R&D relief and IP Box – last call for companies 

R&D Relief

Tax relief for research and development activity is a legal tool present on the Polish market since January 2016. Over the last few years, regulation has significantly increased its level of flexibility in response to practical comments submitted by entrepreneurs. The possibility of deductions under a task-specific contract or a mandate contract in force since 1 January 2018 or linking the relief with activities in special economic zones are only some of the changes meeting the market expectations. In simple terms, R&D relief enables to demonstrate tax deductible costs in an amount greater than the amount actually incurred.

It is worth noting that the taxpayers who carry out research and development activities in 2016, 2017 and 2018 still have the possibility to generate savings for the described backward periods. The main conditions that have to be fulfilled in this case are as follows:

• conducting research and development works in the aforementioned periods in terms of CIT/PIT Act,
• possessing or restoring the project and accounting records enabling comparatively simple indication of R&D costs,
• willingness to submit corrections to CIT declaration for backward period to which the relief applies.

The following types of costs (the so-called eligible costs) subject to additional deduction are:

• employees` remunerations (since 2018 and also task-specific and mandate contracts),
• raw materials and consumables,
• depreciation of fixed assets,
• depreciation of tangible and intangible assets,
• opinions and services of scientific units,
• use of research and development equipment for a fee.

Maximum acceptable limits for additional deductions in the individual years:

2016

• 30% of the personnel costs
• 20% of other eligible costs (micro, small and medium-sized enterprises)
• 10% of other eligible costs (large enterprises)

2017

• 50% of all eligible costs (micro, small and medium-sized enterprises)
• 50% of the personnel costs (large enterprises)
• 30% of other eligible costs (large enterprises)

2018+

• 100% of all eligible costs
• 150% for companies with the status of R&D centres

One of the most important elements of safe relief implementation is drawing up an individual tax ruling request. Positive tax ruling protects entrepreneurs in the event of tax inspection and also allows for an optimal approach to project management in the context of accounting and bookkeeping.

IP Box

IP Box is a legal and tax instrument that allows taxation of certain kinds of income at a 5% CIT/PIT rate. Revenues taxable at the preferential rate must involve the use of the so-called qualified intellectual property rights.

Qualified intellectual property rights include:

• patents,
• Supplementary Protection Certificate – SPC,
• right in registration for the authorised medical products and the authorised medical veterinary products,
• right of protection for a utility model,
• right in registration for an industrial design,
• right in registration for integrated circuits topography ICT,
• exclusive right of protection for new plant varieties,
• copyright protection of computer programs.

It should be emphasised that both in the case of R&D relief (designing a code by a programmer working under employment contract is in most cases regraded as research and development activity) and IP Box (the right for computer program is the only item on the list which does not require legal protection confirmed by an additional document) the entities involved in creating and developing software are preferentially treated form the very beginning. The way of operating of IT companies (e.g. detailed project records, hourly settlement of programmers` working time) also allows us to assume that in the time scale such companies will be lead beneficiaries of these regulations.

Is it beneficial to combine R&D relief and IP Box with 50% rate of tax deductible costs (KUP 50%)?

It is recommended to look at the project of using R&D tax reliefs in the overall context. Joint implementation of R&D and IP Box relief is cheaper at the implementation stage than the implementation of these two projects separately. Taxpayers may use both preferences, but only one may benefit from one income. Taxpayer may choose which income benefits from which preference. In relation to the above, it should be again noted that, it is extremely important to draw attention to the effective management of project implementation in the context of income-cost recordkeeping.

Entities employing employees who provide and settle work partially under copyrights (KUP 50%) are in a slightly privileged position. Due to the fact that, creative employees are often persons performing R&D works, and such works may lead to intellectual property rights creation, enterprises using KUP 50% relief should immediately analyse the possibility of using R&D and IP Box relief as well.

It is worth mentioning that, R&D and IP Box relief generate the highest value in entities which generate income. In the event of tax loss, the additional loss arising from R&D and IP Box relief can strengthen the tax shield – the possibility of settling the loss generated in such a way lasts up to 5 years.

Keeping up with the implementation process

Taking advantage of R&D and IP Box relief requires obtaining an interpretation, so it is not worth waiting with their implementation.  Project implementation should consist of two following stages:

1. Analysis of R&D works in terms of their qualification for R&D relief,
2. Analysis of income generated with participation of qualified intellectual property rights
3. Security of company`s position (individual interpretations),
4. Implementation of legal and procedural changes,
5. CIT/PIT calculation.

The time necessary for the implementation of point 1,2 and 4 is not easy to forecast and it depends on the size, sector and development stage of a given company. The entity commencing the implementation project on 1 October 2019 has 6 months to do that. At least 3 months should be deducted from this period as it is the time of waiting for individual interpretations. The remaining 3 months constitute appropriate period for effective project implementation, however, there is no safety time margin.

Author:

Paweł Stadnik
Strategy Advisor Crowe