What is regional state aid?
Regional state aid is a form of financial assistance given by a government to businesses located in specific regions that are facing economic challenges. The goal of regional state aid is to promote economic development, job creation, and competitiveness. Therefore, it is granted for new investments and is often called investment incentive.
Regional state aid can take different forms, such as grants, tax breaks, loans, guarantees, or equity investments and sometimes is possible to combine them. The aid can be awarded to companies of any size and sector, from small and medium-sized enterprises (SMEs) to large corporations, and can support a variety of activities, such as investments in new equipment or infrastructure, research and development, training, and job creation.
However, there are rules in place to ensure that this type of aid does not create unfair competition between businesses or regions. These rules are set by the European Union and limit the amount of aid that can be given while also monitoring its impact on the economy. Within those EU rules, each Member State can create its own programs to support certain investments (for example sector- or size-wise).
Are there some limits to the aid? What are regional aid maps and the state aid intensity?
Regional aid maps are maps used by the European Union to identify regions that need economic assistance. These maps divide the EU into different categories based on how developed the regions are. Regions that are less developed or facing challenges (so-called ‘a’ regions) can get more financial help than more developed regions (so-called ‘c’ regions).
State aid intensity is the maximum amount of financial help a company can receive based on where its investment takes place. The amount of aid an entrepreneur can get depends on the region it is in and how developed it is. The regional aid intensity varies between the regions and can be from 10% to 50%. Those values are even higher for SMEs (up to 70%).
In areas where regional state aid is not available, other forms of support are possible. However, most often it has more requirements and focuses on specific activities (like renewable energy sources or research and development).
Who grants the aid?
The aid is granted by the country where the investment is to take place. However, there may be many institutions that come into play. Some instruments are offered by the central authorities, others by the local governments or dedicated organisations (like Special Economic Zones or regional investment promotion agencies). The amount of state aid depends on leaving no stone unturned, understanding potential instruments for a specific project as well as negotiating skills.
When planning an investment, it is vital to diligently select and compare locations for the project. There are many factors that should be considered, for example, access to a skilled workforce, infrastructure and proximity to suppliers and customers, or political stability. Not surprisingly, one of the critical factors is also the availability of investment incentives, which not only lower costs and reduce the risks of starting or expanding a business but also create a more favourable business environment.
Each country creates its own specific set of rules for providing aid to entrepreneurs, which is why a diligent study of available instruments or potential aid schemes is essential to making informed decisions.
What is each countries’ individual EU Incentive Friendliness Ranking?
When it comes to expanding your business into a new market, you're faced with a multitude of decisions. Site selection, understanding the local business culture, and navigating complex incentive programs can be a daunting task. To make this journey smoother, we are thrilled to introduce our brand-new feature: the 2024 EU Incentive Friendliness Ranking.
What investment projects may receive aid?
The projects from both the manufacturing and business services sector may receive financial aid from the governments. Most often the state aid programs support new investment projects. That means an investment in tangible and intangible assets that are related to the:
Setting-up of a new establishment,
Increasing the size or production capacity of an existing business,
Expanding the range of products or services in an existing location or introducing fundamental changes of processes,
In some cases, an acquisition of assets of an establishment may also be supported.
What is more, each country designs its own set of specific rules, so-called ‘entry criteria’. Those may include requirements of incurring certain costs or qualitative assessment based on processes performed, R&D components, employee-care activities, etc.
It is also important to remember that an investment that benefits from public funds must be maintained – typically it means that you cannot close the operations within 5 years (3 years if you’re an SME) after the investment is completed.
What costs of the investment may be reimbursed by public funds?
The costs of the investment that may be considered for financial support from public funds are called eligible costs. These costs are related to the investment project and must be directly linked to it. Such costs are costs of tangible and intangible assets, such as the purchase of land or buildings, construction costs, purchase of equipment or machinery, costs related to research and development, and estimated wage costs of new employees (for two years). It is important to remember that the rules regarding eligible costs may vary depending on the specific state aid scheme and country.
When can I start my investment project? Do I have to apply for aid?
State aid instruments are often called ‘investment incentives’. They are in place to incentivise you to decide to implement the project in this location (and not somewhere else). This is why it is extremely important that the project cannot start before you apply for aid (or, in certain cases, receive the aid). Let us put ourselves it the shoes of the public authority that would be willing to grant you tax exemption to convince you to locate your investment in their country. If you already start employing people and sign binding contracts with suppliers – it would mean that either way one would carry out the project. To them, it means you do not need their support. That is why it is essential to carefully schedule all stages of the investment – including the stage of applying for support.
