Types of investment incentives

OECD (2003) provided Checklist for Foreign Direct Investment incentives and detailed summary about types of investment incentives. OECD (2003) divided investment incentives from the point of view financing into 3 categories – fiscal, financial and regulatory.

Fiscal investment incentives are cosidered as the most common stimulus used in economies. Mostly in countries, that are not members of OECD, and they have limited funds accessible to financial incentives. If they are used in OECD countries, mostly there are strictly established rules, because changes in taxes require legislative procedure. Fiscal investment incentives are provided in complex packet, representative list of individual fiscal incentives constraining the following incentives according OECD (2003):

1. Decreasing income tax of corporate legal entities: mostly they are used to alleviate the load of corporate taxes and to attract foreign investors. They include especially:

- Decreasing of tax from corporate income legal entities. Whereas general decreasing of taxes from income legal entities relates to enabling and improvement environment for investments. Some jurisdiction pointed these arrangements to incomes from specific sources or to income gained of non-resident of investment itself.

- Tax holiday. Tax holiday can use new founded companies, after them is not required paying the corporate tax rate for particular limited time.

- Special tax-priviledged zones. Creating so called „ring-fenced“ places with low rate of corporate taxation pointed on fiscal incentives in cases when companies owned by foreign capital use advantegous imputs and activity in these zones.

2. Incentives for capital creating

Biding policy to lower taxation of corporate investments is used in many jurisdictions as the way of collective attraction to foreign companies and providing incentives to investments. To these incentives belonged the following:

- Special investment support. Accelerated depreciations belonged to this cathegory for evaluating of belonged to capital costs. They are composed of accelerated depreciations or increased deductions.

- Investment tax credit. These credits are gained as a percentage of valued expenses and their purpose is to compensate paid taxes.

- Invested profits. Some jurisdiction offer decreasing or tax credit against the profit reinvested in host economy.

3.Lowered obstacles in border activity

Companies are attracted into places where the fiscal system is weighted by minimal costs on transborder transfer of funds, goods, servies and work labour. Some of the incentives are offered as following:

- Witholding tax. Some countries offer to business entities, in foreign ownership, lower tax rate of witholding tax on the amount sent off into their home countries.

- Taxation of foreign trade. Lowered import of taxed and customs (in some cases export taxes) are sometimes used as direct foreign incentives, forexample if the export zones are not accessible to home companies.

- Taxation of employees. Lowered tax from incomes or social insurance for immigrants and employees is set from the reasons to make the country more attractive for foreigners.

4. Other tax reduction

Decreasing of tax rates influence the business sector used as attraction of foreign companies. Some jurisdictions use lower selling tax and decreasing VAT as incentives. Other countries offer to foreign owners tax reductions.

In some countries, especially not members of OECD, are used tax incentives and the possibility of selection and paying the lump-sum in tax area with the aim to enhance the economic stability in the home economy. OECD (2003) divided them:

- Subvention pointed to building of infrastructure. This incentive belongs to the preferred ways how to increase the attractivity of area provided by physical infrastructure (roads, railroad, and harbour) or roads, that will require requirements of investors.

- Subvention for retraining of employees. In case new investments for particular economy, investors face lack of qualified work force and government provide these subventions.

If investors found subsidiary of a company, they would choose the most suitable place. Cost related with relocation arouse and the host economies offer the following incentives:

- Relocating and expatriacy support. Some of the countries offer grants, that help by added capital to businesses and pay concrete relocation costs. In some cases they can contribute to countries in individual cost removing or relocation of family members, alternatively employees.

- Administrative assistance. In some countries there are agencies which aim is helping to foreign investors with the service and arrangements.

- Provisional contribution to salaries. Initial phase can be supported to provisional coverage of payment to a part of wages costs.

OECD (2003) claim that the following incentives are justifiable in case that correct market failure and overcome transactional costs. Governments of particular economies suppose that the presence of foreign companies will contribute to externalities thanks to policy of aimed incentives. Many of them are critised for not solving a market failure. Political circumstances press to host governments to realise contributions of foreign companies and their activities, therefore foreign companies try to support them the following incentives according to OECD (2003):

- Credits to investors. Authorities provide advantages loans or subventions to foreign investors due to specific purpose on investment project. Alternatively they help to investors by credit guarantees.

- Estates. In this cases government offers land or buildings to foreign investors for better price that is lower than market prices. In this case costs of opportunities are ignored.

- Presence on costs. Government support investors by payment of costs to founding of a company. To these costs belong especially marketing and costs

for development and operational costs. Participation on costs can be direct or it is done non-direct to suppliers of goods or services to investors.

The last types of incentives are regulatory investment incentives. These