Research and development tax relief is a solution which has been available in the Polish tax system for some time. The described preference was introduced as a tool to stimulate the growth of innovation in the Polish economy and as a reward for taxpayers investing in research and development activities. In this article, we will explain what R&D tax relief is, who can use it, on what terms, and what the possible benefits are.
The definition of research and development activity
The fundamental condition for including the research and development tax relief is conducting a research and development activity. Research and development activity constitutes a set of actions undertaken in order to increase the state of knowledge and the development of a particular domain.
According to the statutory definition, it shall:
- be creative,
- involve research or development work,
- be systematically undertaken,
- be undertaken in order to increase resources of knowledge and use them to apply in a new way.
The definition indicates that in order to include an R&D tax relief in settlements, conducting complex scientific research is not necessary. Development works alone are sufficient.
Scientific research comprises the following types of activity:
- basic research – it consists of empirical or theoretical works undertaken primarily to acquire new knowledge of the underlying foundations of phenomena and observable facts, without focusing on their direct commercial use.
- applied research – works undertaken in order to acquire new knowledge and skills focused on creating new products, processes and services, or on implementing improvements to the existing ones.
On the other hand, development works are understood as activities involving the acquisition, combination, formation and use of currently available knowledge and skills, including IT tools or software, for production planning as well as designing and creating modified, improved or brand-new products, processes or services, with the exclusion of activities involving routine and periodic changes to them, even if the changes are of improving nature.
Who is entitled to research and development tax relief?
Research and development tax relief is available for entrepreneurs who conduct research and development activity and settle their taxes according to:
- tax scale,
- flat tax,
- corporate income tax.
When it comes to R&D tax relief, the size of the company is not important. Both micro-companies and huge corporations can benefit from it. It enables deducting from the tax base the part of the tax-deductible expenses incurred for this activity. These are the so-called eligible costs.
R&D tax relief and eligible costs
Eligible costs are the expenditures incurred as part of the research and development activities carried out for the purpose of research development.
These can include:
- remuneration of employees in a part corresponding to research and development activity, and social security contributions related to it,
- remuneration of persons hired under a contract of mandate or under contract for a specific work and social security contributions related to it,
- expenditure on the purchase of specialized equipment (which does not constitute tangible assets), materials and raw materials that are directly connected with the conducted research and development activity,
- expenditure related to carrying out the necessary expert evaluations and opinions or using advisory services for the purposes of the research carried out by the company,
- expenditure connected with using the purchased scientific and research equipment,
- expenditure for the purchase of service consisting in the use of scientific and research equipment only for the needs of conducted R&D activity – if the purchase of the service is not subject to an agreement concluded with an entity related to the taxpayer,
- costs of obtaining and maintaining a patent, protection right for a utility model, rights from registration of an industrial design
- depreciation write-offs on tangible and intangible assets (with exception of passenger cars and structures, buildings and premises being separate property).
How to calculate the amount of R&D tax relief?
Research and development relief allows PIT and CIT taxpayers to deduct the amount of costs incurred for research and development activities. This amount cannot exceed the amount of income earned by a taxpayer from non-agricultural business activity during a financial year.
The R&D tax relief allows for deducting a sum that cannot exceed 100% or 150% of eligible costs, depending on the taxpayer’s status.
The amount of the eligible costs cannot exceed:
- in the case of a taxpayer with the status of research and development centre, who is a micro, small or medium-sized entrepreneur within the meaning of the regulations of the Act of 6th March, 2018 – Entrepreneur Law – 200% of eligible costs,
- in the case of other taxpayers with the status of research and development centre:
- 100% of the costs of obtaining and maintaining a patent, a utility model protection right, a right derived from the registration of an industrial design,
- 200% of other eligible costs;
- in the case of other taxpayers:
- 200% of the costs incurred in a given month on account of personnel costs of employees conducting research and development activities
- 100% of other eligible costs.
How to deduct eligible costs?
In order for a taxpayer to qualify for research and development tax relief, all of the following conditions must be met:
- the taxpayer incurred costs for research and development activities,
- costs for research and development activity constituted tax deductible expenses for the taxpayer,
- costs for research and development activity are included in a closed catalogue of eligible costs,
- a taxpayer reported tax deductible eligible costs in his or her income tax return
- the amount of deducted eligible costs did not exceed the limits specified in the CIT and PIT Acts,
- eligible costs have not been reimbursed to the taxpayer in any form.
If the taxpayer meets the conditions that allow for using R&D tax relief, it is necessary to include it in the annual tax return. It is submitted for the previous year, during which the eligible costs were incurred.
Retroactive settlement of research and development tax relief and submission of the corrected tax return
The R&D tax relief may be settled up to 5 years back, by submitting a correction of CIT/PIT declarations. The corrected version may be submitted at any time in accordance with the company’s tax calendar.
The procedure for settling the research and development tax relief for past years consists of several steps. Firstly, the technical documentation, as well as the costs of projects qualifying for R&D tax relief in a given, preceding tax year, should be collected. Secondly, a special application for ascertainment of overpayment should be submitted to the Tax Office. The Tax Office is authorized to decide about the refund of the tax overpaid by a company. After making a decision, the Tax Office returns the overpaid tax to the company’s account or leaves it for future tax liabilities – the decision is up to the entrepreneur.
Research and development tax-relief – summary
The research and development tax relief constitutes a beneficial and safe solution for all entrepreneurs who develop new products, processes, or services, regardless of the size of their business and industry. Nowadays, research and development tax relief is one of the most attractive forms of business support for entrepreneurs.
If you wonder whether your company qualifies for benefiting from R&D tax relief, feel free to contact us. Our specialists will verify your situation and support you in choosing the best possible solution.