Incentive effect is a fundamental condition of state aid, according to which the aid must motivate the undertaking to carry out an activity it would not have carried out without it – therefore work on the project must not begin before the applicant submits the application for aid. The start of work is considered to be the start of construction work, the first legally binding commitment to order equipment, for example the signing of a purchase contract or a binding order, or another commitment that makes the investment irreversible. Conversely, preparatory activities such as the purchase of land, project documentation, feasibility studies or obtaining permits are not considered to be the start of work and may be carried out in advance. Breaching the incentive effect has fatal consequences: the entire project becomes ineligible and the aid cannot be granted at all, or aid already paid out must be returned. Applicants should therefore consistently postpone signing any contracts with suppliers until after the application submission deadline and consult the provider in case of doubt.
See also: Eligible expenditure period.
