3000 Incentive Programs Available For Investors example essay topic

During the last decade German economy is stagnating, or even decreasing. One of possible reasons is the lack of entrepreneurship in German companies. Old companies usually are too big and unwilling to change something inside, thus German government decided to support establishment of new small and medium enterprises. New agenda 2010 introduces the strategy for Germany to recover the economy and become even more competitive.

In the article "Starting your business with subsidies" in Invest in Germany magazine is written that there are more than 3000 incentive programs available for investors. The program is financed by the federal government, the states and international organizations, including the European Union. The aid is available for business start-ups in a way of funding and consulting. Additional support is proposed to other investment, research and development, and training, as well as improve and protect the environment.

The aid comes in the form of investment premiums, additional capital allowances, regional support and special credit programs. Subsidies are the main form of support. Bigger subsidies are applied for new - Eastern states and for other incentive areas. Incentive areas mean that economy there should be encouraged, industry is not as developed and investors need additional incentives to choose these areas but not more developed ones.

Distribution of these subsidies is generally subject to approval by the European Union. One of the programs to finance investment is Joint Agreement program. Cash grants approved and paid to investors under this program during 1999-2001 were 8.6 billion euros, and the budget for 2002-2006 is 8.1 billion Euros (web). All investors - local and foreign - are treated equally under the program, but financed sum depends on the region.

The government has placed particular emphasis on investment promotion in the new states of the former East Germany and has offered a large number of incentives to promote economy in those areas. Business Guide in Invest in Germany (web) lists those conditions as the most significant for cash grants under the Joint Agreement program: - Funds from the Joint Agreement are granted at the authorities' discretion - Applications must be filed before the start of the investment - Investors must make a considerable contribution to the investment project from their own capital as proof of their commitment - Cash grants are subject to taxation - An investment period may take up to 36 months from the start of a project. Within this time-frame, all project-related investments must be completed and the permanent new jobs indicated in the application must have been created - There is a binding period of 60 months immediately following the investment period. Within this period, the investor must secure existing as well as newly-created jobs. Equipment bought and subsidized with Joint Agreement funds must remain within the permanent establishment for the duration of the binding period (replacements are allowed under certain circumstances) - Cash grants are only available for investments undertaken in regions designated as eligible for assistance (see map in appendix) - An investment constitutes a special commitment to a permanent establishment. A special commitment is generally deemed to exist based on the amount of the total investment and the number of permanent jobs thereby created.

Investments involving new permanent establishments automatically fulfill the criteria for special commitments- The proportion of the total investment eligible for funding under the Joint Agreement depends on the number of jobs the project will create or secure - All assets eligible for funding must be recorded as fixed or intangible assets in the investor's balance sheet - Only new assets are funded under the Joint Agreement; used assets may not be included for funding. If used assets are replaced with new ones in the course of the planned investment, revenue resulting from the sale has to be deducted from the investment sum applied for to acquire new assets. Investments in eastern Germany receive grants of 50% available to SME's (small and mid-size companies - defined by the EU as having fewer than 250 employees, a maximum turnover of 40 million Euro, or a balance sheet total of no more than 27 million Euro); larger firms receive grants of 35% of investment costs. The EU is reviewing this program and while there may be cuts for some regions, by and large the program and grant volumes are expected to remain relatively constant after 2005 (web). Although there are no requirements for local sourcing, export percentage, or local national ownership, most cases include performance requirements such as maintaining a certain level of employment. Invest in Germany Business Guide (web) mentions two models on which the subsidy amount can be based: the equipment-based model and the labor-based model.

"If an investment project involves a large quantity of fixed tangible assets or intangible assets, it is generally better to use the equipment-based model. Labor-intensive investment projects involving a large number of employees may be better suited to the labor-based model. However, not all states allow labor-based models, thus investors should establish whether labor-based models exist for the region in which they wish to make an investment."For equipment-based projects, the maximum subsidy is 50% of investment costs which are recorded as fixed tangible assets - e.g. plant, equipment - or intangible assets acquired from third parties. In states which allow labor based subsidy models within the eligible areas, subsidy levels are based on the employees's al aries in the first two years of their employment within the first three years from the start of the investment. The maximum subsidy is also 50% of this amount. The labor-based model only applies to new jobs created through an investment."A second type of aid is low-interest loans or interest-subsidized loans for start-ups.

The Kreditanstalt fuel Wiederaufbau accepts applications from private credit institutes for loans of 500,000 to EUR 5 million with maturities of 10 to 20 years, for example. Under a similar form of aid, called Capital Resources Aid, loans are made at maturities of up to ten years for as much as EUR 1 million" writes Invest in Germany (web). Investors planning to invest in eastern German states and eastern Berlin apply for loans at below-market interest rates from the government-owned Bank for Reconstruction (KfW) and its subsidiary the Mittelstandsbank; the European Recovery Program (ERP); EU programs; and loan guarantee and credit programs (web). There are also Credit programs applied in all Germany. Those include loans at below-market interest rates from the Equalization Funds Bank, Reconstruction Funds Bank, the European Recovery Program, European Union programs, loan guarantee programs, and other programs for small technology firms and environmental demonstration projects (web). Loans below market interest rates are provided by German Equalisation Funds Bank (Deutsche Ausgleichsbank) and the Reconstruction Funds Bank (Kreditanstalt f"ur Wiederaufbau).

There also are European Recovery Programme (ERP) funds and EU grant and loan-guarantee programs applicable (web). "Especially for the New Federal States, there are Consolidation Funds administered by the states. These funds are considered emergency funds for small and medium-sized firms with liquidity difficulties. As there are more than 100 federal incentive and support programmes, as well as dozens of others at state and local levels", they cannot be all listed in the paper (web). Detailed information on the programs is provided by the Foreign Investor Information Centre in Berlin.

If it is not enough capital just from special loans and banks are unwilling to secure a loan and the project would not be made, government proposes some grants. "In some cases, up to 80 percent of the loan amount is guaranteed" (web). The third incentive is tax discounts. In all Germany investors can apply for special depreciation allowance, capital reserve allowance, investors to new German states can apply for investment allowances, special depreciation allowance (web). Companies are also encouraged to participate in government subsidized research and development programs.

Country watch states further conditions in order to apply to the program (web print. asp? vs. COUNTRY = 65&SECTION = COVER&TOPIC = IN FIC&TYPE = TEXT): -- the company is legally established in Germany; -- the activity is a long-term operation with significant R&D capacities; -- the project engages in sponsored research entirely performed in Germany; -- the firm can exploit intellectual property rights independent from a parent company; -- the Federal Ministry of Education, Science, Research and Technology (BMBF) may exploit intellectual property rights from funded research; -- any licensing of technology outside of the EU is done with the written approval of the BMBF; -- preference is given to locating manufacturing facilities in Germany for any production resulting from the research (this criterion can be modified on a case-by-case basis.) All German companies are applicable for financing consulting fees and training costs, eastern investors can also apply for export, marketing and fair participation assistance (web). Foreign investors can obtain more information on investment conditions and incentives from: Federal Commissioner for Foreign Investment in GermanyMarkgrafenstr. 3410117 Berlin, Germany Telephone: [49] [30] 206-570 Telefax: [49] [30] 206-571-11 Email: Internet web specifically for the new states in eastern Germany is available from the respective investment promotion agency IIC (Industrial Investment Council): Industrial Investment Council LLCCharlottenstrasse 5710117 Berlin Telephone: [49] [30] 2094-5660 Telefax: [49] [30] 2094-5666 Email: : web information about EU funding, grants and loans from major European institutions as the European Commission, the EBRD, the EIF, and the Council of Europe is available at web are separate programs with specific goals. Environmental Protection and Energy Saving Programme that supports all investments that protect the earth, water and air, and projects related to energy conservation and the use of renewable energies. The program can be combined with funds from other programs and it proposes loan of up to 75% of the investment at favorable interest rates.

For the program can apply private commercial enterprises (manufacturing sector, handicrafts, trade, other service industries), commercial enterprises that take on disposal and treatment tasks for the public sector (Public-Private Partnership), and self-employed professionals such as engineers, architects (excl. health professionals). Waste management: projects that prevent or reduce waste from production and also recycling and disposal plants. The projects financed should be related to wastewater treatment: production processes that save water, reduce or prevent wastewater, wastewater treatment facilities, air pollution control: measures to prevent or reduce emissions and also noise, foul odors and vibrations, energy conservation and the rational use of energy as well as the use of renewable energies, treatment of contamination or cost of an eco audit (web). For more information investors should contact KfW Banken gruppe (KfW banking group) at KfW's Advisory Centres. Second specialized support for investors is BMU Programme for the Financing of Demonstration Projects. Commercial enterprises, other natural persons and legal entities under private law, municipalities, municipal associations, districts, special-purpose associations, other bodies and institutions incorporated under public law, and municipally-owned enterprises are eligible to apply to the program.

Business should be according to all environmental regulations and have production in the following areas: sewage treatment / hydraulic engineering, solid waste prevention, recycling and disposal, removal of old waste deposits, soil protection, air pollution control (including measures to reduce foul odours), reduction of noise and vibrations, energy conservation, the rational use of energy and the use of renewable energies, and environmentally friendly energy supply and distribution. The program might finance up to 70% of the eligible costs with KfW loan with an interest grant from the BMU, and up to 30% by investment grant. (web) Renewable Energies Programme is also one of the options if investment is related to use of biomass, deep geothermic's, or hydropower in the framework of project support. "Financed systems must be operated for the designated purpose for at least seven years. During this time a financed system may not be closed down and may only be sold if evidence is furnished proving that the system will remain in operation". For the program can apply private individuals who use the produced energy solely to meet their own needs, self-employed professionals, and small and medium-sized private commercial enterprises.

"Municipalities, legally dependent municipally-owned enterprises, special-purpose associations, other institutions under public law and registered associations have to publicly present their project and mention the support they received". The project can be financed up to 100% below market interest rates loan. (web) Investors can apply for huge variety of support programs. Most of them are based on promotion of remote and not so attractive areas with the hope to make them more attractive in the future. Many programs try to increase incentives for environment-friendly projects, or even projects that are directly related to producing products related to environment.

There is no difference between foreign and local investor, as long as enterprise is registered in Germany. Germany tries to strengthen its position as producing qualitative high technology products in environment-friendly factories.