients are often approaching us to address them.
How long have you been in this field?
KPMG had assisted large enterprises since they started investing in Slovakia, especially automotive companies. It's been around 25 years. When Slovakia became a member of the European Union, we as a country had intensively tried to attract direct foreign investments. We have thus become a country that is per capita the number one global automobile producer. Of course, the large car companies have attracted dozens of suppliers here. The second wave of investors was when IT and technology companies came here. Several IT hubs were thus created. In addition to Bratislava, which is exempt from the investment aid scheme, a huge IT hub was established in Košice. It employs 15-20 thousand people. And then there are others, IT companies were founded in Žilina, Trnava or Nitra. Many of them are our long-term stable clients and based on our communication with them we can still see that there is potential for further growth.
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