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					Annex 3

Annex on Inward Investment
The information provided within the table below focuses on seven key areas in terms of Inward Investment:

      

Incentives Grants Loans Average rates of pay Employer costs Employee benefits Priority sectors / industries

Although the information provides details on the current situation, the incentives, grants etc. will change after Accession. The specific new incentives within the 10 countries on Accession are not yet in place and the information below is an accurate summary of the current situation. Incentives Bulgaria As of 1 January 2003 the corporate tax rate in Bulgaria is 23.5%. In 2003 the government introduced a list of 117 municipalities where the investors are exempt from corporate tax. The right for 0% corporate tax is for companies who organise production lines on the territory of these municipalities; 80% the staff employed should be local residents. Employers can deduct from the taxable income the double value of the costs for salaries and social insurance if they hire long-term unemployed, people over the age of 50 and people with disabilities. The government has also established an Investment fund providing seed capital to stimulate new investments. Incentives for investors in the Czech Republic include: Corporate tax relief for up to 10 years  Lower rates of corporation tax for investment companies  Financial support up to USD 5,000 per every new job  Financial support covering up to 35 % of retraining costs  Provision of low cost building land and/or infrastructure support  import new production machinery, materials and components to the Czech Republic duty free Estonia operates a system of low, flat rate taxes designed to encourage enterprise and maximise profits. All corporate investments are exempt of corporate income tax as from Jan 1 2000. The country lies within the European Union tariff-free customs area, but with far lower start-up and running costs than in existing EU member countries There is no restriction on foreign investment and investors from abroad have equal rights and obligations to local entrepreneurs. Regional investments can be subject to tax concessions.

Czech Rep.

Estonia

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Hungary

Investment incentives are available to all enterprises registered in Hungary, domestic and foreign alike, particularly through the Target Allocation for Regional Development fund which provides assistance to companies that are creating jobs in areas where the unemployment level exceeds 15%.1 In addition to the low 18% corporate tax rate, significant tax advantages are available to investors, particularly in less-developed regions. Free Trade Zones operate in various parts of the country (now subject to EU restrictions) and tax holidays and allowances are available to companies based on investment volume. The law in Latvia provides special incentives for foreign investors, including tax breaks and increased depreciation rates. The country‟s Free Ports and Special Economic Zones (Free Port of Riga, Ventspils Free Port, Liepaja SEZ and Rezekne SEZ) provide significant tax incentives, including the following: exemption from customs tax, excise tax and value added tax  discount on property tax and land tax  discount on the calculated enterprise income tax and a reduction of the corporate tax to 5% Other product specific tax beaks are available in the high-tech sector. Foreign investors are accorded the same rights as Latvian businesses, may freely repatriate capital and profits and have full rights to own land in Latvia. Tax incentives have been available for up to 10 years to companies registered in Lithuania and operating in specific areas. Further incentives may be available to foreign enterprises depending on the size of their investment. Corporation tax is at a reduced rate of 10% for companies producing agricultural products and those rendering services to agriculture.2 Pre-accession, Poland has 14 SEZs which enjoy special tax relief and are furnished with the infrastructure necessary to start a business. Investors can benefit from these in the following ways: regional aid (public subsidy) of between 50 and 65% of the investment value provided through an exemption from Corporate Income Tax (CIT) or Personal Income Tax (PIT)  up to 50% of the value of two-year's labour costs for new employees taken on for the purpose of the investment  companies investing in the SEZs are often granted exemptions from real estate tax by local authorities and can count on free assistance with all formalities related to the intended investment.

Latvia

Lithuania

Poland

1 2

Country Profile Fact Sheet - Hungary, Euro Info Centre Network, July 2000 Country Profile Fact Sheet - Lithuania, Euro Info Centre Network, Feb 2001

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Romania

Romania has six free trade zones; Constanta Sud-Agigea (on the Black Sea) Sulina (on the mouth of the Danube) Braila, Galati and Giurgiu (on the Danube), and Curtici-Arad (on the border with Hungary). They operate under Law no. 84/1992 which allows exemption from customs duties and VAT, unrestricted import and reexport of goods and the possibility to conduct financial transactions in convertible currencies.3 Other investment incentives for SMEs include:  Custom duties and VAT exemption for designated equipment, installation and know-how to be used for developing the company's activity  Custom duties and VAT exemption for certain raw materials  Tax exemption for reinvested profit  A 20% profit tax reduction if the number of employees is 10% higher than in the previous year In addition, there are various incentives provided by local authorities but these vary from area to area and from sector to sector The Slovakian Government provides a series of attractive incentives for both foreign and domestic investors. These include an attractive tax credit system, together with cash grants for newly created jobs and for training. The tax credit system provides a benefit of up to 50% of the qualifying expenditure on investment outside the Bratislava region. In the Bratislava region the benefit can amount to up to 20%. These tax credits apply for a period of up to 10 years, subject to these regional state aid limits, and have been fully accepted by the European Union. Tax holidays - 100 % reduction of corporate income tax for 5 years with a possibility of additional reduction for another 5 years. Foreign investors are guaranteed equal rights to Slovak entrepreneurs In Slovenia municipalities may offer different forms of incentives, which are negotiated on a case-by-case basis. These incentives may include easy access to industrial sites, utility connections and holidays from local taxes. Foreign investors operating within the free economic zones qualify for a 10% corporate tax rate and may also be entitled to refunds in their social security contributions4

Slovakia

Slovenia

3 4

Doing Business in Romania, PriceWaterhouseCoopers, Sept 2001 Country Profile Fact Sheet - Slovenia, Euro Info Centre Network, March 2001

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Grants Bulgaria In 2003 the parliament adopted a new law for the promotion of employment which provides for numerous measures and grants for the employers. These include government grants for employees social insurance, grants for salaries and social insurance for hiring various groups of unemployed, grants for training and re-training of staff (up to 235 EUR per employee). Direct grants are available for agricultural producers. These are provided by the government fund “Agriculture” which has planned to release BGN 40 M (approx. 20.5M EUR) direct subsidies to the local farmers in 2003. For the first time the fund will allot BGN 6M subsidies for cultivation of deserted land. In addition BGN 10M will be released for an alternative agriculture programme in the Rhodope region. The Czech government‟s incentives package contains two employment-related benefits in the manufacturing sector:  Job-creation grants ranging from CZK 80,000 to CZK 200,000 per employee.  Re-training grants covering up to 35 percent of training costs per employee. For the Strategic Services Technology Centers sector the following incentives are offered:  Subsidy to business activity: covering up to 50 percent of eligible business expenses.  Subsidy for training and re-training: subsidy covering up to 35 percent of special training costs per employee and up to 60 percent of general training costs per employee. There are no special grants for foreign investors in Estonia. If the company establishes a company in Estonia, it can apply for Regional Development grants. Non-repayable grants may be available through the Target Allocation Fund which provides assistance for trade, investment and economic restructuring.5 The regional Development Fund of the Ministry of Economics of Latvia compensates loan interest payments for companies establishing new employment-generating operations in regions with special support status. Employers intending to hire new employees and provide training for them can receive training grants from the State Employment Service of 70% of direct training costs paid to a third party training service provider (determined through a public tender by the State Employment Service). Investment grants - up to 25% of the investment outlays Employment grants - €4,000 / 1 employee Training grants - €1,150 / 1 employee Infrastructure development grants - up to 50% of investment outlays

Czech Rep.

Estonia

Hungary

Latvia

Poland

5

Country Profile Fact Sheet - Hungary, Euro Info Centre Network, July 2000

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Slovakia

Employment Grant – The Ministry for the Economy offer up to 160,000 SKK (approx 4,000 €uro) per job depending on regional location. Training Grant - The Ministry for the Economy offer up to 10,000 SKK (approx 240 €uro) per employee depending on investment & location.6 Funds exist for potential investors in certain sectors under the Inward Investment Cost-Sharing Grant Scheme. This is designed to raise attractiveness of Slovenia as a location for foreign direct investment by lowering entry (start-up) costs to the investors whose investment will have a favourable impact on new employment, knowledge and technology transfer, facilitation of a balanced regional development, and will give impetus to links between foreign investors and Slovenian companies.

Slovenia

Loans Bulgaria The banking system has recovered from the crisis in the 90s and is now developing fast. Foreign companies with presence in Bulgaria are eligible for loans from Bulgarian banks. Capital market is not developed yet but machine leasing becomes more and more popular. Job Creation - CZK 80,000 per person can be provided in the form of an interest free loan for each Czech citizen employed within SEZs (other restrictions, including size and length of investment apply)7 Branches or part companies of foreign companies based in Estonia are eligible for loans from Estonian banks; however a foreign company itself cannot get a bank loan. Repayable loans may be available through the Target Allocation Fund which provides assistance for trade, investment and economic restructuring. Branches or part companies of foreign companies based in Poland are eligible for loans from Polish banks; a foreign company itself cannot get a bank loan. The State may take over the guarantee on a bank loan for companies registered in the Slovak Republic.

Czech Rep.

Estonia

Hungary

Poland

Slovakia

6 7

SARIO (Slovakia Investment and Trade Development Agency) website, Apr 2003 Country Profile Fact Sheet - Czech Republic, Euro Info Centre Network, Oct 2000

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Average Rates of Pay Bulgaria The average monthly salary in the first quarter of 2002 was approx 131 EUR. According to the National Statistical Institute the highest salaries were paid in the transport and telecommunications sectors (151 EUR average) and the lowest – in the agriculture, forestry and fishery (107 EUR average). The national minimum monthly wage is set at BGN 110 (approx €56). Тhе аverage gross monthly wage in Q1-Q3 2002 was 15.172 CZK (USD 455) The minimum wage for 2003 is 6.200 CZK (USD 186) per month A minimum wage of around €315 per month, rising to €340 after 6 months consecutive service, exists for 3 categories of worker; hospital workers, school and nursery assistants, and shop assistants8 The average monthly gross salary in Estonia was 6512 EEK (416 EUR) as of the fourth quarter 2002. At the end of 2001, the average gross monthly wage was HUF96,600 (approx €UR395) although in the financial sector it was HUF210,000 (a rise of between 8-10% was expected in 2002). In January 2002 the national minimum wage was raised to HUF50,000. The average gross monthly wage of employees was LVL173 (€UR276 of which persons employed in the public sector received LVL 187 and in the private sector LVL 163. However, this rose to LVL 183 and LVL 205 (€328) respectively in enterprises and business companies. In March 2000 the national minimum wage was set at (approx) € 128. The average monthly wage in 2000 was USD267 (approx €285).9 Average monthly wage in February 2003 according was PLN2,235 (approx 550 Euro).10 The minimum is wage is PLN800 per month (approx 190 Euro). The average gross monthly wage as at November 2002 is US$164.13 (approx €UR151). The average net monthly salary is US$116.99 *approx €UR151 108) Average monthly salary in Slovakia is US$247 (approx €UR 265). (wages increase with the degree of work difficulty on a national scale of 1-6). The average monthly wage in 2000 was approx 270 €UR. The national minimum wage is defined twice yearly by the Government.

Czech Rep.

Estonia

Hungary

Latvia

Lithuania Poland

Romania

Slovakia

Slovenia

8 9

Country Profile Fact Sheet - Czech Republic, Euro Info Centre Network, Oct 2000 Country Profile Fact Sheet - Lithuania, Euro Info Centre Network, Feb 2001 10 Polish Statistics Office, Feb 2003.
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Employer Costs Bulgaria Social Security is obligatory for all Bulgarian employees, paid directly from the company‟s current account, and foreign workers must be insured for temporary and permanent disability at the employer‟s expense.11 Social and health securities paid by the employer amount to 32.2% of employee‟s salary. Corporate tax is 23.5%. Tax on dividends is 15%. Corporation tax is currently around 31%. A reduced rate of 25% applies to investment companies, investment funds and pension funds. A tax of 15% is imposed on dividends paid by Czech corporations. Income from interest is deemed ordinary income and as such is taxed at 31%. The employer social and health insurance contributions are 35%. There are no local taxes to be paid by companies. Social and health insurance of 33% is applied to all companies and there is a 26% tax on dividends. Corporate taxation is zero. Employers pay social security contributions of 33% of gross employment income, 11% health tax on income not subject to social security tax, 3% unemployment and 1.5% training fund contributions.12 Corporate taxation is levied at 18%. As of January 2002 social insurance contributions are 33% of the payroll with employers and employees both paying 50%. Corporate income tax rate 22% Withholding tax for non-residents 10% for dividends, 10% interest to related party, and 10% for management (consultation) fees. Employers‟ social contributions total 31%. Corporate Income Tax Rate is15%, Capital Gains Tax 15%, Branch Tax Rate 15%. Employers‟ social security contribution is 41% of the employee‟s salary.13 Corporate tax in Poland is 27% of taxable profits.

Czech Rep.

Estonia

Hungary

Latvia

Lithuania

Poland

11 12

Country Profile Fact Sheet - Bulgaria, Euro Info Centre Network, March 2000 Country Profile Fact Sheet - Hungary, Euro Info Centre Network, July 2000 13 Country Profile Fact Sheet - Poland, Euro Info Centre Network, Feb 2001
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Romania

Total employer social security contributions equal 30% of employee salaries. The standard corporation tax is 38%, although the rate is 25% for companies obtaining 80% or more of their annual income from agriculture. (Night-clubs and gambling operators are subject to higher rates). A 10% with-holding tax applies to dividends.14 The total social security contribution employers must make is 38%, this includes health, pension and unemployment insurance.15 The rate for corporation tax is 40% of profit; while revenue, dividend and capital income tax is levied at 25%. Employers must pay 15.9% to the cost of labour for social and health benefits on top of the 22.1% employees contribute. Employers are also required to cover the transport of their workers to and from work, meals during working hours, and holiday and annual bonuses.16 Corporation tax is 25% and dividends are subject to withholding tax of 15% if transferred abroad and 25% if paid by a local company.

Slovakia

Slovenia

Employee Benefits Bulgaria The highest bracket for the personal income tax has been dropped to 29%, the aggregate rate for the annual taxable income is 23.5%. Employees are entitled to 20 days paid annual leave after 8 months service, maternity leave ranges from 120-180 days, and employees also entitled to leave for specific occasions, e.g. exams There are four tax brackets, ranging progressively from 15-32%. Retirement age is in the process of change which is to be finished in 2006 when women will retire in 57-61 depending on the number of children they had and men will retire in 62. The standard working time is 40 hours a week (38.75 and 37.5 hours respectively for employees on a two or three-shift pattern). Part-time schedules may be agreed. The basic holiday allowance is 4 weeks per year. Mothers are granted maternity leave of 28 weeks (37 weeks if the mother is single or gives birth to more than one child). If requested, the employer is obliged to grant parental leave to the mother after the completion of maternity leave, or to the father, from the time of the birth of the child until 3 years. Czech law allows temporary employment. Numerous temping agencies provide temporary employment services across country.

Czech Rep.

Estonia
14 15

Good levels of sick pay

Doing Business in Romania, PriceWaterhouseCoopers, Sept 2001 Foreign National Working In Slovakia, PriceWaterhouseCoopers, Sept 2002 16 Country Profile Fact Sheet - Slovenia, Euro Info Centre Network, March 2001
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Annual leave is a minimum of 28 days with those working in potentially health damaging occupations and the disabled receiving further entitlement. (Once a work permit has been obtained, foreign citizens have the same rights and obligations as Estonians) Hungary The Labour Code restricts the working day to 12 hours including overtime and guarantees maternity leave, 20 days of annual leave, and severance pay after 3 years employment. The progressive income tax starts at a rate of 20%. Those employed by foreign companies may be entitled to tax concessions. In autumn 2002, the government abolished personal income tax on earnings up to the minimum wage, which meant a further increase in the net value of the minimum wage. 17 Under the Labour Code annual leave is a minimum of 4 calendar weeks, excluding state holidays. Annual Leave is a minimum of 28 days, excluding public holidays. Maternity and childcare leave are available until a child is 3 years old18 Under the Labour Code, Sunday cannot be counted as a working day. Maternity leave is 26 weeks per birth, although 39 weeks in the case of a multiple birth. Women are restricted under law from working in certain „health hazardous‟ occupations. The progressive income tax system has a lowest rate of 19%. Employee social security contributions equal 4% of employee salaries. Employees employed by a foreign company they are taxed only on the income actually received in Romania. Maternity leave is generous and in the event of a child under the age of five being ill, the mother is entitled to reasonable paid leave to look after the child. Shift workers and those employed in certain areas of the chemical industry are entitled to a reduced working week.19 Holiday entitlement various with occupation however the minimum allocation is 4 weeks; maternity (and paternity) leave is generous. Income tax is levied progressively at 10-35%, although there is also a surcharge on those in the highest earning bracket, and the amount of taxable income reduces with marriage and starting a family. VAT on goods and services is a low 6%. Income tax rates are levied progressively at 17-50%.

Latvia

Lithuania

Poland

Romania

Slovakia

Slovenia

Priority Sectors / Industries Bulgaria
17 18

Main FDI sectors - finance, trade, petrochemical industry, minerals,

European industrial relations observatory on-line, Apr 2003 Country Profile Fact Sheet - Lithuania, Euro Info Centre Network, Feb 2001 19 Ministry of Labour, Social Affairs and Family of the Slovak Republic website, Apr 2003
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telecommunications, machinery and metals, food and drinks, paper and wood, tourism, textiles, IT and electronics Czech Rep. Main FDI manufacturing sectors - automotive, electronics, life sciences, plastics, precision engineering Main FDI service sectors - customer contact centres, shared services centres, R&D and Design centres, software development centres, expert solution centres for information and telecommunication technologies and high-tech repair centres Main FDI sectors- financial sector, transport, storage, communications and manufacturing, with opportunities in wood processing, electronics, food processing industry, chemicals, IT, and bio-technology Main FDI sectors - industry, telecommunications, energy, banking and commerce. Greenfield investment dominates and the insurance sector is growing as at very fast rate. Main FDI sectors - trade, manufacturing, financial intermediation ICT with opportunities in high-tech industries, engineering, electronics, the chemical and pharmaceutical industry, and food and food processing. Main FDI sectors - manufacturing, financial intermediation, trade, communication services Main FDI sectors - manufacturing, financial services Main FDI sectors - industry (oil extraction, machinery, equipment), Professional services, Wholesale, Transportation, Retail, Constructions, Agriculture, Tourism Main FDI sectors - Industrial production, financial industry, transport, warehousing and communications, wholesale and retail Main FDI sectors - manufacturing industry, financial institutions, electricity production, trade and services

Estonia

Hungary

Latvia

Lithuania

Poland Romania

Slovakia

Slovenia

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