Research and development relief: what is worth knowing?

Since 1 January 2016, Polish tax law has offered entrepreneurs an extremely attractive opportunity – a research and development (R&D) relief. This relief allows an additional deduction of certain expenses incurred on R&D activities from the tax base, which can bring significant financial benefits and support the growth of the company. Nevertheless, the rules for claiming this relief raise many questions among taxpayers. Determining whether your company is entitled to this relief can be crucial for the innovativeness and tax optimisation of your enterprise.

What is the R&D relief?

The R&D relief is a tool intended to be available to every entrepreneur regardless of the company size, provided that they conduct research and development activities. Income from business activity must be taxed either under the progressive tax scale or the flat tax rate.
Detailed information about the R&D relief is set out in Article 26e of the Personal Income Tax Act (PIT) and Article 18d of the Corporate Income Tax Act (CIT). It is assumed that a taxpayer earning income other than from capital gains deducts from the tax base, determined pursuant to Article 26(1) or Article 30c(2) of the PIT Act, the costs incurred on R&D activities, hereinafter referred to as “qualified costs,” provided that the deduction amount in the tax year does not exceed the amount of income obtained by the taxpayer from the source specified in Article 10(1)(3) of the PIT Act.

According to the law, qualified costs include, among others:

• Employee salaries related to R&D activities and associated social security contributions, as well as remuneration under commission contracts or contracts for specific work related to R&D activities, together with related social contributions;
• Expenditures on the purchase of materials and raw materials directly related to conducted R&D activities – including, according to the latest interpretation of the Director of the National Tax Information (KIS), also expenses on office supplies and computer equipment;
• Expenditures on expert opinions, assessments, advisory services, and equivalent services provided or performed under contract by entities referred to in the higher education and science legislation, as well as on acquiring results of research conducted by them for R&D purposes;
• Expenditures on paid use of scientific research equipment used exclusively in conducted R&D activities – provided such use does not arise from a contract concluded with an entity related to the taxpayer;
• Expenditures on purchasing services of using scientific research equipment exclusively for R&D purposes – provided such purchase does not arise from a contract concluded with an entity related to the taxpayer;
• Costs of obtaining and maintaining patents, utility model protection rights, industrial design rights incurred for:

• • Preparation of application documentation and submitting applications to the Patent Office of the Republic of Poland or an appropriate foreign authority, including costs of required foreign language translations;
  • Proceedings conducted by the Patent Office of the Republic of Poland or an appropriate foreign authority, incurred from the moment of application submission to these authorities, especially official fees and legal representation and litigation costs;
  • Refuting objections concerning failure to meet conditions required to obtain a patent, utility model protection right, or industrial design registration, both in the application procedure and afterwards, especially costs of legal representation and litigation, both at the Patent Office of the Republic of Poland and the relevant foreign authority;
  • Periodic fees, renewal fees, translations, and carrying out other necessary actions to grant or maintain the validity of the patent, utility model protection right, and industrial design registration, including costs of validation of the European patent.

Documenting the entitlement to the relief

As follows from the Regulation of the Minister of Finance, taxpayers using the R&D relief must separately identify R&D activity costs in their revenue and expense ledger or accounting books.
If you maintain a tax revenue and expense ledger, you should record the R&D costs in column 16. After the end of the year, you need to sum these costs. It is important to record all R&D activity costs, regardless of the part that will be deducted from the tax base.

Summary

Using the R&D relief can significantly reduce tax liabilities and translate into real savings that can be reinvested in the further development of the company. Innovative projects supported by the R&D relief may bring a competitive advantage and open new business opportunities.
If you have any questions regarding tax matters, please feel free to contact us, including remotely: https://atl-law.pl/prawo-podatkowe.