State aid for investment – Manufacturing industry – Economic analysis

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1. Overview

Romania has recently launched a state aid scheme with the aim of encouraging investment in the manufacturing industry, with a view, on the one hand, to overcoming the current severe labor shortages and the trade flows to and from Ukraine caused by the armed conflict taking place there, and, on the other hand, to facilitate access to new international markets.

Specifically, government decision no. 959/2022 on the establishment of a State aid scheme granting subsidies for investments in the manufacturing industry (the “Scheme”) proposes measures to stimulate the Romanian economy in terms of chain development of value, emphasizing two lines of action:

  1. support economic operators in Romania to develop the production potential of materials, products, equipment and/or services demanded on the market, guaranteeing the sources of financing and the necessary production capacities;

  2. attract new investments and develop production capacities to increase the resilience of the Romanian manufacturing industry and ensure the competitiveness of Romanian industrial products in international markets.

The scheme is issued in accordance with Regulation (EC) no. 651/2014 declaring certain categories of aid compatible with the internal market pursuant to Articles 107 and 108 of the Treaty on the Functioning of the European Union and compliant with the maximum aid intensities laid down therein and with the aid map for regional purpose approved by the European Union Commission for Romania for the period 2022-2027.

The scheme is therefore not subject to the approval of the European Commission, but Romania will submit it to the Commission for information.

2. Content

The measures consist of regional development aid in the form of subsidies for greenfield investments or for investments in favor of a new economic activity, which may relate to:

  1. creation of a new production unit;

  2. increase the capacity of an existing production unit;

  3. diversify the production unit towards products that were not previously manufactured there;

  4. a fundamental change in the overall production process of an existing unit; Where

  5. the acquisition of assets directly linked to a production unit which is closed or which would have been closed if it had not been purchased, under certain conditions.

The Scheme’s maximum budget is €300 million, with the maximum average annual budget being €150 million.

Amounts so granted under the scheme may be used to finance the costs of investments in (i) tangible assets (e.g. land, buildings, machinery or equipment) and intangible assets (e.g. patents, licenses, knowledge -do or other intellectual property rights), as well as (ii) a two-year estimate of the wage costs (including taxes and contributions) to be incurred for the jobs generated as a result of the investment, or (iii ) a combination of these.

The assets (i) must be new, except in the case of small and medium enterprises (“SME”) and in the event of the purchase of an existing unit, (ii) must be exclusively operated by the beneficiary in order to achieve the investment objectives for which the financing has been requested, (iii) must be kept in the heritage of the beneficiary and remain associated with the investment, in the same region, for a period of at least 5 years from its completion (or 3 years in the case of investments made by SMEs) and ( iv) must be purchased at market conditions.

In addition, costs related to the rental of tangible fixed assets may also be taken into account, provided that (i) in respect of land and buildings, the rental continues for a period of at least 5 years in the case of large companies, and respectively 3 years in the case of SMEs, calculated from the completion of the investment project, and respectively (ii) with regard to the rental of facilities or machinery, the contract is a lease and contains an obligation for the beneficiary to purchase the asset on the expiration date.

As regards intangible assets, for large companies, costs are only eligible up to a threshold of 50% of the total eligible costs of the greenfield investment.

3. Eligible Beneficiaries

Eligible beneficiaries can be SMEs and large companies, existing or newly created, provided that they, or possibly their projects, meet a set of criteria at the date of application, including:

  1. be duly registered in accordance with Romanian laws;

  2. not have any outstanding debts to the state budget;

  3. not be considered as companies in difficulty;

  4. not be in insolvency, bankruptcy, judicial reorganization, etc. ;

  5. not owe amounts under a State aid recovery decision;

  6. at least 10% of the value of the project to represent green investments.

In addition, existing companies must:

  1. have a return on turnover greater than zero during one of the last 3 closed financial years;

  2. have positive equity during the last completed financial year;

  3. have a minimum subscribed share capital of RON 100,000 (approximately EUR 20,000) paid up in accordance with the law;

  4. make investments with a minimum value of 3 million euros.

The estimated number of companies to benefit from regional State aid under the scheme is 30 beneficiaries.

4. Regional intensity

State aid is granted for greenfield investments made by SMEs and large companies in all regions of Romania, with the exception of Bucharest and some localities in Ilfov county.

Nevertheless, for investments in favor of a new economic activity, large companies can benefit from aid also with regard to certain localities of Ilfov county.

The intensity of regional aid varies between:

  1. 30% – 60% for large companies;

  2. 40% – 70% for medium enterprises; and

  3. 50% – 80% for small businesses.

However, the maximum value of the aid to be obtained is linked to large investment projects and amounts to up to 60 million euros.

The grants may be cumulated with any other State aid covering different identifiable eligible costs, or even the same eligible costs, in the latter case, provided that the cumulative amount of the aid does not exceed the maximum regional intensities provided for by the scheme.

On the other hand, the beneficiary must make a financial contribution of at least 25% of the eligible costs, either from its own resources or from external financing, in a form which is not the subject of any other public aid.

5. Status and implementation

Financing agreements under the Scheme may be issued by the Ministry of the Economy until December 31, 2023. State aid will be paid during the 2022-2027 period on the basis of the financing agreements thus issued. and in compliance with the annual budget allocated to the Scheme.

In accordance with the provisions of the Scheme, the registration period for applications will be communicated by the Ministry of the Economy on its website at least 30 working days before the opening date of the sessions.

Currently, a draft Applicant’s Guide is under public discussion and awaiting adoption.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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