Tax relief for investment

What it means

Tax relief for investment is one form of regional investment aid that the state grants to companies carrying out an investment project under the Regional Investment Aid Act. Instead of a direct grant, the company receives the right to reduce its income tax in the following years up to the amount of aid approved. The state thus forgoes part of future tax revenue.

Entitlement is not automatic. The company must apply for investment aid before work on the investment begins, obtain a decision granting the aid and meet the conditions, above all the amount invested in long-term assets, creating a set number of jobs and locating the investment in an eligible region. The maximum aid intensity depends on the region and company size.

The relief is claimed in the tax return over a period set by law. In each year it is capped at the tax attributable to income from the supported activity and in total may not exceed the approved amount. It is state aid, so EU rules on cumulation with other forms of support apply.

How it works in practice

The relief suits companies planning a larger investment in manufacturing, technology centres or shared service centres that expect enough profit to use it. A loss-making company gains nothing from it, so it is often combined with other forms of aid, such as a grant for acquiring assets or a contribution for jobs created.

When claiming it, income and costs from the supported project must be separated from other activities. The relief is calculated from the tax base attributable to the supported activity. Records must make it possible to prove this split, otherwise the tax office will reject the relief in an audit. The relief claimed reduces current tax.

Aid conditions must still be met after the relief is claimed. The company must maintain the investment and jobs for a set period. If it breaches the conditions, it must repay the relief, often with penalties. Indicators should therefore be monitored regularly and the ministry that granted the aid kept informed.

What to watch out for

The most common mistake is starting work on the investment before applying. Regional aid requires an incentive effect: aid must motivate the investment, not reward a project already under way. Even signing a binding order for machinery can count as starting work and forfeit the aid.

Watch cumulation. The total of all forms of aid for the same project must not exceed the maximum intensity for the region. Tax relief, grants, the super-deduction or subsidised loans can add up, and exceeding the cap means repaying the difference. A thorough analysis is needed before combining forms of support.