Small and medium-sized enterprises (SMEs) will be able to allocate up to 35 percent of their undistributed profits in the fiscal years from 2003 to 2007 to a special tax-free reserve for investment purposes, according to a draft plan of incentives designed to boost the role of SMEs in regional development, unveiled yesterday.

The firms opting to take advantage of the incentive will have to invest a minimum one-third of the special reserve in the first of a three-year period. The draft bill, which will be tabled in Parliament next month, also provides for simpler procedures for the disbursement of subsidies for new investments. The scheme, which has been sent to interested parties for comment, does not deal with tax incentives for large investments of more than 30 million euros, which the government has said it is considering.