New and extended tax incentives for investment and innovation in the “Polish Deal”

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The Polish government has published draft laws forming part of the Polish Deal, a package of solutions to reboot the economy after the epidemic, intended to introduce new, and tweak existing, tax breaks to support investment and innovation.

The draft regulations are currently in the pre-consultation phase (until June 21) and should be submitted for legislative works upon completion.

The draft published June 15, 2021 does not contain any transitional provisions, but the government announced that these changes would enter into force as early as 2022. Therefore, taxpayers conducting or planning R&D projects or planning investments in new production equipment should carefully study the solutions, possibly preparing for their implementation and adjusting their schedule of activities and expenditures accordingly.

Key planned changes are as follow:

Tax relief for robotization

  • introduction of a new tax relief for all businesses (including large ones) allowing the deduction in the annual tax return from income of 50% of eligible (specified exhaustively in the regulations) tax deductible costs incurred (starting from 2022, until 2026 inclusive) for robotization, but not more than up to the amount of income from business activity, where:
    • an industrial robot is understood as an automatically controlled, programmable, multipurpose and stationary or mobile machine, with at least three degrees of freedom, having handling or locomotive properties for industrial applications, which
      • exchanges data in digital form with control and diagnostic or monitoring devices for the purpose of remote control, programming, monitoring or diagnosis,
      • is connected with ICT systems that improve the taxpayer's production processes (in particular with production management systems, product planning or design),
      • is monitored by sensors, cameras or other similar devices and
      • it is integrated with other machines in the taxpayer's production cycle,
    • the eligible costs incurred for robotization include:
      • new industrial robots as well as machines and peripheral devices (examples indicated in the regulations) for industrial robots functionally related to them,
      • new machines, devices and other things functionally related to industrial robots, used to ensure ergonomics and work safety in relation to workplaces where human interaction with an industrial robot occurs, in particular sensors, controllers, relays, safety locks, physical barriers (fences, covers) or optoelectronic protective devices (light curtains, area scanners),
      • new machines, devices or systems used for remote management, diagnosis, monitoring or servicing of industrial robots, in particular sensors and cameras, and
      • new devices for interaction between man and machine,
      • intangible assets necessary for the proper commissioning and acceptance for use of industrial robots and other fixed assets listed above,
      • training services related to industrial robots and other fixed assets or intangible assets listed above,
      • financial leasing of industrial robots and other fixed assets listed above, if, after the end of the basic period of the leasing agreement, the financing party transfers the ownership of these fixed assets to the user.
    • the relief will be conditional upon retention of ownership of the fixed assets and intangible assets covered by the relief until the end of their depreciation period (and in the case of a lease agreement, until the end of the basic lease term).

Tax relief on prototypes

  • introduction of a new tax relief for all entrepreneurs (including large ones), allowing 30% of the total eligible costs (specified exhaustively in the regulations) to be deducted from income in the annual tax return (generally, in the net amount) of trial production of new products (excluding services) and placing them on the market, but not more than 10% of income from business activity, while:
    • trial production of a new product is understood as the stage of technological start-up of production (from the first cost associated with this stage until the start of production of a new product) that does not require further design, construction or engineering works, the purpose of which is to perform trials and tests before starting the production process for a new product created as a result of R&D works carried out by the taxpayer,
    • eligible costs of trial production are the purchase price (production cost) of specific new fixed assets necessary to start trial production of a new product, as well as the costs of improvement incurred to adjust certain fixed assets to launch trial production of a new product and the costs of materials and raw materials acquired solely for the purpose of trial production of a new product,
    • placing a new product on the market is understood as activities undertaken in order to prepare documentation for the purpose of obtaining certificates and permits for the product resulting from R&D carried out by the taxpayer, enabling the product to be sold,
    • eligible costs of introducing a new product to the market are the costs of research, expertise, preparation of documentation necessary to obtain a certificate, approval, CE mark, safety mark, obtaining or maintaining a marketing authorization or other mandatory documents or markings related to the admission to trading or use and the costs of the fees charged to obtain, renew or extend them, as well as the costs of the product life cycle study (LCA) and the costs of the environmental technology verification (ETV) system,
    • in the case of special economic zone (SEZ) investors, the application of the prototype relief will only apply to costs not included in the calculation of income covered by the SEZ exemption (which, similarly to the R&D Relief, will significantly reduce the attractiveness of the new relief),
    • the amount of eligible costs not used in a given tax year (due to loss or insufficient income) can be settled in the next two tax years,

Relief for innovative employees

  • introducing for all businesses (also large) the possibility of settling eligible costs of R&D activities not used under the R&D Relief in a given tax year (due to loss or insufficient income) by
    • an appropriate reduction in PIT advances
    • due on remuneration for work, under a mandate contract or a specific task contract or, which is a significant novelty, on royalties,
    • paid to qualified R&D personnel - understood as persons whose working time or service time allocated to R&D activity is at least 50% of the total working time in a given month (or, respectively, the time of service provision),
    • by the product of unused eligible costs of R&D costs and the income tax rate appropriate for the taxpayer applying the relief
  • the above reduction of PIT advances will be possible from the month following the month of submitting the annual CIT return, which shows the unused amount of eligible R&D costs,

Changes in the R&D Relief

  • increasing from 100% to 200% (for ordinary taxpayers who do not have the status of a research and development center) the level of deduction under the R&D Relief of costs of personnel conducting R&D activity, incurred by the taxpayer on the basis of an employment contract, contract of mandate or a specific task contract,
  • increasing the levels of deductions of eligible costs for research and development centers,

Changes in IP Box (possibility of cumulation with the R&D Relief)

  • introducing the possibility of joining together the R&D Relief and IP Box by reducing the income from the qualified intellectual property right (IP) by the eligible costs of R&D activities recognized under the provisions on R&D Relief –
    • which means that the income from a specific IP law calculated for the purposes of IP Box (as a rule constituting income from their sale, licensing or use in goods or services) will not only be taxed at a preferential rate of 5%, but will also be previously reduced by the costs recognized (and potentially deducted) as eligible costs under the R&D Relief incurred in connection with this IP law.

Tax credits related to investments of individuals in VC funds

  • introducing the possibility for individuals to deduct from income 50% of the expenses for the acquisition (taking up) of shares or stocks in an alternative investment company, or a company in which the alternative investment company holds at least 5% of shares (stocks), provided that such stocks (shares) are held for a period of at least 2 years, up to the amount of PLN 250,000.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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