By MOTIFE Insights, 15 March 2024
The country has tailored its tax policies to be particularly accommodating for businesses, with a focus on competitive corporate tax rates. Additionally, Poland offers various tax reliefs and incentives specifically designed to attract foreign investment and promote business growth.
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Check out also: Krakow IT Market Report 2024
The term "IP Box" derives from Intellectual Property (IP). It refers to a tax incentive that seeks to benefit entrepreneurs commercializing intellectual property rights. These rights can be born from their own research and development (R&D) initiatives or be sourced from external entities but must be patented by the taxpayer.
The primary allure of the IP Box is the attractive reduction in the effective income tax rate. Enterprises leveraging their IP as a core value driver, where revenues are primarily IP-centric, can enjoy substantial tax benefits, potentially lowering their effective income tax rate to as little as 5%.
To claim IP Box relief, taxpayers must separately identify each qualified IPR and maintain separate records for each type of right. The relief can only be claimed in the annual tax return, accompanied by a specific PIT/IP or CIT/IP attachment, which indicates the portion of income subject to the 5% tax rate.
The IP Box is designed to benefit businesses of all sizes, from small enterprises to large corporations, by supporting those engaged in creating new ideas or technologies.
To be eligible, a business must conduct Research and Development (R&D) aimed at developing new or improving existing products that qualify for legal protection such as patents, designs, computer software, and certain medicine-related rights, as specified in Corporate Income Tax (CIT) and Personal Income Tax (PIT) laws.
These protections can be for innovations developed internally or acquired from others but must be legally owned by the business. This ensures that businesses can safeguard their intellectual property, fostering innovation and growth.
Tax relief for R&D is a fiscal incentive provided to entrepreneurs, allowing them to deduct certain R&D-related costs from their taxable income. This essentially reduces the tax they owe, making R&D endeavors more affordable and appealing.
The relief mechanism is straightforward: eligible R&D costs can be deducted twice. Firstly, 100% of these costs can be removed as operating expenses. Subsequently, the same amount (100%) can be deducted from the revenue, leading to a total deduction of 200%.
Key eligible costs under this scheme include:
The tax relief is accessible to entities of all sizes engaged in Research and Development (R&D) activities, including both Corporate Income Tax (CIT) and Personal Income Tax (PIT) taxpayers.
To leverage this tax relief, businesses must actively participate in R&D activities throughout the tax year and diligently document all associated costs incurred during this period. Importantly, the eligibility for this relief is not contingent on the success or the level of innovation of the R&D efforts. Projects that are in progress, even if commenced in prior years, are also eligible for consideration.
A noteworthy provision is extended to entities operating within a Polish Investment Zone (PIZ) under a support decision, allowing them to benefit from the R&D tax relief. However, it is critical that these entities do not classify the eligible R&D costs as expenses related to activities supported by the PIZ decision. This stipulation ensures that businesses can optimize their tax benefits while complying with regulatory guidelines, promoting sustained investment in innovation and development.
Check out also: R&D Centre in Poland blog post from MOTIFE
The Polish Investment Zone program offers options for CIT tax breaks for companies who set up their operations in Poland. This income tax incentive is available for investments in the Krakow and Małopolska region and is granted by a regional entity (Krakow Technology Park) on behalf of the Polish Minister of Economic Development.
The amount of tax break is calculated by multiplying investment costs by 40%, 50%, or 60% depending on the size of the company (e.g. a ”large” company that plans to hire 50 developers and incur 10M PLN as a 2-year employment cost will be granted 4M PLN income tax break.
The eligibility for tax relief under the Public Aid scheme is determined by company size, as outlined in the European Commission Recommendation 2003/361/EC. The level of tax breaks varies with the size of the enterprise: large enterprises qualify for a 40% tax break, medium-sized enterprises for 50%, and small and micro-enterprises for 60%.
Additionally, companies must meet a minimum investment threshold and adhere to specific quality criteria that contribute to sustainable economic and social growth. The nature of the investment project must align with both qualitative and quantitative standards set forth in the New Investment Support Act.
For companies seeking to benefit from the Polish Investment Zone (PIZ) incentives, the application process involves obtaining a 'Support Decision.' In the region of Małopolska, for instance, the Kraków Technology Park (KPT) issues this decision on behalf of the Minister of Entrepreneurship and Technology. This structured application process ensures that companies are evaluated fairly and that the benefits are awarded to projects that promise significant contributions to innovation and development within the region.
The rules of personal income taxation can differ from one country to another, so let’s start by defining what they are in Poland. Net income of employees in Poland, also called “take-home earnings” (in Polish na rękę), is calculated from gross income by taking into account personal income tax rates, social security contributions as well as tax-deductible costs. Tax-deductible costs reduce the amount of personal income tax.
The standard amount of tax-deductible cost is low and is a lump sum of approx. 250 PLN / 56 EUR per month (or 300 PLN / 67 EUR per month if employees work in a different town than where they live). It covers the assumed standard monthly costs related to the employment (for instance, the employee’s expenses for their commute to work).
TDC can be implemented in all sizes of companies that employ authors of copyrighted works. Companies can benefit from the Tax-Deductible Costs (TDC) scheme by leveraging it to enhance their compensation packages, making them more attractive to current and potential employees. Specifically, it allows for an increase in the net income of employees by up to 13% annually without incurring extra costs for the employer.
Firms can use TDC to manage their salary expenses more efficiently, offering competitive net salaries while reducing gross salary costs.
Check out also: TDC blog post from MOTIFE
Although Poland is a great destination with very business friendly environment, tapping into the new network and laws can be challenging. In such a case using a help of a local expert can be a way to smoothly.
This expert guidance proves invaluable in various scenarios, such as setting up a new business operation, expanding your existing presence, or adapting to regulatory changes. Local experts can offer insights into market entry strategies, help with legal compliance, and provide networking opportunities to connect with key stakeholders.
Additionally, they can assist in navigating the complexities of local employment laws when hiring staff, ensuring your business operations align with local practices and legal requirements. Their expertise becomes a critical asset in avoiding common pitfalls and accelerating your business success in a new market.
MOTIFE delivers a comprehensive nearshoring advisory service, designed to work in close collaboration with a client. We assist in selecting and customizing the most suitable nearshoring strategies to fit company’s unique requirements. Our service extends to developing a comprehensive plan that includes a detailed schedule, a list of essential activities, key milestones, project costs, and the profiles needed for hire.
Our clients have the flexibility to choose from or combine various nearshoring approaches such as establishing your Own Entity, utilizing an Employer of Record (EOR), or engaging in Staff Augmentation. Each model is carefully tailored to meet the specific needs of your project, ensuring a personalized and effective nearshoring strategy.
Check out also: Nearshoring Services from MOTIFE
Learn more about what international companies have achieved with their Krakow tech labs by downloading our Krakow IT Market Report 2024
If you are interested in setting up your own engineering hub in Poland, contact us at MOTIFE to learn more.
If you are looking for interesting job opportunities in tech companies in Poland, check out open roles at motife.com/jobs.
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