attorney Igor Bąkowski
Bakowski Law Firm, Warsaw, Poland
There are several government incentive programs, schemes and tax preferences for foreign direct investors in Poland.
For several years, the main program for big investors, especially those planning to invest in manufacturing, new technologies, and in less developed areas of Poland, were the Special Economic Zones, which proved to be quite popular among many investors.
If your company considers the option to invest in Poland there are numerous incentives and programmes which could be taken into account.
Special Economic Zones and Polish Investment Zone
Special Economic Zones have existed in Poland for about 20 years bringing investors incentives and preferences in locally defined zones.
The currently binding Special Economic Zone permits, already granted to investors within the old Special Economic Zone will remain in force until 2026.
The Act of 10 May 2018 amended the instruments of income tax exemption in order to adjust the provisions to the current market situation and entrepreneur’s needs.
Tax exemption is now available across the entire territory of Poland, for companies carrying out new investments, on publicly as well as privately owned land.
The amendment of 31 July 2019 also allowed support for investments in areas with undeveloped mineral deposits, thus significantly expanding the offer of locations, in which entrepreneurs can be granted tax exemption.
On 1 January 2022, an amendment to the Act came into force, which was largely related to a change in the regional aid map.
Projects eligible for support
In the light of the provisions on regional state aid, the definition of a new investment includes:
- setting-up of a new establishment;
- extension of the capacity of an existing establishment;
- diversification of the output of an establishment into products not previously produced in the establishment;
- fundamental change in the overall production process of an existing establishment;
- the acquisition of assets belonging to an establishment that has closed or would have closed had it not been purchased, and is bought by an investor unrelated to the seller.
If the case of an investment by a large entrepreneur in the territory of the Dolnośląskie and Wielkopolskie Voivodship or Warsaw-Capital Region only an investment in favour of a new economic activity shall be considered a new investment.
As in the case of Special Economic Zones, investments carried out within certain sectors of economic activity are covered by the support system. A detailed catalogue of exemptions is defined in the regulation on state aid granted to certain entrepreneurs for the implementation of new investments.
According to the new regulations, the following enterprises are eligible for public aid in the form of tax exemptions:
- all enterprises in the sector of traditional industries, with the exception of enterprises producing, i.e.: explosives, alcohol, tobacco products, steel, or companies operating in the energy generation and distribution sector; wholesale and retail trade, facilities and construction works, services related to accommodation and catering services, and game centres. Companies from the metallurgy, iron and steel sectors, the coal sector, and the transport sector are not eligible for support under the EU’s regulations.
- selected enterprises from the business services sector (BSS) providing: IT services, research and development in the areas of natural and technical sciences, auditing and bookkeeping services, accounting (excluding tax declarations), technical research and analysis services, call centres, architectural and engineering services.
The amount of tax exemption
The maximum amount of state aid in the form of corporate income tax (CIT) or personal income tax (PIT) tax exemption is determined on the basis of the regional aid map for 2022-2027 (representing the percentage of costs eligible for regional aid – up to 50% depending on the region with the highest percentage in eastern Poland).
Support for medium and small / micro enterprises is increased by 10 and 20 percentage points respectively (25% becomes 35% or 45% respectively).
The exemption shall only be applicable to income generated from business activities carried out as part of an investment, covered by the decision on support. Therefore, if the entrepreneur simultaneously conducts activities which are not covered, the supported activities have to be organizationally separated and the level of exemption shall be determined on the basis of data (revenues and costs) of the separated activity.
The Ministry of Finance has published explanatory notes on the method of determining tax-exempt income achieved from economic activity, as defined in the decision on support (referred to in the Act of 10 May 2018 on support for new investments), which clarified, inter alia, how to interpret situations when, because of the way in which a new and existing investment (located on the same site) are integrated, it is impossible to determine the income (revenue) exclusively from the new investment, without taking into account the integrated part of the existing investment (close links). The explanatory notes help to establish the best practice of applying the above-mentioned provisions, i.e. the most predictable, uniform and appropriate interpretation of the tax law.
In accordance with the regulations on state aid, the eligible costs of the new investment are:
- land acquisition cost, cost related to its purchase, the development or modernization of fixed assets (such as machines), cost related to the acquisition of intangible assets (computer programs, licenses, certificates, etc.), or
- 2-year labour costs of newly hired employees.
The decision on the support has to specify the completion date of the new investment, after which the costs of the new investment incurred by the entrepreneur cannot be considered as eligible costs, apart from the two-year labour costs, costs related to renting or leasing of land, buildings, structures and financial leasing, which may be considered as eligible even after the investment completion date.
The decision regarding support
The decision regarding support, issued at the entrepreneur’s request, determines the period of its validity, the subject of economic activity, as well as the conditions that the entrepreneur has to meet. The decision is issued on behalf of the Minister responsible for the economy (currently the Minister of Economic Development), by the management of Special Economic Zones in the areas indicated in the ordinance to the Act.
Duration of the tax exemption
The period for which the decision on support is issued shall depend on public aid intensity in a given area. This period is the same for all companies, regardless of the type of economic activity conducted and the size of the company. The decision on support shall be issued for a definite period, not shorter than 10 years and not longer than 15 years.
The exemption period of 10 to 15 years is counted from the date of receipt of the decision on support and depends on the public aid intensity (which is in turn dependent on the region).
If, on the day the decision on support is issued, at least 51% of the area of land on which the new investment is to be located is situated within the boundaries of a special economic zone (as defined in Article 2 of the Act of 20 October 1994 on special economic zones), the decision on support for a new investment is issued for a period of 15 years.
The criteria for receiving public aid
The decision on support is issued for the implementation of a new investment, which meets certain quantitative and qualitative criteria.
The quantitative criteria (minimum amount of eligible costs) depend on the unemployment rate in the district (poviat) in which the investment is to be implemented (the higher the unemployment rate, the lower the required costs) and the size of the enterprise.
Preference is also granted to entrepreneurs conducting research and development activities and those in the business services sector.
The entrepreneur implementing a new investment in a given sector shall be considered to have met the qualitative criteria once he obtains a certain number of points (depending on location).
Governmental grants under the Programme for supporting investments of major importance to the Polish economy for the years 2011-2030
Governmental grants are provided on the basis of the Programme for supporting investments of major importance to the Polish economy for the years 2011-2030, adopted by the Council of Ministers on July 5, 2011 (amended on October 1, 2019) (Programme).
Support is provided in the form of a grant based on an agreement concluded between the Minister responsible for the economy and the investor.
Form of support
Support is provided in the form of a grant based on an agreement concluded between the Minister responsible for the economy and the investor.
The agreement lays down conditions for the payment of the cash grant, which is paid proportionately to the degree the investor’s commitments are fulfilled.
Type of cash grants
Under the Programme, the support will be granted based on eligible costs for creating new jobs and eligible costs of the investments. The amount of the grants may be increased, if training programmes are offered to employees.
Under the Programme, support is granted based on the number of jobs created and eligible investment costs:
- the number of jobs created (linked with the type of investment, and advancement of processes, with minimum eligible costs threshold, generally from 12.000 PLN to 20.000 PLN maximum support per each new job created)
- investment costs (linked with the type of investment, with minimum eligible costs threshold, generally up to 10 to 20% of eligible costs)
Training Grant
An additional support can be obtained for training costs in the form of a training grant. The maximum support (per each new job created, in PLN) is 25% or 50% (in medium-sized cities losing their socio-economic functions or in Poviats or cities with Poviat status for which the unemployment rate amounts to not less than 160% of the national average unemployment rate and in 5 voivodeships of Eastern Poland (Warmińsko-mazurskie, Podlaskie, Lubelskie, Świętokrzyskie, Podkarpackie)) of training costs.
Obligation to fulfil qualitative criteria
In addition to the quantitative criteria, it is necessary to receive a minimum of 60 out of 100 possible points as a result of the project quality assessment carried out by PAIH which includes assessment regarding structural development, scientific development, territorially sustainable development, HR development, social responsibility and additional criteria. Separate sets of qualitative criteria are set for BSS projects and for manufacturing projects.
Obligation to cooperate with higher education institutions:
The investor is obliged to incur costs (in the period of maintaining the investment) for cooperation with institutions of the higher education and science system in the amount of at least 15% of the value of the awarded subsidy.
Cooperation with entities creating the higher education and science system within the meaning of art. 7 sec. 1 point 1-7 of the Act of 20 July 2018 – Law on Higher Education and Science, meaning:
- commissioning scientific research or development works to be conducted;
- commissioning the implementation of study programs;
- participation in the “Doctoral Implementation” program and other programs or undertakings of the Ministry of Higher Education related to the implementation of doctoral schools;
- financing, through scholarships or financing of employment, the participation of students in the practical training process, including dual studies.
Operator of the Programme
The operator of the Programme and the authority granting state aid is the Minister responsible for the economy.
The Polish Investment and Trade Agency (Polska Agencja Inwestycji i Handlu S.A. (“PAIH”)) is responsible for preparing and providing the Interministerial Committee for Investments of Major Importance to the Polish Economy (the Committee) with the dossier of investment projects and for preparing all documents required to carry out the entire procedure of providing financial support.
Each project is subject to an individual assessment by the Committee based on detailed criteria laid down in the Programme.
The Centre for Strategic Investments (CSI) is responsible for providing information on government grants and supports the potential investors.
Procedure
The investor must submit to PAIH an information about the project together with Incentive Effect Analysis.
PAIH than verifies the documentation, assesses the project and prepares a regional opinion.
The project with PAIH’ opinion is then verified by the Interministerial Committee for Investments of Major Importance to the Polish Economy which issues a recommendation on cash grant amount.
The final decision on awarding a grant and its amount is made by the Minister responsible for the economy – this offer is sent to the investor by PAIH.
The investor than has 30 days (which in some cases can be extended to 90 days) to conclude an agreement with the Minister responsible for the economy.
Important factors which are taken into account in the project assessment procedure are:
- Confirmation of innovativeness (issued by the Minister responsible for the economy);
- Regional opinion (required for all investments, assesses the project’s impact on the environment issued by PAIH);
- Sectoral analysis (for investments over PLN 350.000.000, assesses the project’s impact on the sector and industry at the regional and national level, prepared by an external entity).
- Start of works on the investment which is to receive support is only possible after submitting a letter/application for state aid with attachments to the Ministry responsible for the economy (an incentive effect analysis is required only for projects implemented by large entrepreneurs).
State aid under the Programme
State aid offered under the discussed Programme is consistent with the rules on the award of state aid in the EU, that is with the Guidelines on regional State aid for 2014-2020 and Commission Regulation (EC) no. 651/2014 of 17th June 2014 declaring certain categories of aid compatible with the common market in application of Articles 107 and 108 of the Treaty.
Aid that does not comply with the Regulation requirements may be granted after approval of the European Commission in line with the procedures specified in the Guidelines on regional aid for 2014-2020.
Industrial and Technology Parks
Industrial and technology parks are places which, due to a concentration of firms from one sector and supporting science and research facilities, are enabled to develop quickly. This is a pro-development model that is increasingly being implemented in Poland. The facilities being offered, are applicable both to Polish and foreign businesses.
Each of the parks has its own individual character, stemming from regional social, cultural and economic factors, together with the facilities, materials and human resources available.
A technology park is a cluster of separate buildings together with a technical infrastructure, created with the aim of attracting an influx of knowledge and technology for scientific bodies and businesses.
Entrepreneurs that use new technology are offered services in the form of:
- consultancy in the formation and development of an enterprise,
- transfer of technology,
- transfer of results from scientific research and development work, into technological innovation,
- creating favourable conditions for businesses.
The first Polish technology park established in May 1995 is the Poznań Science & Technology Park.
The Polish Business and Innovation Centres Association headquartered in Poznań oversees the development of Poland’s technology parks.
An industrial and technology park is a cluster of separate buildings together with infrastructure. These types of parks are formed with the assistance of local authorities and are aimed at providing preferential conditions for businesses, in particular for small and medium sized firms.
The goals for industrial and technology parks are, primarily:
- providing offers of workspace for commercially viable companies that use new technology,
- attracting investors,
- creating jobs.
Individual Voivodships have different incentives for as regards the industrial and technology parks.
Local level investment incentives in particular municipalities (gmina)
Real estate tax exemption
One of the basic investment incentives which are available for businesses in gmina’s (municipalities) is the exemption from local taxes and charges. The main incentive for business (including FDI) is the exemption from real estate tax.
The municipal council (gmina council) may, by way of a resolution, establish exemption from real estate tax for businesses as one of the forms of state aid.
The aid provided in the form of exemption from real estate tax is equivalent to the value of the tax exemption.
The tax aid granted under resolutions of a municipal council is a so-called “automatic aid”, which means that a business is automatically entitled to exemption after fulfilling the conditions set out in the resolution of the municipal council.
The intention to claim such aid must however always be notified in accordance with the resolution of the relevant Municipal Council.
Investment expenditure incurred before the exemption cannot be regarded as eligible costs.
Exemptions from local taxes and charges may be introduced, taking into account the conditions specified in:
- The Decree of the Council of Ministers adopted pursuant to Article 20d of the Act on local taxes (the Decree of the Council of Ministers of 5 August 2008 on conditions for exemptions from the real estate tax and the tax on means of transport, constituting regional investment aid),
- acts governing the award the de minimis aid,
- acts governing the award of aid within the framework of group exemptions.
Most often, Municipal Councils (gmina councils) introduce exemptions under the Decree of the Council of Ministers laying down the national aid scheme and within the framework of de minimis aid.
The exemption from real estate tax under the Decree of the Council of Ministers
The Decree of the Council of Ministers on the conditions for exemptions from real estate tax and the tax on means of transport, constituting regional investment aid, lays down framework conditions that a taxpayer must fulfil to benefit from regional investment aid in the form of exemption from real estate tax.
Aid calculation method
The amount of aid may be calculated in relation to:
- the costs of investment in fixed assets and tangible and legal assets which are connected with the completion of a new investment, or
- the costs of creating jobs associated with the completion of the new investment.
Conditions for the provision of aid:
- informing the relevant tax authority, before the investment begins, of the intention to claim aid. The resolution of the Municipal Council should specify the manner and form in which a notification should be made. Only the costs incurred after the submission of a notification can be included in the costs covered by the aid,
- an undertaking by the entrepreneur to cover at least 25% of the costs qualifying for aid from his own funds or from external funding sources (other than public aid),
- maintaining the investment in a given region for a period of at least 5 years, and in the case of SMEs for at least 3 years from the date of its completion,
- in the case of aid calculated on the basis of the costs of creating new jobs, these jobs must be set up within 3 years of the completion of the investment, with the level of employment not lower that the average from the 12 months preceding the creation of the jobs, and the newly-created jobs must be retained for at least 5 years, and in the case of SMEs for at least 3 years from the date on which they were set up.
De minimis aid in the form of exemption from real estate tax
The municipal council (gmina council) may introduce, by way of a resolution on an aid programme, tax exemptions in line with the solutions based on the Community legislation on de minimis aid, which releases the aid from the notification obligation, yet the content of the resolution must be communicated to the President of the Office for Competition and Consumer Protection.
The basic legal act governing the award of de minimis aid is the Commission Regulation (EC) No. 1998/2006 of 15 December 2006 on the application of Article 87 and 88 of the Treaty, under which aid may also be granted in the road transport sector.
Ceilings for de minimis aid
The Regulation sets the ceiling for de minimis aid granted to any one undertaking, which cannot exceed EUR 200.000 and EUR 100.000 in the road transport sector over a period of 3 successive fiscal years. This aid is calculated by adding other aid received during the fiscal year concerned and the two previous fiscal years.
Scope of application
Resolutions on exemptions under the de minimis aid regulations may, in principle, relate to all local taxes and charges and they may be adopted irrespective of resolutions providing for different types of aid (regional aid, aid under group exemptions). In such a situation, however, separate rules for the application of exemptions should be used to avoid their duplication.
The obligation to issue de minimis aid certificates
The Act on the procedure in matters relating to public aid introduces the obligation to issue certificates stating that the awarded public aid is de minimis aid.
For more information please contact
attorney Igor Bąkowski
tel. +48 22 633 67 66
or other lawyers from Bakowski Law Firm
bakowski.net.pl