The President has signed into law important amendments to the tax relief regime for research and development, which will be effective as of 1 January 2018. This significantly improves the system introduced in 2016.
As before, the tax relief will allow businesses engaged in R&D activities to additionally deduct from their taxable income certain qualified R&D expenditures, as listed in the relevant regulations, notwithstanding the fact that these very expenditures are already being taken into account as tax-deductible costs under the general rules. Key changes:
- tax deduction level will rise to 100% of eligible R&D expenditures (up from 30% - 50%, depending on type of taxpayer and category of expenditure),
- more staff costs qualify as eligible R&D expenditures; in addition to staff on employment contracts, civil law contracts (umowa o dzieło and umowa zlecenia – important factors in Poland) plus related employer’s social security contributions will become eligible,
- clarifications on accounting for staff partially allocated to R&D activities,
- purchase of specialist equipment – more eligible R&D expenditures of equipment not qualified as fixed assets, in particular vessels, laboratory and measuring equipment, as well as the purchasing (from unrelated entities) of services involving the use of research equipment,
- qualification as eligible R&D expenditures, to a certain extent, of the depreciation write-offs from intangible assets deriving from a taxpayer’s development work cumulating in a positive outcome that can be used for the taxpayer's business activities,
- certain expenditures on protection of industrial property will become eligible R&D expenditures for large enterprises (currently only for SMEs),
- 150% deductions for eligible R&D expenditures of research and development centers (RDC),
- additional special rules apply to R&D relief for RDCs, with eligible R&D costs to include:
- depreciation write-offs on buildings, infrastructure and apartments,
- certain external R&D services purchased from non-scientific units as defined by Polish law (for eligibility, other taxpayers need to source from scientific units); newly-eligible costs: tests performed on a contractual basis, costs of technical knowledge and patents, licensing costs for a protected invention,
- confirmation that a business may use state aid arising from a special economic zone permit and R&D tax relief, provided that respective expenditures eligible for these aid measures are kept in separate pools.
The new law also features a number of other solutions to support R&D activities financially, including by extending to 2023 the possibility for venture capital companies to acquire shares in R&D companies under a dedicated tax exemption (enabling subsequent CIT-free disposal of shares).
Following these changes, and particularly as a result of the increase as from 2018 in the level of deduction from 30% (50%) to 100% of eligible costs (150% for RDC), the R&D relief will become a genuinely attractive tool which any business having activities with an innovative angle should consider. Potential implementation of that relief in your own organization could lead to measurable and long-term financial benefits (crystalizing already at the time of tax reporting for the year during which the relief is implemented). In the case of capital groups, the relief can further support the choice of Poland as a location appropriate for the R&D activities undertaken within the group.