The end of the year is coming, so it’s time to make summaries and subjective rankings. There is no doubt that 2022 was a very interesting year in terms of taxes. We had a revolution in taxes on an unprecedented scale (‘Polish Deal’). Unfortunately, some entrepreneurs were affected by the negative changes. Yet, there is a group of companies (including our clients) who have actually benefited from the changes. In this article, we present three most popular tax solutions thanks to which our clients did not lose on the ‘Polish Deal’. Let’s see how tax optimization in Poland presents itself in 2022.
Table of Contents
- R&D tax relief. Tax optimization in Poland
- IP BOX tax relief. Tax optimization in Poland
- Estonian CIT. Tax optimization in Poland
R&D tax relief. Tax optimization in Poland
Research and development tax relief constitutes a solution that 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. Let’s see what tax optimization looks like in 2022 with the use of the R&D relief.
Who can use the research and development 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.
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.
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 particular 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.
IP BOX tax relief. Tax optimization in Poland
IP Box is a tax solution that aims to encourage entrepreneurs from R&D sector to conduct business in Poland. Entrepreneurs from this sector focus on introducing innovations and new technologies in business. Income from the commercialization of intellectual property (IP) rights created, developed or improved as a result of R&D activities or the acquisition of R&D services from others now gains a preferential tax rate of 5%. Let’s see what tax optimization looks like in 2022 with the use of the IP Box relief.
IP Box – what is it?
The IP Box relief means applying a preferential tax rate of 5% instead of standard tax rates (12%, 19%, 32%).
It can be used if the earned income stems from business activities related to intellectual property rights. The tax relief covers all those who, in their R&D activities, led to the creation, development or improvement of a qualified IP.
What is important, R&D does not have to be carried out by the taxpayer in its own R&D centers. Not every taxpayer has R&D centers within its structures.
Benefiting from the IP BOX relief requires keeping certain records. This is necessary to calculate income from qualified IP.
To calculate income from qualified IP, it is important that these records are kept in a way that enables showing in the annual tax return the total sum of revenue, tax expenses, income, losses, income subject to the 5% tax rate, and income that will not be covered by the preferential taxation. From 2022, the IP Box relief can be combined with the R&D relief.
Who can benefit from the IP Box tax relief?
The IP BOX relief applies not only to natural persons. It doesn’t matter whether you operate as a company or not. The preferential 5% tax rate may be usead by all taxpayers who meet the conditions specified in the PIT and CIT Act, including:
- entrepreneurs with a sole proprietorship
- inherited enterprise,
- civil law partnership,
- ceneral partnership,
- limited liability partnership,
- a limited partnership,
- limited joint-stock partnership,
- a limited company (LLC, simple joint-stock company, joint-stock company)
Research and development activity
R&D activities are creative activities involving scientific research or development work, undertaken in a systematic manner. Their goal is to increase knowledge resources and use them in a new way.
We can talk about research and development activity if
- the activity is creative – it constitutes a result of human activity of a creative nature and there is a new product of intellect.
- the business is conducted in a systematic manner – activities are performed in an orderly manner, according to a certain system, in a methodical, planned and organized way.
- It is enough to plan and carry out at least one R&D project, assuming specific goals, programme and resources for it. Such activity is considered systematic, i.e. conducted in a methodical, planned and organized manner.
- As a result of the activity, there is an increase in knowledge resources and in the use of knowledge resources to create new ways of using it. The R&D activities are a set of activities directed to creation, including scientific research (oriented towards new knowledge and skills) and development work (oriented towards the use of available knowledge and skills) to increase knowledge resources to create new, changed or improved products, processes or services. Also in the form of new technologies.
Answering the following questions will determine whether you qualify for the IP Box relief:
- Are you a corporate income tax payer or a personal income tax payer due to your business activity?
- In what economic sector do you operate?
- income generated in 2019, 2020 and 2021 derived from:
- fees and charges resulting from the license agreement
- sale of intellectual property rights
- sale of a qualified intellectual property right
- Did you create, develop or improve in 2019, 2020 and 2021 the following intellectual property rights as part of your R&D activity?
- right in registration of integrated circuit topography
- copyright to a computer program
- none of the above?
Estonian CIT. Tax optimization in Poland
Last but not least, a solution that dominated the tax advisory services market in Poland. ‘Estonian CIT’ – a lump sum on the income of capital companies and some partnerships. Having in mind complex and unfavourable regulations for entrepreneurs introduced by the ‘Polish Deal’, the Estonian CIT is an attractive solution. Skillfully implemented, it can lead to measurable savings on taxes without giving up a secure business structure. Let’s see what tax optimization looks like in 2022 with the use of the Estonian CIT.
How to benefit from the Estonian CIT?
- You won’t pay CIT on the company’s profit
- You won’t pay the solidarity levy
- You won’t pay health insurance (at all!)
- You’ll pay lower tax when you withdrawing your profit
Who can use the Estonian CIT?
The following entities can implement the Estonian CIT:
- JOINT-STOCK COMPANY (Polish S.A.)
- SIMPLE JOINT-STOCK COMPANY
- LIMITED LIABILITY COMPANY (Polish Sp. z o.o.)
- LIMITED JOINT-STOCK PARTNERSHIP (Polisk S.K.A.)
- A LIMITED PARTNERSHIP (Polish S.k.)
When is it worth to use the Estonian CIT?
- If your business generates high income that is not fully consumed by partners and shareholders.
- If your business is expanding and you need a lot of funds for investments in fixed assets, goods, technology and employment.
- If your company is about to make a large transaction from which the income must be used in a way that does not generate tax costs. For example, the sale of valuable property that requires the use of the majority of the sum to repay the loan, in order to free the mortgage.
What are the rules of implementing the Estonian CIT? Tax optimization in 2022
- Your company’s revenue comes mostly from its operations. Furthermore, its passive income accounts for less than 50% of turnover.
- Your company hires at least 3 people for full-time under an employment contract. Alternatively, it incurs employment costs in a form other than an employment contract in the amount of at least 3 times the average monthly remuneration in the enterprise sector, with the simultaneous need to incur costs connected with income tax, ZUS, and health contributions. In the first year, for a small taxpayer, it corresponds to 1 full-time job and the equivalent of 1 average salary. For a taxpayer in the first year of starting his business, it amounts respectively to 0, then in the second year – 1, in the third year -2, and so on, until the requirement is fulfilled in the 3rd year of being subject to a lump sum tax
- Only natural persons are shareholders or partners of your company.
- Your company does not hold any shares (stocks) in the capital of another company. It does not have participation titles in an investment fund or collective investment institution. It also does not have rights and obligations in a company that is not a legal person. Moreover, it does not participate in other property rights connected with the right to receive benefits as a founder or beneficiary of a foundation, trust, other entity or legal relationship of a fiduciary nature.
- Your company does not prepare IAS financial statements for the period covered by the lump sum tax.
- Your company does not carry out financial or lending activities as part of its business.
- Your company does not benefit from exemptions resulting from the Special Economic Zone (SEZ) or the Polish Investment Zone.
- You will submit a notification about the choice of lump sum taxation to the competent head of the tax office, according to the established formula.
What is the effective taxation under Estonian CIT (PIT+CIT)?
There are two effective tax rates under the Estonian CIT:
- 20% for small taxpayers (turnover up to 2 000 000 EUR).
- 25% for taxpayers with a turnover exceeding 2 000 000 EUR
Only the funds paid out for profit consumptions are subject to taxation. The funds left in the company as undistributed profit remain untaxed, therefore the effective tax rate may be much lower than those presented above.
If this article was interesting for you and you want to know more on the topic it concerned we encourage you to contact us. Specialists from our law firm in Poland, Warsaw, will be happy to help. If you are interested in company registration in Poland visit our dedicated landing page.