Tax relief options for innovative enterprises

The Polish Deal creates a number of new tax relief options for innovative enterprises and reforms certain existing reliefs and exemptions. The changes will apply from 2022.

Venture capital tax relief

• This is to encourage PIT taxpayers to invest, especially in start-ups, with the help of venture capital funds.
• The New Deal enables a taxpayer to reduce their tax base by deducting 50% of the costs incurred to acquire shares in an Alternative Investment Company (AIC) or a company in which an ACI holds at least 5% of shares.
• To be eligible, the taxpayer must have owned the relevant shares for at least 2 years.
• The maximum deductible amount in any tax year is PLN 250,000. If the shares are sold sooner, the taxpayer who made the deduction will be obliged to add the previously-deducted amounts to their income for the tax year in which the sale of shares occurred.
• The relief applies only to publicly-financed funds (in practice, this means funds falling within one of the PFR Ventures programs or within the NCBiR – Bridge Alfa programs)

Tax relief for innovative employees

• Entrepreneurs who conduct research and development (R&D) and employ employees will, as tax remitters, be entitled to deduct from PIT advances (due from employees and payable to the tax office) any eligible costs of R&D activities which the taxpayer has not deducted as part of R&D tax relief (e.g. because he/she made a loss or the amount of income was lower than the amount of deductions).
• Currently, entities that have incurred a loss or achieved income lower than the amount to be settled within the R&D tax relief incentive are entitled to a refund of the amount of non-deducted eligible costs. However, only a limited range of entities can take advantage of this.
• The deduction will apply to persons hired on the basis of an employment contract, a mandate contract or a contract to create a specified work. Such person must spend at least 50% of their monthly working time in providing R&D services.
• The deduction is unavailable to taxpayers which exercise the right to receive a cash refund as part of the R&D tax relief incentive.

Changes to R&D tax relief

• R&D centres will be entitled to deduct, from their tax base for R&D services, 200% of their eligible costs of R&D tax relief (currently, they can deduct 150%).
• Moreover, all taxpayers will be entitled to deduct 200% of their personnel costs incurred for so-called R&D employees (currently, they can deduct 100%). 

Tax relief for prototypes

• Taxpayers who produce a new product based on their R&D will be entitled to reduce their tax base by deducting the costs related to the product’s trial production and placing it on the market.
• The deduction is limited to 30% of the costs incurred and cannot exceed 10% of the taxpayer’s net income.
• Such expenses will be disclosed in the annual return in the tax year in which they are incurred, and it will be possible for the deduction to take place over the subsequent six years.
• The new provisions define what is meant by “trial production of a new product” and the “costs of placing a new product on the market”.

Tax relief for expansion

• CIT and PIT taxpayers will be entitled to reduce their tax base, for the second time, by deducting 100% of the costs spent on increasing their revenues from the sale of products.
• To be eligible to make such a deduction, it must be shown that the taxpayer achieved an increase in sales revenues for 2 consecutive years from the year in which the relevant costs were incurred.
• The maximum deduction amount is capped at PLN 1 million.

Consolidation tax relief

• Taxpayers who incur eligible expenses (including legal advisory services, court and stamp fees) to acquire foreign or domestic shares or stocks in a capital company will be entitled, for a second time, to deduct them from their tax base.
• The maximum deduction amount is capped at PLN 250,000.
• To be eligible to make such a deduction, it must be shown that the company whose shares will be acquired is a legal person with its seat or management board in a country with which Poland has concluded a binding double-taxation avoidance agreement. The company’s main activity must be the same as that of the taxpayer which acquired its shares, or the company’s activity can rationally be considered as supporting the taxpayer’s own activities.

Tax relief for robotization

• Taxpayers which undertake production activities will be entitled to reduce their tax base by deducting costs, previously included as tax-deductible costs, related to the automation of workstations with the use of robots – i.e. machines which imitate human movements.
• Eligible costs will include expenses for robots, peripheral devices and related intangibles (including lease agreements), plus any training costs
• The amount deducted cannot exceed 50% of the actual cost.

Tax Relief for Initial Public Offerings (POP / IPO)

• CIT taxpayers who decide to begin trading their shares on the stock exchange will be entitled to deduct 150% of the related costs, such as the costs of preparing a prospectus or the stock exchange fees.
• Additionally, issuers will be able to reduce their tax base by 50% of any costs (excluding VAT) incurred for legal and financial advisory services, up to a maximum of PLN 50,000.
• PIT taxpayers will be exempt from taxation of income obtained from selling shares acquired during an IPO, provided that the shares are sold after 3 years from the date on which they were first admitted to trading on a regulated market or alternative trading system.
• This exemption also applies if shares are disposed of by way of an inheritance.
• The exemption does not apply if the shares sold are those of a company which was a related entity to the taxpayer (or the taxpayer’s testator) during the two years preceding the date on which the taxpayer or testator, as appropriate, subscribed to or acquired such shares.

Simultaneous tax relief (R&D + IP Box)

• Taxpayers who earn income from eligible IP rights and apply the preferential 5% tax rate will simultaneously be entitled to utilise R&D tax relief.
• Deductible cost are those which resulted in the creation, development or improvement of an eligible IP right whose commercialization generates income for the taxpayer.
• Currently, R&D tax relief is not taken into account when calculating the tax base to which the IP Box preferential 5% tax rate applies. It is not possible to apply the R&D tax relief and the preferential IP Box rate simultaneously to the same income. Taxpayers are entitled to use both tax relief regimes in the same tax year, but only if they are applied to different categories of income.

Changes affecting SEZs / PSIs

• Entrepreneurs are limited in their ability to benefit from a tax exemption for businesses operating pursuant to a Support Decision (SD). The exemption applies to income arising “from the implementation of a new investment” and “in the area specified in the SD”. Although the Polish Deal’s explanatory notes indicate that this is intended to be a clarificatory reform, it may encourage the authorities to apply a so-called project approach – i.e. limiting the exemption solely to income derived from new elements of an investment. This would particularly affect entrepreneurs who undertake projects to reinvest in already-existing infrastructure, which currently represents the vast majority of projects implemented by investors within the Polish Investment Zones (PIZ) regime. This corresponds to reforms introduced in the Support of New Investments Act, according to which an SD should only contain PKWiU codes related to a new investment. Moreover, as currently drafted, the new provisions do not differentiate between SDs issued before or after the Polish Deal’s entry into force, which would result in such an approach being applied to previously-issued Support Decisions.
• It will be prohibited to change a Support Decision issued within the PIZ regime so as to reduce the employment level by more than 20%.
• The small anti-abuse clause is clarified by expanding the range of unlawful activities to include ones beyond the conclusion of a contract based on artificial factual activities. Additionally, an infringement of the anti-abuse clause is deemed to be a reason for withdrawing a permit to operate within the SEZ or SD regimes.
• It excludes from the scope of a new investment’s eligible costs any expenditure on fixed assets which benefit the taxpayer’s personal circumstances, including cars.
• It adds a definition of the “commencement of works” in order to unify the currently inconsistent jurisprudence of the tax authorities.
• It limits the possibility to amend a permit to operate in a SEZ or a SD. They cannot be changed so as to increase eligible costs or reduce employment by more than 20%.