R&D Tax Relief in Poland

R&D Tax Relief in Poland: How Employee Costs During Leave and Sick Days Affect Your Deduction – and Why the Rules Just Changed

Poland’s R&D tax relief (ulga B+R) allows businesses to deduct qualified costs from their tax base – on top of recognising them as standard deductible expenses. For foreign investors running innovation-driven operations in Poland, getting employee cost allocation right can make a material difference to the effective tax rate. A landmark ruling by Poland’s Supreme Administrative Court in August 2025 reshaped how the key proportion is calculated, potentially lowering the deduction for some taxpayers. Here is what investors and their CFOs need to know.

Why R&D Tax Relief Matters for Foreign-Owned Operations in Poland

Poland’s R&D incentive is one of the most competitive in Central and Eastern Europe. It allows both CIT and PIT taxpayers to deduct up to 200% of qualifying R&D expenditure (100% as a standard tax-deductible cost plus an additional 100% deduction from the tax base – or 200% for entities holding R&D centre status). For a foreign investor operating through a Polish subsidiary or branch, the relief directly reduces the effective CIT burden, currently set at 19% (or 9% for small taxpayers). The practical impact is significant: every PLN 1 million of properly documented qualified costs generates up to PLN 190,000 in tax savings at the standard rate.

Among the largest categories of qualified costs are employee-related expenses – salaries, bonuses, overtime pay, employer-funded social security contributions, and other statutory entitlements of staff engaged in R&D activities. The legislation references a broad statutory definition of employment income (Article 12(1) of the PIT Act), which covers all monetary payments and in-kind benefits arising from the employment relationship. This inclusive scope is where the complexity begins – and where recent case law has introduced important clarifications.

The Settled Question: Are Salaries During Leave and Sickness Qualified Costs?

For years, the Polish tax authorities took the position that only remuneration for time actually spent on R&D work could qualify for the relief. Under this interpretation, holiday pay, sick pay, and similar statutory entitlements were excluded from the R&D deduction – even though the employee’s primary role was conducting research and development.

This restrictive approach was decisively overturned through a consistent line of Supreme Administrative Court (NSA) rulings between 2021 and 2024, culminating in a General Interpretation issued by the Minister of Finance on 13 February 2024 (ref. DD8.8203.1.2021). The Minister confirmed that remuneration paid during annual leave, sickness, and other justified absences constitutes a qualified cost under the R&D relief, provided the employee is engaged in R&D activities as part of their regular duties.

The legal reasoning is rooted in the statutory cross-reference: Article 18d(2)(1) of the CIT Act defines qualified costs by reference to Article 12(1) of the PIT Act, which encompasses all monetary payments arising from the employment relationship – not merely wages for hours worked. The NSA has consistently held that the concept of “entitlements” (należności) in the R&D provision is broader than “income” (przychody) and cannot be read restrictively to exclude statutory leave-related payments.

In its ruling of 11 April 2024 (case II FSK 1921/23), the NSA examined a company whose R&D employees received, among other things, quarterly and annual bonuses, seniority allowances, overtime supplements, sick pay, sickness benefits, holiday pay equivalents, and retirement severance. The tax authority had excluded holiday supplements, sick pay, and sickness benefits from qualified costs. The Court upheld the lower court’s decision in favour of the taxpayer, reaffirming that all components of employment income – including those paid for periods when the employee does not perform work – fall within the scope of the R&D deduction, subject to the time-based proportion.

A Practical Distinction: Employer-Funded Sick Pay vs. Social Insurance Benefits

While the principle is settled, foreign investors should note an important nuance. Polish labour law distinguishes between two types of sickness-related payments. Sick pay funded by the employer (wynagrodzenie chorobowe, under Article 92 of the Labour Code) covers the first 33 days of incapacity per calendar year (14 days for employees over 50). This is paid directly by the employer and its qualification as an R&D cost is well-established. After this period, the employee receives sickness benefits funded by the Social Insurance Institution (ZUS). Although some NSA rulings have accepted these benefits as part of qualified costs, ZUS-funded benefits are not employer remuneration in the strict sense. This element carries higher risk in a tax audit. The safest categories for the R&D deduction remain holiday pay and employer-funded sick pay.

The 2025 Game-Changer: How “Total Working Time” Is Now Defined

The more consequential development for investors concerns not what qualifies, but how much of it can be deducted. The CIT Act provides that employee-related qualified costs are recognised in proportion to the time the employee devotes to R&D activities relative to their “total working time” (ogólny czas pracy) in a given month. Neither the tax legislation nor the Labour Code defines this term.

Two competing interpretations have coexisted in NSA case law. Under the first – favoured by taxpayers and endorsed by several earlier rulings (e.g. II FSK 1038/19 of 5 February 2021) – “total working time” means the time the employee actually remained at the employer’s disposal, excluding leave and sick days. Under the second, it means the nominal (contractual) working hours for the month, irrespective of actual attendance.

In its ruling of 12 August 2025 (case II FSK 1515/22), the NSA came down firmly in favour of the nominal-hours approach. The Court reasoned that the legislature deliberately chose the phrase “total working time” (ogólny czas pracy) rather than the defined Labour Code term “working time” (czas pracy, Article 128 §1 of the Labour Code). The former echoes the heading of Chapter II of the Labour Code’s working-time division – “Norms and the general working-time dimension” – which refers to the number of hours an employee should work within a settlement period, i.e. the nominal dimension.

The practical consequence is that leave and sick days remain in the denominator of the R&D proportion. This produces a lower deduction than the alternative method, but eliminates irrational outcomes that depend on the calendar placement of an employee’s absence.

Impact on the Numbers: Two Scenarios for Investors

The NSA illustrated the difference with examples that are directly relevant for financial planning. Consider an R&D employee on a full-time contract who devotes half of each working day (4 out of 8 hours) to R&D. Monthly nominal hours: 160. Total monthly employee costs (salary plus employer social security): PLN 10,000.

Scenario A – minimal attendance. The employee works only one day in a month and is on leave for the remainder. Under the actual-hours method, the R&D proportion is 4/8 = 50%, yielding PLN 5,000 of qualified costs. Under the nominal method endorsed by the NSA, the proportion is 4/160 = 2.5%, yielding just PLN 250. The Court noted that the latter figure more accurately reflects the employee’s real R&D engagement that month.

Scenario B – split-month leave. An employee takes four weeks of leave. If the leave falls entirely in August (with July fully worked), both methods yield PLN 5,000 over two months. But if the same leave spans mid-July to mid-August, the actual-hours method doubles the result to PLN 10,000 – a 100% difference driven solely by calendar timing. The nominal method gives PLN 5,000 in both cases. The NSA found the actual-hours method irrational precisely because of this anomaly.

Current Status: Dominant but Not Yet Definitive

Foreign investors and their advisors should be aware that while the nominal-hours approach is the prevailing trend in recent case law (supported by rulings from February 2023 and 2024–2025), it is not yet an absolutely uniform standard. Earlier rulings endorsing the actual-hours method have not been formally overruled in a systemic sense, and the NSA has not issued a binding resolution (uchwała) on this point. Nor has the legislature amended the statute. Until one of these steps occurs, a degree of legal uncertainty persists.

That said, the direction of travel is clear. The August 2025 ruling explicitly disagreed with the earlier line of case law and tax authorities are already citing this newer approach in audit proceedings. Investors relying on the actual-hours method should factor in the risk that this position may be challenged.

Contractors and Freelancers: Similar Rules, Additional Caution

Many foreign-owned R&D operations in Poland engage specialists through civil-law contracts (umowa zlecenia, umowa o dzieło) rather than employment agreements. Article 18d(2)(1a) of the CIT Act extends the R&D relief to payments under such contracts, with the proportion calculated as R&D time relative to total time devoted to performing the contracted service.

The NSA’s August 2025 ruling confirmed that if a contractor’s fee includes compensation for periods of inactivity (e.g. holiday or sickness), those amounts may also qualify. However, there is a critical difference from employment contracts: Polish labour law does not grant statutory leave or sick-pay entitlements to contractors. Any such arrangements must be explicitly stipulated in the civil-law agreement itself. Without clear contractual provisions, tax authorities may challenge the inclusion of “inactivity” payments in the R&D deduction. Investors should ensure that contracts with R&D freelancers are structured with this requirement in mind.

Practical Takeaways for Foreign Investors

Maximise the base, document the proportion. Holiday pay and employer-funded sick pay for R&D staff are qualified costs – confirmed by both the Minister of Finance and consistent NSA case law. Ensure these amounts are captured in your R&D cost calculations. For ZUS-funded sickness benefits, seek an individual tax ruling before including them.

Adopt the nominal-hours proportion. In line with the prevailing judicial trend, calculate the R&D proportion using nominal (contractual) monthly hours as the denominator. This approach is more conservative but significantly reduces audit risk. Be aware that this is the dominant – though not yet definitive – interpretation, and monitor developments for a possible binding NSA resolution or legislative clarification.

Maintain rigorous time-tracking. The R&D relief stands or falls on documentation. Polish tax authorities routinely challenge claims where time records are incomplete or inconsistent. Implement a monthly time-tracking system that clearly distinguishes R&D activities from other work.

Structure contractor agreements carefully. If your Polish operations engage R&D specialists on civil-law contracts, ensure the agreements expressly address compensation during periods of inactivity. Without explicit contractual language, payments for non-working periods risk being excluded from the deduction.

Review your current position. If your Polish subsidiary has been calculating the R&D proportion using actual hours worked (excluding leave and sick days), the August 2025 NSA ruling may affect both past and future filings. Consider whether a voluntary correction or a protective individual tax ruling is appropriate.

Our firm advises foreign investors on the full spectrum of Polish R&D tax incentives – from structuring qualified costs and preparing time-tracking documentation to obtaining individual tax rulings and representing clients in disputes with the tax authorities. If you have questions about your R&D relief position in Poland, we are here to help.

Legal basis and case law

Article 18d(1)–(2) of the Corporate Income Tax Act of 15 February 1992; Article 26e(1)–(2) of the Personal Income Tax Act of 26 July 1991; Article 12(1) of the PIT Act; Articles 80, 92, 128 §1, 129 §1, 171 §1, 172, 188 of the Labour Code of 26 June 1974. General Interpretation of the Minister of Finance of 13 February 2024, ref. DD8.8203.1.2021. Supreme Administrative Court rulings: 12 August 2025 (II FSK 1515/22); 11 April 2024 (II FSK 1921/23); 28 June 2024 (II FSK 218/24); 4 April 2024 (II FSK 1789/23); 8 February 2023 (II FSK 1537/20); 14 February 2024 (II FSK 670/21); 5 February 2021 (II FSK 1038/19).