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Tax relief for research and development

The media frequently cite economic experts on the need to increase innovation in the Polish economy in the coming years. One way this objective may be achieved is by amending tax laws (corporate income tax and personal income tax). On 1 January 2016, the Act Amending Certain Acts to Support Innovation introduced new solutions encouraging businesses to increase their activity in the field of creation and exploitation of new technologies.

The previous system, based on a tax credit for new technology, proved unsuccessful.

The new regulations take the shape of R&D tax relief. They allow taxpayers to take an additional deduction for R&D costs. The former new technology tax credit did not provide any special deduction for R&D costs.

Now, under Art. 18d of the Corporate Income Tax Act, the following expenses qualify for R&D relief:

  • Salary and social insurance premiums paid by the employer for staff employed to carry out R&D activities
  • Purchases of materials directly related to R&D activities
  • Expert advice, opinions, consultancy and similar services, as well as the results of scientific research, provided or performed on a contractual basis by scientific institutions for the purpose of R&D activities
  • Costs for the use of scientific and research equipment exclusively for conducting R&D
  • Depreciation of fixed and intangible assets used in R&D activity, except for passenger cars, buildings and separate owned units.

However, the amount of the additional deduction of eligible costs is limited to:

  • 30% for salary and social insurance premiums, regardless of the taxpayer’s size
  • 20% for other expenses in micro, small and medium-sized enterprises
  • 10% for other expenses in large enterprises.

In practice, this means that taxpayers conducting R&D activities can, depending on the company’s size and the nature of the expenditures incurred for this activity, deduct an additional 10% to 30% of eligible costs from the tax base. In other words, this percentage of eligible expenses related to conducting R&D activities will be treated as a deductible cost twice.

If the taxpayer’s income is less than the deductible amount in one year, the deductions are carried forward and applied over three consecutive tax years.

Taxpayers who intend to claim R&D relief must keep separate records of the costs of research and development activities. Taxpayers operating in a special economic zone during the fiscal year are not eligible for R&D relief. The eligible costs cannot be deducted if they were reimbursed to the taxpayer in any form.

These tax incentives may be applied not only by taxpayers carrying out R&D activities, but also by companies investing in such entities. Under Art. 14(1) of the CIT Act, revenue from the sale of shares in entities conducting R&D activities is exempt from corporate income tax. This exemption applies to shares acquired in 2016 or 2017 by a limited-liability company or a joint-stock limited partnership.

To take advantage of R&D relief, the taxpayer must meet the following criteria:

  • The company whose shares are sold is a tax resident of a member state of the European Union or the European Economic Area.
  • The selling company holds no less than 10% of the shares in the entity, the shares were owned directly and continuously for at least two years, and in this period the entity sold:
    • Did not have the status of a controlled foreign company
    • Did not produce goods subject to excise duty
    • Did not conduct trading activity
    • Did carry out R&D activities.

Considering how beneficial these incentives may be, it is expected that they will be used more widely than the new technology tax credit was.

Tomasz Sobolewski, tax specialist

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