Increase of innovation of the Polish economy constitutes one of the main economic goals declared by the Polish government.
The abovementioned goal is currently being realized by, inter alia, work on two acts aimed at making it easier to conduct research and development activity in Poland, i.e. a small act on innovation that primarily covers tax incentives and a large act on innovation, which as announced will regulate the remaining issues of conducting innovation activity (among others, facilitate contribution of capital in development of innovation).
At this moment, due to the necessity to adopt amendments to the tax regulations before the end of the calendar year, the government presented a bill of the small act on innovation, which was submitted to the Sejm (lower house of the Polish government) on 25th August 2016 and is scheduled to come into force on 1st January 2017. The proposed amendments cover mainly the extension of the already existing tax relief for research and development activity.
Currently applicable tax relief allows the taxpayer to additionally deduct from the taxable base the expenses incurred by the taxpayer on the research and development activities (such expenses may also be reported as the standard tax costs). As research and development activity in the meaning of the tax regulations is considered any activity of creative nature that covers scientific research and development works conducted systematically in order to create knowledge and use the knowledge to create new solutions. Currently applicable regulations provide for the following categories of eligible costs:
- salaries of the employees dealing with R&D activities;
- purchase of materials (including raw materials) for the purposes of R&D activities;
- purchase of opinions of experts, services of consultants, purchase of results of research of R&D entities;
- price for using R&D equipment;
- depreciation write-off from the value of the fixed assets and intangibles used in R&D activities.
The amount of expenses that may be additionally deducted by a taxpayer is capped at 30% with regard to the salaries of employees dealing with R&D activities, while the remaining expenses are capped at 20% (10% in case of enterprises other than small or medium). The entrepreneurs are entitled to use the R&D tax incentive within three years immediately following the year in which the entrepreneurs deducted or could deduct eligible costs.
Increase of attractiveness of the R&D tax incentive is planned to be achieved both by extending the category of expenses that may constitute eligible costs as well as increase of the value of the eligible costs that may be deducted. In particular, according to the planned amendments, micro-entrepreneurs, as well as small and medium entrepreneurs will be entitled to additional deduction from the tax base of 50% of all eligible costs. The remaining entrepreneurs will be entitled to deduct 50% of the wage costs and 30% of the remaining eligible costs. The statutory catalogue of the costs constituting the eligible costs subject to the tax relief for the research and development activity will be extended by the costs of obtaining a patent. In addition, the possibility to include the eligible costs in tax settlements has also been extended to 6 years following the year in which the expense was made.
The new benefit, addressed primarily to start-ups, is the possibility to not only deduct the eligible costs from the tax base (what requires declaring income by the entrepreneur), but also ability to obtain an amount corresponding to 19% of the qualified costs. Such right will apply to entrepreneurs that show tax loss or income in an amount insufficient to include all eligible costs in tax settlements. Such support will be available to entrepreneurs during the first year of conducting business (subject to certain exceptions), while micro-entrepreneurs, as well as small and medium entrepreneurs will be entitled to such support also during the second year of conducting business. The obtained amount will have to be returned if the entrepreneur has been declared bankrupt or put into liquidation within 3 years of the end of a fiscal year, in which the entrepreneur submitted a tax declaration showing the right to receive a part of the eligible costs.
Apart from the issues directly connected with the tax relief for the R&D activity, the government has also proposed provisions aimed at securing tax neutrality of the contribution in-kind to a company in the form of the so-called commercialized intellectual property (inter alia, patents, author’s economic rights to software, know-how or licences). This is another amendment addressed primarily to start-ups that frequently develop their intellectual property within individual business activity of their founders. The currently binding regulations that may trigger taxation of contribution in-kind to a company frequently made it difficult to further develop innovative business via a company, which is more attractive for external investors.
In addition to the proposed tax-related amendments, the small act on innovation regulates matters higher education sector aimed at, among others, determining the issue of ownership of results of conducted scientific studies or facilitate commercialization of the results of the conducted scientific studies.
The issue that draws attention in the small act on innovation and in the public declarations made by the Polish government is the fact that the government focuses on tax incentives in an attempt to increase the level of innovations in the Polish economy. The policy of the European countries that are the most successful in the field of innovation and creation of technological start-ups shows that the tax reliefs do not necessary play a decisive role. For instance, in Sweden, the European capital of start-ups, the regulations on reliefs for the R&D activities have been binding since 2014 and provide for significantly lower support for entrepreneurs than the relief for R&D activity currently binding in Poland. In particular, Swedish entrepreneurs are allowed to decrease the social insurance contributions paid for employees between 25-64 years of age whose work is connected with the R&D activity (75% of the work time, not less than 15 hours per month). The maximum amount by which the social insurance contribution may be decreased is 10% of a net remuneration of an employee.
According to the data of the OECD, the Finnish entrepreneurs cannot expect more generous support from the Finnish tax system. The program providing support to the R&D activity consisting of the possibility to decrease the tax base twofold by remuneration of employees working within the R&D was working only from 2013 until 2014. At this moment, the main tax incentive is the possibility of accelerated depreciation of tangible assets connected with the R&D, whereas the main source of financing of the Finnish start-ups and innovation activity are direct subsidies.
The article has been originally published in the "Innovative solutions of the Scandinavian companies in Poland" report of The Scandinavian-Polish Chamber of Commerce (SPCC).