Alongside the changes relating to tax relief under the State Aid for Research and Development Projects Act (covered in detail in a separate post), significant amendments to the Investment Promotion Act (IPA) are also coming into effect, focused on tax incentives for investment. The early months of 2025 will be marked by legal uncertainty, as additional implementing regulations are expected to govern the application of the new provisions. However, it is already clear that the amendments introduce concrete changes to the conditions for obtaining tax relief, particularly for businesses operating across multiple activity areas. This overview will help you understand the key changes that may affect your investment planning.

1 Increased Support for New Job Creation

To further incentivise employment, the amendments increase the cash grant amounts available for the creation of new jobs. At the same time, the unemployment criteria that employers must meet to qualify for these incentives have been lowered. This change creates more favourable conditions for investment in regions with higher unemployment rates, making it easier to open new positions.

2 Increased Support for Capital Investment

Businesses undertaking significant capital investments can now count on more substantial financial support. Depending on the scale of investment and the number of new jobs created, grants may range from EUR 1,000,000 for smaller projects up to EUR 2,000,000 for large capital investments. These measures are aimed at stimulating significant capital investment and large-scale job creation. The grant amount is determined by the unemployment rate in the relevant county.

3 New Rules for Applying Tax Relief

Previously, the IPA allowed the reduced corporate income tax rate to be applied to a company's total profit, including profit from activities not covered by the investment or even profit generated from passive income sources (e.g. interest). The amendments introduce a new rule requiring companies to separate revenue generated from eligible investment activities from all other revenue. As a result, tax relief will only be applicable to the portion of profit arising from eligible activities, with stricter accounting standards applying accordingly.

Following the entry into force of the amendments, regional investment aid will continue to be firmly focused on stimulating investment in less developed regions. These incentives are aimed at businesses operating in the metal processing, tourism, ICT, wood processing,, turizma, ICT-a, Wood-processing industries and other strategic industries that contribute significantly to economic growth. Current data indicates the following key sectors that have benefited most from these incentives:

• Metal processing industry (14.4% of total applications)
• Tourism (13.5% of total applications)
• ICT sector (12.1% of total applications)

The City of Zagreb accounts for the highest number of completed projects (22.5%), with Zagreb County, Split-Dalmatia County, and Varaždin County among the most active at the regional level.

To qualify for tax relief, businesses must meet the minimum investment requirements. The following minimum investment thresholds apply to regional aid under the amended IPA:

• Investment of EUR 50,000 and creation of 3 new jobs for micro enterprises (50% reduction in the corporate income tax rate)
• Investment of EUR 50.000 and creation of 10 new jobs for the IT sector (50% reduction in the corporate income tax rate)
• Investment of EUR 150,00 and creation of 5 new jobs for a 50% tax rate reduction (with the possibility of a full 100% corporate income tax reduction)

It is important to align projects with the new rules requiring separate tracking of revenue from different activity areas. Revenue from ineligible activities will need to be excluded from tax relief calculations, and additional attention will need to be paid to the separate tracking of shared costs and passive income.

The amendments to the Investment Promotion Act introduce significant adjustments aimed at ensuring greater transparency and a stronger impact of investment on growth and development. The increased cash grants, introduction of new accounting and tracking standards, and stricter tax relief criteria represent an opportunity for businesses to leverage available state aid through strategic investment. Until the new implementing regulations come into force in 2025, careful investment planning and expert consultation are strongly recommended in order to make the most of the full range of benefits available under the IPA.