Executive summary

A major tax reform referred to as the "Polish Order," which includes a broad Tax Incentives Package to boost innovation in Poland and attract new investors to Poland as well as support the economy in a post-COVID-19 environment, was passed and will come into effect as of 1 January 2022. For background on the tax reform, see EY Global Tax Alert, Polish President signs major tax reform "Polish Order," dated 19 November 2021.

The incentives are related in particular to entities carrying out research and development (R&D) activities, investing in automation of production plants, enhancing or developing new products and/or services, developing patents and expanding businesses through developing new products or acquisitions. However, other entities may also qualify for the new incentives.

This Alert summarizes the key changes under the new Tax Incentives Package.

Detailed discussion

Provisions of the Tax Incentives Package are summarized below.

Significant enhancement of the existing R&D relief and Intellectual Property (IP) Box regime

• Taxpayers who carry out R&D activities, as defined by the Polish law, will be entitled to deduct 200% of the costs of employees involved in R&D projects from the tax base (currently the additional deduction was 100%, and will be raised to 200% from 2022 onward).
• Taxpayers with R&D Center status will also have the possibility to deduct 200% of other eligible costs.
• A taxpayer who qualifies for both IP box (5% CIT on qualified incomes) and R&D relief, will have the right to apply both benefits at the same time, i.e., reduce the IP Box income by the eligible R&D costs.

New relief for innovative employees

If a taxpayer suffered a loss or earned income that does not allow for full deduction of the R&D tax relief, the company can reduce the monthly Personal Income Tax advance payments remitted as an employer by 19% of the value of the R&D relief not claimed in whole. This provision will apply to advance tax payments withheld from salaries of employees whose involvement in R&D projects accounts for at least 50% of their monthly working time.

New relief for "robotization"

The relief is addressed mainly to production entities which are investing in automation of their plants. The new robotization relief allows for an additional deduction (50%) from income of robotization costs. This additional deduction will be available for, inter alia, costs of purchasing new industrial robots (and related machines and devices), software used for the correct operation of robots, as well as training costs for employees on how to use them. Robotization relief is available only for tax costs incurred in the years 2022 through 2026.

New relief for prototypes

A company which runs a trial production of new products and markets a new product will have the possibility to deduct 30% of eligible costs from its tax base (the deduction cannot exceed 10% of its income). The incentive includes, among others, expenses for the purchase, production or improvement of certain fixed assets necessary to launch trial production runs as well as costs of acquiring (raw) materials solely for the purpose of the trial production of a new product. The catalogue of eligible costs of marketing a new product includes, among others, costs of research, expertise, preparation of documentation necessary to obtain a certificate, costs of products life cycle tests and environmental technologies verification system.

Relief for business expansion and consolidation

There will be new incentives available for Polish taxpayers incurring costs related to expansion of their business. Such taxpayers can include additional deduction of qualified costs not exceeding PLN1 million (m) (approximately US$250,000) for boosting sales of products developed by them. The incentive does not apply to sales to related parties. Some further conditions need to be met.

Another incentive is provided for consolidation of business and includes an additional deduction of up to PLN250,000 (approximately US$62,000) annually of eligible costs incurred on acquisition of shares in third party transactions. The costs include, e.g., legal advisory fees, valuation costs, notarial and administrative fees.

Introduction of a single clearance securing tax implications of the investment (so-called "Ruling 590")

The clearances will be issued by the Ministry of Finance to strategic investors with respect to investments exceeding PLN100m (US$25m), and from 2025 the threshold will be decreased to PLN50m (US$12.5m). Ruling 590 is a new form of a formal assurance of the tax consequences of an investment which should address and confirm tax implications of the investment in a comprehensive way including Advance Pricing Agreements, the General Anti-Avoidance Rule and other tax aspects for a five-year period in a simpler and faster manner.

Other changes related to investments in Poland

• Withholding tax exemption on 95% of dividends received by a so-called Polish holding company provided certain conditions are met including a one-year holding period.
• Participation exemption for capital gains realized on the sale of shares to third parties by a so-called Polish holding company.
• An IPO incentive (additional deduction of eligible costs).
• Simplified requirements for corporate income tax consolidation (no minimum profitability, lower share capital threshold, possibility to carry forward tax losses, allowed shareholding relations between tax group members other than between a dominant entity and a member).
• Introduction of Value Added Tax (VAT) grouping.
• Voluntary taxation of financial services with VAT in business-to-business transactions (currently the obligatory VAT exemption of financial services leads to non-deducibility of VAT by financial institutions on acquired goods and services).

Next steps

The proposed changes impact a broad range of tax areas and it is expected that they will have an impact on increasing the attractiveness of Poland for investors. Further assessment should be undertaken to determine potential benefits and conditions required to qualify for the new tax incentives package.

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For additional information with respect to this Alert, please contact the following:

EY Doradztwo Podatkowe Krupa sp.k., Warsaw

Andrzej Broda | andrzej.broda@pl.ey.com

Marcin Opilowski | marcin.opilowski@pl.ey.com

Magdalena Zalech | magdalena.zalech@pl.ey.com

Michal Koper | michal.koper@pl.ey.com

EY Doradztwo Podatkowe Krupa sp.k., Wroclaw

• Sebastian Ickiewicz | sebastian.ickiewicz@pl.ey.com

Ernst & Young LLP (United States), Polish Tax Desk, New York

• Sylwia Migdal | sylwia.migdal1@ey.com