Foreign tax credit
Resident corporations are taxed on their worldwide income unless there is an applicable DTT in place between Poland and the relevant country that provides that the foreign income shall be exempt from taxation in Poland. In all other cases (in particular, when the income is not covered by any treaty), Poland uses the ordinary credit method to avoid double taxation. Therefore, a Polish resident is liable for income tax imposed on its worldwide income, but the tax is proportionately reduced by the income tax paid abroad.
Polish Investment Zone (PIZ)
At the end of June 2018, new regulations on applying for the income tax exemption due to the new investment implementation entered into force (so called PIZ), which replaced the previous Special Economic Zones system. The biggest change is that the possibility to obtain tax incentive does not depend on the location of the new investment, which does not necessarily have to be on the territory of a Special Economic Zone (SEZ).
The amount of the incentive (which is income tax exemption), is calculated exactly the same as within SEZ system and depends on the:
- value of incurred eligible costs of the investment (investment capital expenditures or two-year labour costs of the new employees),
- state aid intensity in a selected region,
- size of the enterprise.
The right to use the exemption is granted for 10, 12, or 15 years, depending on the investment’s location.
Applying for the income tax exemption within PIZ requires declaration to meet numerous quality criteria. Some of them remain common for all types of investment projects. The minimum number of required quality points vary from 4 to 6 points out of 13 possible and depends on the investment location.
There are core obligations regarding to income tax exemption within PIZ:
- project implementation may begin no sooner than the day after the date of submission of complete documentation to the PIZ,
- 5 years investment maintenance after completing the project,
- keeping ownership on acquired fixed assets for 5 years from the day of register themy,
- maintenance of workplaces created for the project purpose for up to 5 years,
- necessity to incur declared value of CAPEX.
Until the new regulation entered into force, Polish legislation provided investment incentives related to business activities carried out in 14 zones defined as SEZs. A business entity could benefit from tax incentives, provided that the entity obtained a permit from the Ministry of Economic Development to conduct business activities there and met other legal requirements. Note that a CIT credit applied only to income earned on activity conducted within the territory of SEZs and covered by permit. According to current regulations, the deadline for utilising the available tax credit from the previous SEZ system is the end of 2026 (previously 2020).
Tax relief for research and development (R&D)
Entrepreneurs have the possibility of a tax deduction of costs incurred for R&D. The value of the deduction varies depending on the size of the company and type of eligible costs.
Eligible costs include the following six categories of R&D expenditures:
- Employees’ wages and social contributions.
- Purchase of commodities and raw materials.
- Expertise, research, and opinions bought from scientific units.
- Payments for use of research equipment.
- Amortisation of intangible assets and fixed assets, excluding passenger cars, buildings, and constructions.
- Costs of obtaining IP protection.
To benefit from the tax relief, each entity needs to perform R&D works and prepare a record of the eligible costs incurred in relation to R&D works in a given year. It is not important whether the R&D works end with success or the level of innovativeness of future effects of those works. Tax relief is also allowed for qualifying projects in progress (e.g. projects launched in previous years).
From 2018, there is an increase of the existing deductions in income taxes from 50% and 30% (depending on the category of eligible costs and the size of the taxpayer) to 100% of qualified costs, irrespective of their category and size of the taxpayer (which has hitherto differentiated the allowed deduction limits). This means that all taxpayers benefiting from R&D tax relief will be able to save in income tax PLN 19 on every PLN 100 of qualified costs starting from 2018.
Also, taxpayers may deduct expenditure incurred on employees that covers the costs of staff hired by taxpayers for R&D purposes under selected civil law contracts (previously only on an employment contract basis).
The R&D tax relief is available to taxpayers who, during the tax year, have operated in a PIZ on the basis of a decision on support, regarding eligible costs that were not recognised as costs of running the activity covered by the PIZ decision.
From 2022, there is an increase of the existing deductions in income taxes from 100% to 200% of qualified costs incurred on employees that covers the costs of staff hired by taxpayers for R&D purposes.
As of 1 January 2019, a new mechanism reducing tax rate to be applied to income derived from intellectual property (IP) rights (Innovation Box) has been introduced.
The Innovation Box scheme reduces, to 5%, the tax rate applicable to an income derived from IP rights.
The adjustment relates to the ratio of costs incurred on self-developed of IP rights in R&D activity and costs of subcontracting of R&D activity.
Taxpayers applying the Innovation Box scheme shall be entitled to benefit from the tax preference until a given right expires (20 years in case of a patented invention).
The tax preference applies provided that a taxpayer conducts R&D activity related to development, creation, or improvement of a given IP component. In order to benefit from the scheme, taxpayers will be required to separate the discussed income in their accounting books.
The new provisions complement the Polish innovative activities tax preferences system by supplementing the existing R&D tax relief. Previously, an entrepreneur introducing an invention to the market was required to tax income with a standard tax rate. Upon R&D relief, the entrepreneur is now entitled to a tax relief calculated on the basis of qualified costs incurred (e.g. on development of an invention).
Simultaneous IP BOX and R&D relief
A taxpayer commercializing the results of research and development and obtaining qualified income from them within the meaning of the IP Box provisions has the possibility of deducting R&D relief from the IP Box income of eligible costs incurred to develop the right covered by IP Box.
Innovative employees tax relief
The mechanism is an extension of the existing R&D relief.Taxpayers benefitting from R&D tax relief that had not been settled in the previous year, are able to deduct it from advances for personal income tax the be paid by the employer, due to:
- service relationship, employment relationship, contract work, cooperative employment relationship,
- services provided under a contract of mandate or contract for specific work,
The condition for the deduction will be that a given employee devotes at least 50% of the total working time directly to R&D activities in a given month. The deduction will be valid from the month in which the taxpayer submitted a tax return for a given year until the end of that tax year.
Relief for Robotization
The relief was introduced for a period of 5 years and covers expenses from the beginning of the 2022 fiscal year until the end of the 2026 fiscal year. It is available to both PIT and CIT taxpayers investing in robotization, regardless of the size of their operations. Entrepreneurs are additionally able to deduct 50% of the costs incurred for investments in robotization.
The deduction is to apply in particular to:
- purchase or financial leasing of new robots and cobots,
- purchase of software necessary for the proper startup of new fixed assets in the field of robotization,
- purchase of accessories (e.g. tracks, turntables, controllers, motion sensors, end effects),
- purchase of occupational health and safety (OHS) devices,
- training costs for employees who will operate the new equipment.
The value of the deduction may not exceed the amount of income in a given tax year.
Relief for Prototype
The Prototype relief allows a deduction from the tax base of 30% of the sum of the costs of the trial production of a new product and the launch of a new product, but the amount of the deduction cannot exceed 10% of the income earned from sources other than capital gains in a tax year. It is an extension of the already existing R&D relief and its scope covers the stage after completion of R&D works but before mass production of the developed product.
The deduction is limited to selected costs covering:
- the purchase price or production cost of new fixed assets necessary to start trial production of a new product,
- purchase costs of materials and raw materials purchased solely for the purpose of trial production of a new product,
- costs of improvement incurred to adapt the fixed asset to launch trial production of a new product,
- research, expertise and certification costs,
- product life cycle studies,
- environmental technology verification system.
The costs incurred have to be shown in the annual tax declaration with the possibility of their deduction in the next six years following immediately after the year in which they were incurred.
Relief for Expansion
The main purpose of the tax relief is the possibility of an additional deduction of the value of expenses related to the increase in revenues from the sale of products. The product may be an item already produced by the taxpayer, as well as items not yet offered by the taxpayer and not yet offered in a given country.
The relief may be settled on an ongoing basis, and the increase in revenues should be shown for 2 years, which requires monitoring of revenues obtained from products to which eligible costs were allocated.
Expenses for the expansion is eligible for a two-fold deduction up to the amount of PLN 1 million in a given tax year.
The costs associated with increasing revenues from the sale of products are:
- participation in fairs (e.g. organization, accommodation),
- promotional activities,
- adaptation of packaging to the contractor's requirements,
- preparation of documentation for the sale of products (e.g. certification of goods and registration of trademarks),
- cost of tender documentation.
Relief for CSR
The CSR relief enables to deduct an additional 50% of selected costs from the tax base, incurred on activities such as: sports, culture, higher education and science. The new preference, similar to the R&D relief in force for several years, is deductible in the tax return for the tax year in which the costs were incurred.
Eligible costs include:
- purchase of sports equipment, covering the costs of organizing or participating in sports competitions, covering the costs of using sports facilities for the purposes of sports training, financing sport’s scholarships,
- costs also incurred for sport’s events not being mass sport’s events,
- costs incurred for the benefit of cultural institutions entered in the register of cultural institutions, as well as for financing cultural activities carried out by art academies and public art schools,
- costs incurred for student scholarships for academic performance or sports and for research scholarships for doctoral students, costs of fees related to the education of an employed employee in studies, post-graduate studies and other forms of education, costs of remuneration of students during internships work placements.
Relief for IPO
The Relief for IPO allows for the deduction of costs incurred in the scope of the initial public offering.
The catalog of eligible expenses is closed and is divided into two categories.
Expenses eligible for 150% deduction:
- preparation of the prospectus,
- notary, court, fiscal and stock exchange fees,
- preparation and publication of advertisements required by law.
Expenses eligible for 50% deduction (limit of PLN 50,000):
- advisory, legal and financial services costs.
The expenses must be incurred directly for making the IPO, i.e. related directly and exclusively to the IPO, incurred in the IPO year or in the preceding year, but not later than on the IPO date when the taxpayer introduced his shares to trading for the first time.
Relief for Consolidation
The taxpayer who bears the eligible expenses for the acquisition of shares in a capital company has the right to reduce its tax base by these expenses in the year in which they are actually incurred, while meeting the following conditions:
- the company whose shares are acquired has its registered office or management board in the territory of the Republic of Poland or in a country with which the Republic of Poland has concluded a double taxation agreement,
- the main activity of the company whose shares are acquired is the same as the subject of the taxpayer's activity, or the company's operations may be considered to support the taxpayer's activities, excluding financial activities,
- the main activity of the company whose shares are acquired is conducted at least 24 months prior to the acquisition of the shares,
- within 24 months prior to the acquisition of the shares, the company and the taxpayer do not they were related parties
- the taxpayer is obliged to acquire shares in one transaction representing an absolute majority of voting rights (51%).
The maximum amount of the deduction in a tax year: PLN 250,000.
Eligible expenses subject to deduction:
- legal services for the purchase of shares or stocks,
- taxes charged directly on the transaction,
- notary, court and fiscal fees,
The deduction of expenses related to the acquisition of another company is possible in the tax year in which the taxpayer acquires shares in that company and applies to the amount of expenses incurred by the taxpayer in that tax year.