New income tax relief supporting innovation of enterprises in Poland

The package of tax changes known as the “Polish Deal” introduces several new tax reliefs aimed at supporting the innovation of enterprises, as well as extending the scope of some reliefs that already exist.

These changes should increase Poland’s attractiveness as a location from which to undertake R&D activities.

The new incentives may be used by taxpayers conducting research and development activities, creating new products, and introducing them to the market, as well as obtaining revenues from the commercialisation of intellectual property rights.

One of the changes is the extension of the scope of R&D tax relief. Expenses related to the employment of individuals performing research or development work (e.g. software engineers or developers) may be deducted in a triple amount – first, as tax-deductible expenses deducted from the revenue and then as deductions from the tax base in the amount of 200% of the costs incurred. Moreover, if a taxpayer incurs a loss or their income is too low to deduct the full amount of eligible employees’ costs, they will be entitled to retain personal income tax instalments on the remuneration of employees to the value of the non-deducted eligible costs multiplied by the CIT rate applicable to the taxpayer company in a given tax year (9% or 19%).

This solution could be particularly beneficial for taxpayers conducting R&D activity who cannot deduct the full amount of eligible costs because their income is limited by the margin specified for transactions with related entities, which purchase research and development services from the taxpayer.

If the taxpayer creates a new product as a result of their R&D work, the costs of trial production and introducing the product to the market may also be deducted from the tax base. However, the amount of the deduction will be limited to 30% of the sum of the costs of production trials for a new product and launching a new product on the market, and not more than 10% of the income earned by the taxpayer from business activities.

The costs of production trials and introducing a new product to the market may include the purchase price of the new fixed assets necessary to start production trials, costs of purchasing materials, and raw materials purchased solely for the purpose of the production trial of a new product, costs of research, expert opinions, preparation of documentation necessary to admit the product to the market, costs of product testing, etc.

It should be stressed that for the purpose of the deduction, only tangible current assets in the form of finished goods manufactured or processed by the taxpayer are considered as products. This category does not include services.

Another tax relief provided for under the Polish Deal is the possibility of deducting from the tax base the costs incurred by the taxpayer in order to increase the revenues from the sale of products. Such costs may include, for example, expenses related to participation in trade fairs, costs of purchasing advertising space, website development, press publications, brochures, information catalogues, and product leaflets, costs of adapting product packaging to the requirements of contractors, costs of preparing documentation enabling the sale of products or tendering.

The amount of the deduction may not exceed the income obtained by the taxpayer from business activity in the relevant tax year, up to a limit of PLN 1,000,000.

The Polish Deal also introduces the possibility of using the R&D relief and IP Box relief at the same time. This solution enables the taxpayer to deduct the costs incurred on R&D activities (eligible costs) from the income from commercialisation of qualified intellectual property rights, subject to taxation of a 5% tax rate under the IP Box tax relief.