Tax / R&D relief
The R&D relief is a solution intended for all business entities, irrespective of the business size and industry type. In essence, it is an opportunity to decrease one more time the tax base by the expenses having been already recognized as tax costs and constituting eligible costs. At present, the R&D relief is one of the most attractive forms of supporting entrepreneurs that carry out research and development activity.
Conditions to use R&D relief
The legislator did not provide for specific prerequisites for this relief to be used. However, the grounds are as follows:
• conducting research and development activity – deemed to be a creative activity that comprises research or experimental development, undertaken in a systematic way in order to gain and use knowledge resources and create new applications (e.g. to improve one’s technologies, products, services or create the same from scratch) and,
• incurring expenses connected therewith (i.e. eligible costs named in the PIT and CIT Acts).
Under the PIT and CIT Acts, eligible costs are deemed to be costs connected with:
• remuneration, including the remuneration of service providers and contractors as well as social insurance contributions charged thereon – in such proportion as the time devoted by the individuals performing the work/order/specific task connected with the R&D activity bears to the total time devoted to perform the work/order/specific task;
• acquisition of (raw) materials directly connected with the R&D activity;
• paid usage of R&D equipment and instruments;
• acquisition of equipment, other than tangible assets, connected with the R&D activity. The limits of the eligible costs deductible depend on whether the business entity has the status of a research and development centre or not. The limits are as follows:
• 100% - for business entities that do not have the status of an R&D Centre;
• 150% - where the business entity has the status of an R&D Centre.
Settlement of R&D activity
The expenses connected with the R&D activity may be recognized in tax settlement twice: 1) at the stage of being allocated to tax costs, as expenses connected with business operations (e.g. 100% of employees’ remunerations) and, 2) at the stage of the annual settlement, by way of including the expenses incurred for the R&D activity – the eligible costs (e.g. employees’ remunerations in the percentage corresponding to the R&D activity), thus decreasing the tax base. The settlements are made in the annual return for the tax year ended, using a CIT/BR or PIT/BR attachment.
For entrepreneurs carrying out operations connected with the manufacture of goods, or provision of services, which can support the prevention of COVID-19 consequences, the expenses in question are deductible as early as at the stage of advances against the income tax due for 2020.
Consequences of applying R&D relief
As a result of using the R&D relief, it is possible to considerably decrease the tax base, and thus, to decrease the tax liability itself. Where the entrepreneur incurs expenses for the R&D activity equal to PLN 55 000 and its tax base equals to PLN 175 000, once the R&D deduction is made, the tax base will drop to PLN 120 000. Effectively, this means that his tax liability will be PLN 22 800 instead of PLN 33 250, which gives the entrepreneur a tax saving of PLN 10 450.
The entrepreneur enjoys the right to the R&D relief irrespective of the effects of the research and development activity.
• preparing the enterprise you are carrying out for the usage of the R&D relief;
• analysing your business operations in order to set aside research and development work;
• analysing the costs incurred during business operations in order to identify and set aside eligible costs;
• reviewing the correctness of your R&D documentation, in particular the correctness of the record of working time and eligible costs;
• reviewing the reporting obligations from the R&D relief perspective;
• drawing up records of the R&D activity;
• preparing CIT/BR or PIT/BR forms;
• supporting you in the process of obtaining individual rulings, in case of tax authority inspections;
• supporting you during inquiries, tax or customs & fiscal inspections, and court and administrative actions concerning the R&D activity;
• performing training courses in the R&D relief.
If you are interested in the R&D relief or would like to obtain more information on this, please do not hesitate to contact us.
Transaction Tax Practice Leader
+ 48 22 480 81 00