attorney Igor Bąkowski
Bakowski Law Firm, Warsaw, Poland
There are several incentives for innovative businesses, which should be taken into account.
Research and development (R&D) relief
R&D relief is an instrument developed to support entrepreneurs engaged in research and development activities.
Research and development activities for which support may be granted include both scientific research (basic and applied) and development work.
Scientific research and development must meet all of the following conditions:
- have a creative character,
- be undertaken in a regular manner,
- lead to an increase in the stock of knowledge (in the case of research) or the use of the already existing or increased knowledge to create new applications (in the case of development).
In order to benefit from the R&D relief, an entrepreneur must first incur costs related to R&D activities, including salaries and contributions due on salaries, depreciation allowances on fixed and intangible assets, materials, raw materials, expertise, consulting services, use of apparatus, or patent maintenance.
In addition, to qualify for R&D relief, the above costs must:
- be properly entered in account books,
- constitute tax-deductible expenses within the meaning of the PIT or CIT Act,
- fall within the closed catalogue of eligible costs specified in the provisions of the PIT or CIT Act,
- be disclosed in the annual tax return.
Entrepreneurs with the status of a research and development centre (Centrum Badawczo Rozwojowe) are entitled to apply preferential rules for R&D relief.
Within the R&D relief eligible costs related to R&D activities may be deducted from the tax base established for income other than income from capital gains. As a result, costs incurred on research and development activities may be included twice when calculating the income tax due. Costs are taken into account for the first time when calculating income by recognizing them as tax-deductible expenses, and then a deduction is made from the tax base for eligible costs related to research and development.
The eligible costs may range from 100% to 200% (in the case of, among others, employment costs) of the deductible expenses incurred on research and development activities.
R&D relief is only available for income earned on revenue other than capital gains. Therefore, if the entrepreneur:
- reaches a loss or
- earns an income of less than the amount of the deduction to which the entrepreneur is entitled, from income other than capital gains income,
then the entrepreneur will not be able to benefit from R&D relief in that tax year.
In such a case, however, the entrepreneur may settle all or the remaining amount of the deduction to which he is entitled in the following 6 tax years immediately following the year in which the entrepreneur used or was entitled to use the deduction under R&D relief.
Entrepreneurs who, in the first year of starting their business, incurred a loss or earned income in an amount lower than the amount of their deduction under the R&D tax credit are entitled to a cash refund, that is a deduction of the amount corresponding to the product of the non-deductible eligible costs incurred and the applicable tax rate (in the case of SMEs, the cash refund is also available in the second year of business).
In order for eligible costs to be accounted for under R&D relief, they must not have been reimbursed to the entrepreneur in any form or previously deducted from the tax base by the entrepreneur. Receiving reimbursement for part of the expenses, for example in the form of a grant or subsidy, does not disqualify the entrepreneur from using the relief.
Entrepreneurs who benefit from the exemption under the Polish Investment Zone or Special Economic Zones regimes are entitled to deduct eligible costs under R&D relief only with respect to those deductible expenses that are not included in the calculation of exempted income under the above instruments.
R&D relief is not available to entrepreneurs who have opted for lump-sum taxation on corporate income.
R&D relief generally does not constitute public aid. Certain preferences in accounting for R&D relief by R&D centres in the form of public aid constitute an exception to the above rule.
Cash reimbursement constitutes de minimis aid.
Relief for innovative employees
Relief for innovative employees is a supplement to R&D relief, which allows entrepreneurs to settle eligible costs incurred on R&D activities quicker.
The eligible costs incurred on R&D activities that exceed the amount of the income in a given tax year may be used by reducing the amount of PIT advances that the company is obliged to collect as a payer on remuneration paid to innovative employees.
Relief for innovative employees is available to companies that conduct research and development activities and employ innovative personnel.
Within the meaning of the CIT Act, innovative employees are individuals directly involved in research and development activities whose:
- working time devoted to the implementation of research and development activities amounts to at least 50% of the total working time in a given month, or
- whose time allocated to the performance of R&D services under a contract of commission or contract for a specific task amounts to at least 50% of the total time allocated to the performance of the service.
R&D entrepreneurs may benefit from R&D relief even if the eligible costs exceed the income earned in a given tax year or if they have incurred a loss.
By using the relief for innovative employees, the company may reduce the amount of personal income tax (PIT) advances that it is obliged to collect as a payer on the remuneration paid to innovative employees by an amount equal to the product of the lowest tax rate specified in the PIT tax scale (12%) or 19% in PIT and 9% or 19% in CIT and the unapplied deduction under R&D relief.
Only those entrepreneurs who benefit from R&D relief and who incurred a loss or earned income lower than the amount of the R&D relief deduction in a given tax year are eligible to use relief for innovative employees.
The taxpayer is entitled to the relief only with respect to PIT advances that are withheld by the taxpayer in connection with the payment of remuneration to innovative employees.
Entrepreneurs that use the relief must keep additional working time records for R&D relief.
The relief is available for advance payments of income tax and lump-sum income tax, collected on the income (revenue) of individuals due to:
- professional relationship, employment relationship, home-based work, cooperative employment relationship, as well as social security cash allowances paid by the taxpayer;
- performance of services under a contract of commission or contract for a specific task;
Relief for innovative employees is not available to entrepreneurs who do not use R&D relief.
Prototype relief
Prototype relief supports entrepreneurs in the testing stage of a new product before mass production is launched.
The relief allows entrepreneurs to deduct from the tax base the costs of trial production of the new product and the costs of launching it.
The relief is intended for companies that incur costs related to the trial production and launch of new products.
New products are products not previously offered on the market, which were developed as a result of research and development activities carried out by the entrepreneur.
Trial production of a new product is the technological startup stage of production, requiring no further design or engineering work. During trial production, trials and tests may be performed before mass production. This covers the period from the time the first costs associated with this stage are incurred until mass production of the new product is launched.
The introduction of a new product on the market includes the entrepreneur’s activities undertaken to prepare the necessary documents (certificates and permits) to enable the product to go on sale. The relief should make it cheaper to produce a prototype and then put the invention into production.
With prototype relief, it is possible to deduct from the tax base an amount equal to 30% of the sum of the costs of trial production and the launch of a new product.
Trial production costs may include:
- the purchase price or manufacturing costs of brand-new fixed assets necessary to start trial production of a new product;
- expenditures incurred on improving property, plant and equipment in order to adapt them to the launch of trial production of a new product;
- costs of acquiring materials and raw materials purchased solely for the purpose of trial production of a new product.
The costs of launching a new product include:
- any documents required by law, the obtaining of which is a prerequisite for the release for marketing or use of a new product;
- tests of the new product’s life cycle;
- environmental technology verification system.
The amount of the deduction under prototype relief in a tax year will be a maximum of 30% of the cost of trial production and marketing of a new product but may not exceed 10% of the income earned from sources of income other than capital gains.
The deduction is available if the costs of trial production or marketing of a new product:
- were actually incurred in the tax year for which the deduction is made;
- have not been returned to the taxpayer in any form or have not been deducted from the income tax base.
Prototype relief is deducted in the return for the tax year in which the company incurred the costs of trial production or the launch of a new product.
If the company’s income prevents the use of the entire deduction, the deduction may be taken on the company’s returns within 6 consecutive tax years.
Entrepreneurs who enjoy exemptions as part of the Polish Investment Zone or Special Economic Zones regimes are entitled to deduct eligible costs under prototype relief only with respect to costs that are not included in the calculation of exempted income in compliance with the above instruments.
Prototype relief is also unavailable to entrepreneurs who have opted for lump-sum taxation on corporate income.
Robotization relief
The robotization relief aims to encourage entrepreneurs to invest in innovative solutions using Industry 4.0 technologies.
Robotization relief is intended for any business, regardless of its size or the industry in which it operates.
By claiming robotization relief, an entrepreneur may obtain an additional deduction from the tax base of deductible costs, which may amount to 50% of the so-called robotic automation costs.
The robotic automation costs include the cost of acquiring brand-new industrial robots, functionally-related machines, and peripheral equipment for industrial robots, machines, equipment, or systems for remote management, diagnosis, monitoring or servicing of industrial robots, especially sensors and cameras.
The robotic automation costs, on the basis of which the company did not use other tax preferences, may be deducted. The additional deduction may not exceed 50% of the eligible costs associated with the robotization investment.
Entrepreneurs who enjoy exemptions as part of the Polish Investment Zone or Special Economic Zones regimes are entitled to deduct eligible costs under robotization relief only with respect to deductible costs that are not included in the calculation of exempted income in compliance with the above instruments.
IP Box
IP Box is a solution for taxpayers allowing them to tax income earned from eligible intellectual property rights (eligible IP) at a reduced 5% tax rate.
IP Box is a solution that supports entrepreneurs at the stage of commercialization of the results of their research and development activities.
IP Box is a solution designed for entrepreneurs earning income from eligible IP rights referring to:
- patent;
- protection right for a utility model;
- right in registration of an industrial design;
- right in registration of integrated circuit topography;
- supplementary protection right for a patent for a medicinal or plant protection product;
- right in registration of a medicinal product or a veterinary medicinal product that has been authorized for marketing;
- right to protect and the right to commercial use of a bred or discovered plant variety;
- copyright of a computer program, subject to legal protection under specific legislation, whose object of protection has been produced, developed or improved by the entrepreneur in the course of their research and development activity.
The entrepreneur may also benefit from IP Box relief if they are a co-owner or user entitled to use IP under a license agreement.
Due to the lengthy nature of procedures for granting legal protection to IP rights, the law allows the conditional use of preferential taxation on the basis of the expectancy right, that is already during the waiting period for the grant of legal protection for eligible IP.
The right to apply the reduced 5% tax rate is granted to the entrepreneur only with respect to eligible income earned from eligible intellectual property rights.
The amount of eligible income from the eligible IP right is determined as the product of the income from the eligible IP right earned during the tax year and the so-called NEXUS index.
The most important obligations for entrepreneurs benefiting from IP BOX relief are record-keeping duties, which may include:
- the separation of each eligible IP right in the accounting records;
- keeping accounting records in a manner that ensures the determination of income, deductible expenses and income (loss) attributable to each eligible IP right;
- separation of costs included in the calculation of the NEXUS index, per eligible IP, in a way that ensures the determination of eligible income.
The regulations also provide for some facilitation when an entrepreneur uses several eligible IP rights and when an entrepreneur uses several eligible IP rights for several products or services.
IP BOX relief may not be used by entrepreneurs who have opted for lump-sum taxation on corporate income.
Simultaneous IP BOX and research and development (R&D) relief
A taxpayer commercializing the results of research and development and obtaining qualified income from it within the meaning of the IP BOX provisions has the possibility of deducting R&D relief from the IP BOX income of eligible costs incurred to develop the right covered by IP BOX.
For more information please contact
attorney Igor Bąkowski
tel. +48 22 633 67 66
or other lawyers from Bakowski Law Firm
bakowski.net.pl