Innovation tax credits: New opportunities for businesses

Innovation is one of the key elements in the competitiveness of modern companies. To encourage companies to invest in research, development and cutting-edge technology, legislators have introduced a number of tax breaks. These include tax incentives for research and development (R&D) activities, the prototype relief, the robotisation relief, the expansion relief and the innovative employees relief. With these, businesses can significantly reduce their tax base while investing in the future of their business. Below you will find a detailed description of each tax incentive, its terms and conditions and benefits.

1. R&D relief: The foundation of innovation

The R&D (Research and Development) relief is one of the most popular forms of support for companies investing in development. It allows costs related to research and development activities to be deducted from the tax base.

What does the R&D relief cover?

• Salaries of employees involved in R&D, including social security contributions;
• Purchase of materials, raw materials and tools necessary for research projects;
• Costs of external services, including the rental of laboratories, analyses and expert opinions; and
• Depreciation of fixed assets used in R&D activities.

Additional benefits:

If, as a result of R&D activities, a company creates or improves an intellectual property right (e.g. software, patent or industrial design), the income from the sale of these rights can be taxed at a preferential rate of 5% under the so-called IP Box. Furthermore, from 2022 onwards, businesses can benefit from the R&D relief and IP Box relief at the same time.

Unique benefit:

As of recently, the deduction for eligible costs related to employees’ salaries has been increased up to 200%. This makes the relief even more attractive for companies employing R&D specialists.

2. Relief for innovative employees: For companies with limited income

Sometimes businesses involved in R&D activities do not generate enough income to fully benefit from R&D relief. If this is the case, they can apply the innovative employee relief.

Who can benefit?

• Companies making a loss or generating low income; and
• Employees who devote at least 50% of their working time to R&D activities, regardless of the form of employment (full-time, contract of mandate or contract for specific work).

How does the relief work?

It allows for the deduction of advance income tax payments collected on employees’ salaries, which brings direct financial benefits to the business.

3. Prototype relief: From idea to market

Businesses who decide to create and test a prototype of a new product can benefit from a tax relief.

What costs can be deducted?

• Trial production costs; and
• Expenses related to marketing the product, including tests and market research.

Restrictions:

The relief allows for a deduction of 30% of eligible costs, but the total cannot exceed 10% of the income earned in a given tax year.

4. Robotisation relief: An investment in the future of manufacturing

Automation and robotisation of processes are the future of industry. The robotisation relief allows companies to reduce the costs of implementing modern technology.

What does the relief cover?

• The purchase of robots, machines and equipment;
• The software required to operate robotic systems;
• Training and maintenance costs; and
• Leasing fees related to robotisation.

Rules:

Businesses can deduct 50% of the eligible costs, but the deduction cannot exceed the income received in a given tax year.

5. Expansion relief: Developing new markets

Companies that want to increase their revenue by expanding into new markets can benefit from an expansion relief. This relief allows an additional deduction of 100% of the costs incurred for the development of markets.

What can be deducted?

• Costs of marketing and promotional activities.
• Expenses for product certification.
• Registration of trademarks and obtaining patents.

Limits:

The maximum amount of deduction is PLN 1 million in a tax year.

Summary: Why is it worth using innovation tax relief?

Innovation reliefs are a tool to support not only the development of companies but also their competitiveness on the market. By making appropriate use of the reliefs, businesses can:

• significantly reduce business costs;
• increase the efficiency of research and development activities;
• develop new products and technologies; and
• increase their presence on domestic and foreign markets.

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Need help with tax optimisation or want to find out more about support opportunities for your business? Get in touch with our team of experts – we can help you use the full potential of innovation tax relief!