Grants for manufacturing in Eastern €urope

by Dr. Balazs Csorjaninvestment promotion specialist

2014 edition

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Central- and Eastern Europe

When it’s about industrial site selection, grants can be the mousse on the cake. I don’t suggest to make a decision based on grants only, but why shouldn’t calculate with free money when some governments provide it?

CEE is a low-cost and emerging part of the European Union. Manufacturing is a prefered, strategic economic development goal in all Central and Eastern European countries. It means, when you establish here a new manufacturing plant, you can expect more "good points" from governments, which concludes higher grants.

These slides overview the most important types of grants for manufacturing.

How to startThe subsidizing process always starts at the governmental investment promotion agencies: the PAIZ in Poland, the HITA in Hungary, the CzechInvest in the Czech Republic, the Sario in Slovakia.Decision making about the government grants requires normally 1-3 months.

Governments normally sign an agreement with investor, so receiving a government grant is a contractual connection between the company and the government. It means, you get some money, but you also have some obligations, e.g: for job creation money you have to employ your staff for 1-2 years - and when you couldn’t, you have to pay back the grant.

Generally we can say, Eastern European governments' threshold stimulus is around 10 million euros investment and approx. 100 new jobs, under these numbers you are a very small investor.

#1 Grants for acquisition of assetsMost countries do not separate the real estate and machinery grants - they simply subsidizes investments in "assets".

The machinery can be the main "eligible cost" of investment projects, e.g in the Czech Republic, "A basic condition is a minimum investment in long-term tangible and intangible assets in the amount of CZK 50 million in Regions I, of which at least CZK 25 million must be invested in new machinery, and CZK 100 million in Regions II, of which at least CZK 50 million must be invested in machinery, whereas at least half of the minimum investment amount must by fi nanced with the investor’s own capital." (CzechInvest's brochure 2014)

Regarding real estate development, governments subsidize both the investments in industrial land and the costs of building.

Investments into these assets are “eligible costs”, and final grants also will cover some percentage of these expenses.

#2 The G-spot: job creation

The G-spot of Eastern European governments is job creation, this is the magic word you should build on. Many countries simply provides a "head money" for each new job created. For example, if you invest 40 million Polish Zloty (approx. 10 million EUR) in Poland, AND create 250 new jobs in manufacturing, the Polish government will grant you 800-3900 EUR per new jobs. The final job creation grant in Poland depends on the number of new jobs created, the percentage of employees with higher education, location, attractiveness of the products on the international markets etc. Other governments subsidize also smaller costs (e.g: employees' commuting cost in Hungary, training costs in many countries etc), but these are the typical schemes.

#3 Tax relievesEastern European governments are a bit shy when its about tax relieves. Before EU accession, most government provided large scale corporate income tax relieves, but the European Union doesn't like it indeed. However, most of the governments found smart, EU-compatible solutions for tax relieves. For example, the Hungarian government provides "development tax allowance", with the following scheme:

Amount of subsidy: exemption for 80% of the corporate tax payable for 10 years following installation. Up to HUF 500 million (approx. €1.7 million) turnover the corporate tax rate is 10%, above HUF 500 million the tax rate is 19%. Conditions: investment volume min. HUF 3 billion (EUR 11.3 M), min. 150 new jobs OR HUF 1 billion (EUR 3.7 M) investment volume and 75 new jobs in preferred regions like Eastern Hungary.Application: depending on investment volume request or application needs to be submittedProvider of incentive: Ministry for National Economy

#4 Cash grantsIn the love packages of Eastern European governments there are two types of cash. All the grants above have specific goals, preferences, and obligations (e.g: re-training grants have to spend for local trainings), but when you hear about "cash grants" it means in general: you get money (normally not more than 5% of total investment costs) as a bonus, without specific obligations.

#5 Grants by municipalitiesTill now we have been studying the national governments’ grants, but there is another, a bit chaotic but magical type of grants: provided by cities and communities.

You cannot imagine the creativity of Eastern European mayors when it’s about investment promotion. Some offers a one-year entrance for all your future staff to the matches of local basketball team (“it will support your recruitment”). Others provide international school development projects and family assistance to your expat manager families.

The bravest local governments offer special deals. E.g. the municipality of Hajduboszormeny, Hungary, provides a free of charge industrial property for 50 new jobs + a dedicated vice mayor to manage your investment within the Hungarian public administration. By the way, the location is inside the top10 best cost effective regions of Europe (ranked by Financial Times’ fDi Magazine), so beside basketball tickets you can gain pretty good deals on municipal level, too.

To collect information about the jungle of municipal grants, ask the national investment promotion agencies’ support (listed on the slide 4).

The European sandboxGovernment grants ("state aid" in European jargon) are generally prohibited by European Commission (the "federal government of EU"), because government grants have a negative impact on internal market competition. However, there are some exceptions, when EU not prohibits but supports state aids: the underdeveloped regions of Eastern Europe can provide grants on this way.

From July 2014, large companies can get grants for new developments only, and there is no funding for existing business anymore. The European Commission also can investigate: is the state aid essential to the investment, or the company would implement the development without grants.

How to select your new manufacturing site in Eastern EuropeFinally: don’t choose a location just because of high grants - instead, check out my comprehensive how to select your new manufacturing site guides, from automotive, electronics, food processing and so on.

About us

Manufacturing Hungary Blog is an information source about the manufacturing topics in Hungary and Eastern Europe. Our goal is to support site selection team’s job, providing useful information.

Dr. Balazs Csorjan, investment promotion specialist, the former regional director of Hungarian governmental investment promotion agency. Dr. Csorjan has taken part in more hundred site selection projects - he knows your questions.

E-mail your questions or ask the original maps, graphics, slides:

csorjan @ m35businesspark.hu