Key to Innovation: Relief for Research and Development Activities

In a world where the only constant is change, Polish companies find that research and development (R&D) relief not only offers an opportunity for innovation, but also significant tax savings.

Government support programmes, such as the research and development (R&D) relief, play an important role in stimulating technological progress and investment in research. This relief, which is part of the tax policy, allows companies to make an additional deduction from the tax base for expense incurred on R&D activities, which translates into direct financial benefits for companies engaging in the development of new technologies, products or services.

How does the R&D relief work?

The R&D relief allows companies to deduct a portion of expenses related to R&D activities that have already been included as deductible costs. In practice, the process requires that the financial expense incurred on research and development is first deducted as a deductible expense, and then it can be taken into account as an additional deduction from the tax base when filing the annual tax return.

Benefits of the relief

The basic rate of deduction is 19%, which in itself is a significant incentive for companies. Additionally, for companies with R&D centre status, the benefit rises to 28.5%, offering even greater potential savings. What is more, the R&D relief allows not just a single, but potentially double counting of certain expenses as deductible costs – both by direct deduction and by additional deduction from the tax base.

Ability to use the relief for losses

One of the most interesting features of the R&D relief is that it can be used even if the company incurs losses or the amount of the relief exceeds income. In such situations, the right to the relief can be carried forward and used over six consecutive years, giving companies flexibility in planning their R&D investments and managing their finances.

Who is the R&D relief for?

First and foremost, beneficiaries of the relief can be any business entities conducting research and development activities in Poland, regardless of their business profile. The relief is available to large corporations as well as small and medium-sized enterprises (SMEs) from various sectors of the economy. The condition to benefit from the relief is that the entity carries out development-oriented activities – it is not required to have the status of a research and development centre or to cooperate with scientific institutions.

Significantly, the relief is not limited to research only, but also covers development work in the broadest sense, which is carried out systematically rather than on a one-off basis. These activities should be aimed at discovering new technologies, expanding knowledge and finding new applications for various fields and inventions. Importantly, the outcome of this work is not decisive for the eligibility for relief, meaning that even activities that do not result in commercial success may be eligible for relief.

What are the benefits of the R&D relief?

Thanks to the R&D relief, companies can significantly reduce their tax burden, which translates into an increased ability to invest in innovation and development. This relief, by allowing part of the expenses incurred for R&D activities to be deducted from the tax base, creates better conditions for the development of scientific research and development works in companies. This is an important element in building the competitiveness and innovativeness of the Polish economy, encouraging businesses to invest in future technologies and solutions.

What can be deducted?

In a world where innovation is becoming the currency of the future, the research and development (R&D) relief offers significant financial support to businesses in Poland, encouraging investment in the development of new technologies, products or services. However, in order to make effective use of this tax instrument, businesses must have a precise understanding of what expenses are eligible for deduction. Qualified costs are the foundation on which the R&D relief is based, and their proper identification and recording can significantly affect the benefits of the relief.

The deduction under the R&D relief applies to a wide range of costs incurred for development activities. These include:

• Salaries of employees involved in R&D: Includes both basic salaries and related social security contributions. This includes both employees with an employment contract and those carrying out R&D activities on the basis of civil law contracts, i.e. mandate contract or contracts for specific work.
• Depreciation allowances: These relate to tangible and intangible assets that are used in the R&D process.
• The acquisition of expertise, opinions and consultancy services: Costs related to the purchase of expertise, opinions, consultancy and equivalent services, as well as research results from scientific entities that support R&D activities.
• Materials and raw materials: Expenses incurred on the purchase of materials and raw materials directly related to the R&D activity carried out.
• Use of scientific and research apparatus: Costs associated with the use of specialised apparatus for research purposes.
• Obtaining and maintaining intellectual property rights: This includes costs associated with obtaining and maintaining a patent, a utility model protection right, an industrial design registration right.

Conditions for deduction

In order to be deductible, these costs must meet certain criteria: the costs incurred must be tax-deductible, they must be identified separately in the records and they must be indicated in the annual report as eligible deductible costs. In addition, it is important that the business has not been reimbursed for these costs in any other form, such as through grants or donations.

Why is this important?

Understanding and correctly applying the rules on eligible costs is key to maximising the benefits of R&D relief. Companies that meticulously document their R&D expenses can significantly reduce their tax burden, which in turn can contribute to accelerating the pace of innovation and development of new technologies in Poland. Thus, in light of increasing global competition, the R&D tax credit becomes not only a financial support but also a strategic tool to building a competitive advantage on the market.