Investment Allowance Extended for Eastern Germany

BERLIN, November 28 /PRNewswire/ -- Germany's federal council (Bundesrat) agreed today to extend the investment allowance law (in German the "IZ law") until 2013. The investment allowance, or IZ, is one of the main industrial subsidy mechanisms that the German government uses to support investments in eastern Germany. Today's vote guarantees that investors in the new federal states (i.e. eastern Germany) will be able to take advantage of the set promotion rates until 2013.

With the IZ the state promotes businesses from eligible industries that invest in eastern Germany. The businesses receive the allowance for each of their investment projects. The allowance is made effective in a company's tax declaration and is then granted either as a tax saving or as a direct grant.

The so-called "IZ law" targets businesses engaged in manufacturing or services that are closely linked to industry, such as recycling, publishing, or some types of artisans or craftsmen. Furthermore some forms of the hospitality sector are also eligible for subsidies. The IZ subsidizes expenditures for movable assets as well as buildings.

The new IZ calls for a yearly degression in the incentive amounts. For buildings the incentive amounts will drop by 2.5 percentage points annually starting in 2009. This will mean that a 2009 subsidy of 12.5 percent of expenses will be lowered to 2.5 percent by 2013. The promotion rates for machines and plants are being reduced by 5 percentage points annually for small and medium sized enterprises (SME) - from 25 percent in 2009 to 5 percent in 2013. The corresponding rate for large businesses has an annual degression rate of 2.5 percentage points. This will mean that a promotion rate of 12.5 percent in 2009 would drop to 2.5 percent by 2013.

Investment plans that go across years are subsidized at the level for the year that the investment plan became effective. This means that if, for example, a small or medium sized enterprise (SME) invests in machines in 2010, then an allowance of 20 percent of the investment volume is available. However, if the company needs to buy another machine in the following year as a part of the same project, then this machine can also be subsidized at 20 percent.

With the newly approved law, the German legislature is ensuring continuous incentives for investment plans. The IZ law will immediately continue into 2010 to allow for the promotion rates effective at the beginning of an investment project (e.g. 2009) to also apply in future years. Investment plans that begin before the publication of the new law can use the IZ law as a basis for a claim if the investment plan goes beyond the year 2009. The new law gives investors a strong incentive to begin investment projects quickly and therefore garner a long-term profit from the current high incentive levels.

Invest in Germany is the inward investment promotion agency of the Federal Republic of Germany. It provides investors with comprehensive support from site selection to the implementation of investment decisions.

    
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    Eva Henkel
    Invest in Germany
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    Email: henkel@invest-in-germany.com