Foreign expansion relief – new tax relief for business growth 

Foreign expansion relief is a new cost-based tax relief intended to incentivize taxpayers into acquiring new markets. This relief is oriented to both PIT and CIT taxpayers.
Author:
Ewa Janas
Junior TAX Consultant

Foreign expansion relief (also termed the relief for increasing product sales) serves a complementary role to the R&D relief in effect since 2016. The new relief covers costs incurred for the commercialization of a manufactured product. Running a research and development company is not imperative to benefit from the foreign expansion relief — the tax relief is directed towards all taxpayers who incur costs from product promotion.

Who can benefit from the foreign expansion relief?

CIT taxpayer:

According to art. 18eb par. 1 on the CIT Act, taxpayers earning income other than from capital gains, may deduct the costs of obtaining income incurred through increasing income procurement from product sales, from their tax base.

The limit of deductibles is 1 000 000 PLN during a tax year.

Important: Thedeductible amount cannot exceed the amount of income earned by the taxpayer in a single tax year from income other than from capital gains.

PIT taxpayer:

A PIT taxpayer earning income from non-agricultural economic activity (identical regulations are found in Art. 26gb par. 1 on the PIT act).

Increasing income from the sale of products produced by the taxpayer is considered a paid disposal of those products to an entity which is not an affiliate.

Important: Regulations exclude the possibility of benefiting from this relief by taxpayers who do not produce their own products — taxpayers who conduct, for example, distribution sales, will not be entitled to benefit from the foreign expansion relief.

Which costs are deductible?

The costs considered as costs of obtaining income incurred through increasing income procurement from product sales, include:

  • costs of participating in fairs:
    • organizing of an exhibition area;
    • purchasing plane tickets for employees;
    • employee board and accommodation;
  • promotional and informational operations, such as: purchasing advertising space, preparing a website, press publications, brochures, information catalogues and leaflets relating to the products;
  • adapting product packaging to requirements of contractors;
  • preparing documentation enabling the sale of products, particularly concerning the certification of goods and trademark registration;
  • preparing documentation essential for tender accession, as well as for making proposals for other entities.

Deductions, as is the case with other innovation reliefs, are made in the annual tax return for the tax year when costs of increasing income from product sales were incurred.

In case the taxpayer incurred losses during a tax year, or the taxpayer’s income is lower than the amount of due deductibles, those deductibles — respectively, in their entire amount or their remaining quantity — are made in tax returns during the consecutive six tax years, following the year when the taxpayer took advantage, or had the right to take advantage of the deductibles.

Costs of obtaining income incurred from increasing income procurement through product sales, analogically, just like in the case of R&D relief, are deductible only when they have not been returned to the taxpayer in any form whatsoever or have not been deducted from the tax base by the income tax.

Foregin expansion relief — doubts

Undoubtedly, the expansion relief needs refinement. Many doubts are raised by the conditions of increasing income from product sales during the consecutive two years after incurring costs aimed to increase sales.

A taxpayer is entitled to utilize deductibles provided that during the span of consecutive 2 tax years, following the tax year when cost of increasing income were incurred, referred to in par. 1, the taxpayer increased income from product sales in relation to income established on this account on the last day of the tax year preceding the year when the costs were incurred, or when income was earned from the sale of products not yet offered, or income was earned from the sale of products no yet offered in a given county.

Art. 18eb par. 4 of the CIT Act

The regulation above puts taxpayers in an unfavorable situation, as it will be challenging to ascertain whether costs incurred from the increase of sales in a given year factually entail an increase of income in the consecutive two years.

Important: if there will be no increase in income, the taxpayer will have to face consequences - the relief will have to be returned.

Find out more about tax reliefs for innovation!

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