SCOTTISH LOCAL AUTHORITY SUPPORT FOR REGIONAL INVESTMENT, SME INVESTMENT AND EMPLOYMENT AID (COMMISSION REGULATION EC No 800/2008 – OJEC L 214 OF 9 AUGUST 2008 Reference X159/2008)

LEGAL CONTEXT

In terms of Section 20 of the Local Government in Scotland Act 2003 (http://www.opsi.gov.uk/legislation/scotland/acts2003/asp_20030001_en_1), Scottish Local Authorities may provide investment and employments aid to qualifying enterprises in accordance with Articles 13 to 15 of Commission Regulation (EC) No 800/2008 (the “Regulation”).

OBJECTIVES OF THE SCHEME

The objectives of the scheme are

(a) in terms of Article 13 of the Regulation to assist the development of the most disadvantaged regions by supporting investment and job creation in those areas of Scotland identified as “Assisted Areas” in the approved UK regional aid map for the period 2007-13 (Commission decision N 673/2006, published in the Official Journal of the European Communities C55 of 10th March 2007);

(b) in terms of Article 14 of the Regulation to stimulate entrepreneurial initiatives within the most disadvantaged regions by supporting business start up and early stage development of small enterprises in those areas determined in the approved regional aid map for the period 2007-13; and

(c) in terms of Article 15 of the regulation to provide investment and employment aid to SMEs in all parts of Scotland.

ELIGIBLE SECTORS

The scheme shall apply all to sectors of the economy with the exception of the sectors referred to in Article 1 (sections 3 to 6) of the regulation.

ELIGIBLE COSTS

Investment Aid under Article 13of the Regulation may be awarded to enterprises in respect of investments in Assisted Areas on the basis of a percentage of eligible costs of either new investment in tangible and intangible assets OR new jobs created directly as a result of the investment project.

Tangible assets are those relating to land, buildings, plant, machinery and equipment. For the transport sector, transport means and transport equipment are not included.

Intangible Assets are those entailed through the transfer of technology through the acquisition of patent rights, licences, know-how or unpatented technical knowledge.

Jobs created relate to wage costs over a period of 2 years for employment directly created as a result of the investment project.

For newly created small enterprises in Assisted Areas the eligible costs are:

• Legal costs

• Advisory costs

• Consultancy costs

• Administrative costs

Aid may also be awarded towards the following costs incurred within the first 5 years of creation of the undertaking:

• Interest on external finance and a dividend on own capital employed (not exceeding the reference rate)

• Fees for renting production facilities/equipment

• Energy, water, heating, taxes (excluding VAT and corporation tax)

• Depreciation, fees for leasing production facilities/equipment, wage costs (provided the underlying investment or jobs/recruitment have not benefited from other aid)

For existing SMEs the eligible costs are the tangible and intangible investment costs (as defined above), or the estimated wage cost of employment directly created by the investment project, calculated over a period of 2 years.

Where the investment concerns the processing and marketing of agricultural products, the aid intensity shall not exceed 50% of eligible investments in 87(3)(a) Assisted Areas and 40% of eligible investments in all other regions.

INTENSITY AND THRESHOLDS

The regional aid map sets out the areas eligible for regional aid and the maximum aid limits which apply.  This can be increased by 20% for small enterprises, and 10% for medium sized enterprises.  These thresholds apply either as a percentage of either investment or salary costs.

For Scotland the limits are as set out below:

Area	Large	Medium	Small
87.3.a  Highlands & Islands (until end 2010)	30%	40%	50%
87.3.c  Assisted Areas (excluding Highlands & Islands and wards in South Ayrshire)	15%	25%	35%
87.3.c Assisted Areas within South Ayrshire	10%	20%	30%

The maximum aid intensities for assistance for newly created small enterprises in terms of Article 14 of the Regulation are as set out below:

Area	Year 1,2,3	Year 4,5	Max Limit
87.3.(a) Highlands & Islands (until end 2010)	35%	25%	€2m
87.3.(c) Assisted Areas	25%	15%	€1m

These intensities may be increased by 5% in regions with a population density of less than 12.5 inhabitants per square kilometre and in small islands with a population of less than 5,000 inhabitants and other communities of the same size suffering similar isolation.

Annual amounts of aid will not exceed 33% of maximum threshold per enterprise.

For investment and employment aid to SMEs outwith the Assisted Areas, the maximum aid intensity shall not exceed: 20% for assistance to small and 10% for medium-sized enterprises. No aid will be granted under this scheme where the grant equivalent exceeds €7.5m per undertaking per investment project.

DEFINITIONS

“Small” and “medium” sized enterprises shall be defined in conformity with Annex 1 of the regulation.

BUDGET

The estimated budget of the scheme is £5m per annum.

DURATION

The scheme will operate from 1st January 2009 to 31st December 2013.