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A new tax relief is in place, while the grant for new technologies has been abolished

Will research and development expenses incurred by entrepreneurs reduce income tax obligations? – YES

It has been four months since the new regulations regarding R&D were introduced to the CIT and PIT Acts. On 1 January 2016, the Act of 25 September 2015 came into force, changing some regulations with respect to fostering innovation.

Simultaneously , at the beginning of 2016 all regulations of the Personal Income Tax Act (PIT) and the Corporate Income Tax Acts (CIT) with respect to the so called relief for new technologies were repealed (to be clear – the enacted law repeals the relief for new technologies).

In their place, the legislature has introduced new provisions that foster innovation – the so called research and development relief (R&D relief).

What is research and development?

The new regulations view research and development as creative activities, covering scientific research or development works undertaken systematically to increase the base of knowledge and to use the expertise in new applications.

The explanatory memorandum to the draft Act introducing the changes states that “when the proposed changes come into force, they should help intensify R&D activities carried out in Poland, bringing positive results for companies, the labor market and – in the long run – also for the entire economy”.

The underlying assumption was for the relief to let the taxpayers benefit from research and development activities, no matter how innovative, at what level, and how successful they are. The relief is to be used by every taxpayer who is involved in R&D activities simply for the sake of conducting such activities.

What to consider and how much can you gain?

In light of the new regulations, the following key solutions introduced by the Act should be noted: a taxpayer may book the R&D expenses to tax deductible revenue and, what is more, additionally deduct a certain amount of these expenses from the tax basis in the annual tax return.

However, certain limitations have to be taken into consideration. The amount of tax exemption is determined by the type of incurred expense and the company size.

In the tax settlement, 10%, 20% or 30% of expenses (defined as eligible costs) incurred in R&D activities may be deducted from the tax basis.

The 30% limit covers the salaries and contributions of employees carrying out research and development activities.

Depending on the size of the taxpayer’s business, 10% to 20% of expenses can be deducted, if they were incurred in:

  1. purchase of materials and raw materials directly related to the conducted research and development activity;
  2. expert opinions, advisory (and equivalent) services, as well as for the purchase of the results of scientific research rendered or performed as part of research and development activities;
  3. paid use of research and development instruments, used solely for the purpose of conducting research and development activities, if such use does not result from an agreement concluded with an affiliated entity.

Additional facilitation for commercialization of intellectual property – neutrality of in-kind contributions

For certain commercializing entities specified in certain tax acts, the Act introduces tax neutrality for in-kind contributions in the form of commercialized intellectual property (i.e. there is no set income or tax deductible revenue on account of taking over shares in a capital company in exchange for such non-cash contributions), provided that the contribution was made to the company in the years 2016–2017 (excluding situations where the subject of the non-cash contribution in the form of commercialized intellectual property are economic copyrights to a computer program).

What to remember about R&D relief?

The deductions introduced are performed in a tax declaration for the tax year in which the eligible costs were incurred. However, one should prepare for this during the year. Taxpayers conducting research and development activities who would like to exercise their right to deduction are obliged to run a special registry.

How will it be received?

Taking into account the short time which has passed since the introduction of the new regulations, as well as the fact that the deduction applies to the tax year, we have to wait for the assessment of the new regulations.

Let us hope taxpayers will eagerly exploit the new opportunities.

#cit #COMMERCIALIZATION OF SCIENTIFIC RESEARCH #pit #research and development #TAX RELIEF #taxes

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