One of the means of attracting investors that develop innovative technologies is the Polish income taxation system providing substantial tax reliefs for entrepreneurs engaged in research and development (R&D) activities. Investors can also take advantage of benefits resulting from the new support instrument – the CIT exemption granted under so called Support Decision.
R&D Tax Relief
R&D tax relief allows taxpayers conducting Research and Development activities for an additional “deemed” deduction of up to 100% of expenses incurred in relation with R&D activities from the taxpayers’ tax base. R&D centers are entitled to a deduction of up to 150% of the qualified costs incurred The annual deduction of eligible expenditures cannot exceed the amount of income in a given tax year, however, the excess of the eligible costs may be carried forward and utilized by the taxpayer within 6 consecutive tax years.
The catalogue of qualified costs includes:
- Employee wages and social security contributions;
- Commodities and raw materials;
- Amortization & Depreciation;
- Protection of IP Rights;
- Opinions & Research Results;
- Easy-to-apply tax instrument for R&D activity;
- Deductions up to 100%;
- Deductions of 250% for R&D Centers;
- Benefits regardless of the company size;
- Long-term tax benefit - apply the cut across 6 consecutive tax years.
The Innovation Box tax relief allows for an application of a 5% tax rate (instead of the standard 19% rate) to the income derived from the qualified IP rights (QIPR). This tax preference applies when a taxpayer conducts R&D activity related to developing, creating, or improving a given intellectual property component. In order to benefit from the relief, the taxpayer will be obliged to separate the income from QIPR in his accounting books.
Qualified IP rights:
- Utility Models & Industrial Designs;
- Rights from Registrations of marketable, medicinal, or veterinary Products;
- Copyrights to Computer Programs;
- Plant Variety Rights;
- Rights from Registration;
- Integrated Circuit Layout Designs;
- Additional Protection Rights to Pharmaceutical or Plant Protection Products.
- 5% CIT rate on qualified income related to sale or licensing of QIPR;
- Covers the most popular IP rights;
- Long-term tax benefit - applicable during the entire life span of the rights.
The Polish Investment Zone - support decision
In order to better address business expectations, in 2018 the Polish Parliament introduced the New Investment Support Act. One of the main changes introduced, was widening the area in which it is possible to obtain investment incentives. Currently, the whole area of Poland is considered as an investment zone. Within the Polish Investment Zone investors can benefit from tax advantages in the form of Corporate Income Tax (CIT) or Personal Income Tax (PIT) exemption. The exemption is granted based on the Support Decision subject to fulfillment of certain qualitative and quantitative criteria.
CIT exemption for investors is granted for the period of 10 to 15 years. Timespan of the exemption depends on the location of the investment.
To obtain the Support Decision, quantitative criteria will have to be met, which require from the investor binding declaration of the scale of investment costs that are going to be incurred.
Minimal investment costs that should be declared (investment expenditure or two-year labor costs) depend on the size of the investor (large, SME, or micro) and the unemployment rate in the district where the new investment is located (in comparison to the average unemployment rate in Poland).
For example: the large enterprise operating in Wroclaw district are obliged to incur the investment costs of min. PLN 100m whereas the amount of required spending in cities like Dzierżoniów or Wałbrzych amounts to min. PLN 10m. For SME and micro investor the required investment amount is significantly lower.
The amount of available exemption is calculated as either qualified costs of new investment multiplied by the maximum public aid intensity for a given district or as cost of two-year of labor of newly employed employees multiplied by the public aid ratio.
The catalog of qualified costs include e.g. costs of acquisition of land, costs of acquisition or fabrication of fixed assets, cost of acquisition or modernization of existing fixed assets, cost of lease of land, building or structures provided that the agreement is concluded for at least 5 years as of the date of finalization of the investment, cost of acquisition of intangible assets.
Polish Investment Zone: Quantitive criteria for a large enterprise investment – minimum capital expenditure required
Apart from the quantitative criteria, in order to obtain the decision on support, qualitative criteria have also to be met. The maximum number of points within qualitative evaluation is 10, however the minimal threshold required for granting public support depends on investment location. In the Wroclaw area, the investment needs to obtain 6 points (1 point per each criterium).