Innovation Funding Incentives: Czechia

Czechia has actively cultivated a supportive environment for innovation, offering a range of funding incentives aimed at bolstering research and development (R&D) and fostering a dynamic startup ecosystem. These incentives, provided through a combination of tax reliefs, direct grants, and national and international programmes, reflect the country’s commitment to technological advancement and economic competitiveness within the European Union. This report will detail the primary innovation funding mechanisms available in Czechia and their impact on its innovation landscape.

Key Funding Incentives

1 | R&D Tax Allowance (Super Deduction)

The R&D tax allowance is a cornerstone of Czechia’s innovation policy, providing a significant incentive for companies to invest in research and development.

Mechanism: Companies can deduct their eligible R&D costs twice from their corporate income tax base. This means that for every koruna spent on R&D, two korunas can be deducted. Additionally, an extra 10% allowance may be applied if current year R&D costs exceed those of the prior period, incentivising increased investment.

Eligibility: To qualify, R&D activities must demonstrate an appreciable element of novelty or aim to clarify research or technical uncertainty. Eligible costs include personnel working on R&D projects, depreciation of fixed assets used for R&D, and other operating costs such as materials and energy consumption directly related to R&D activities. Businesses must prepare and submit written project documentation before claiming the deduction.

Impact: This tax incentive significantly reduces the corporate income tax liability for innovating companies, making R&D more financially viable. It is available to businesses of all sizes and across all sectors, promoting widespread R&D activity.

2 | Investment Incentives

Czechia offers a broader set of investment incentives, particularly for manufacturing, technology centres, and strategic services centres.

Mechanism: These incentives can take various forms, including corporate income tax relief for up to 10 years (either full for newly established companies or partial for expanding ones), cash grants for job creation, and support for employee training and retraining. In some cases, discounted land transfers or property tax exemptions are also available in favoured industrial zones.

Eligibility: Projects must meet specific criteria, including minimum investment values, job creation targets, and the nature of the investment (e.g., in a technology centre or software development centre). The amount of state aid is limited by EU state aid rules and regional aid maps.

Impact: Investment incentives attract foreign direct investment and encourage the establishment and expansion of high-value-added activities, thereby contributing to job creation and technological upgrading.

3 | Direct Grants and Funding Agencies

Czechia leverages various national agencies and EU programmes to provide direct financial support for R&D and innovation.

Technology Agency of the Czech Republic (TA CR): TA CR is a key state organisation responsible for supporting applied research, experimental development, and innovation. It prepares and implements programmes, evaluates project proposals, and administers financial support from the national budget. It focuses on simplifying state support that was previously fragmented.

Czech Science Foundation (GA CR): GA CR is the primary institution for providing targeted aid for basic research projects from public funds. It supports scientific projects across all fields of basic research, including international collaborations and programmes for early career researchers.

Ministry of Industry and Trade (MIT): MIT provides support through various operational programmes, often co-financed by EU funds, specifically targeting small and medium-sized enterprises (SMEs) for innovation, energy savings, and other strategic areas.

CzechInvest: As a business and investment development agency, CzechInvest supports startups and innovative entrepreneurs by providing guidance, connections to partners and investors, and assistance with market entry. They also manage specific projects like technology incubation and participation in international programmes such as ESA BIC.

European Union Programmes: Czech companies can access a wide range of EU funding initiatives, including Horizon Europe (e.g., EIC Accelerator for breakthrough innovations), Cascade Funding for digital innovations, and Eurostars for international SME R&D cooperation.

Venture Capital Landscape

Czechia’s venture capital (VC) landscape is vibrant and growing, contributing significantly to its innovation ecosystem.

Growth: Czechia’s innovation landscape is supported by increasing access to funding, with the country ranking fourth in the region for total capital raised in 2023.

Key Players: Prominent VC firms like Credo Ventures, DEPO Ventures, J&T Ventures, and Miton are active investors in early-stage and growth-stage companies across various sectors, including IT, mobile, health, AI, and fintech. Accelerators such as JIC STARCUBE also play a role in fostering startups.

Impact: The increasing availability of venture capital, alongside government incentives, provides crucial funding for high-growth potential startups, enabling them to scale and contribute to Czechia’s reputation as a dynamic hub for innovation in Central Europe.

Conclusion

Czechia’s comprehensive approach to innovation funding, combining generous R&D tax incentives with direct grants from national agencies and leveraging EU programmes, creates a robust framework for supporting research, development, and entrepreneurship. The focus on reducing financial risk, fostering strategic investments, and nurturing a growing startup ecosystem positions Czechia as a competitive and attractive destination for innovative businesses. This integrated strategy is key to the country’s continued technological advancement and economic prosperity.