Quick summary – Poland has recently introduced tax incentives which aim at promoting innovations and technology. The new support instrument for investors conducting R&D activity is named «IP Box» and allows for a preferential taxation of qualified profits made on commercialization of several types of qualified property rights. The preferential income tax rate amounts to 5%. By contrast, the general rate is in most cases 19%.
The Qualified Intellectual Property Rights
The intellectual property rights which may be the source of the qualified profit subject the preferential taxation are the following:
- rights to an invention (patents)
- additional protective rights for an invention
- rights for the utility model
- rights from the registration of an industrial design
- rights from registration of the integrated circuit topography
- additional protection rights for a patent for medicinal product or plant protection product
- rights from registration of medicinal or veterinary product
- rights from registration of new plant varieties and animal breeds, and
- rights to a computer program
The above catalogue of qualified intellectual property rights is exhaustive.
Conditions for the application of the Patent Box
A taxpayer may apply the preferential 5% rate on the condition that he or she has created, developed or improved these rights in the course of his/her R&D activities. A taxpayer may create intellectual property but it may also purchase or license it on the exclusive basis, provided that the taxpayer then incurs costs related to the development or improvement of the acquired right.
For example an IT company may create a computer program itself within its R&D activity or it may acquire it from a third party and develop it further. Future income received as a result of commercialization of this computer program may be subject to the tax relief.
The following kinds of income may be subject to tax relief:
- fees or charges arising from the license for qualified intellectual property rights
- the sale of qualified intellectual property rights
- qualified intellectual property rights included in the sale price of the products or services
- the compensation for infringement of qualified intellectual property rights if obtained in litigation proceedings, including court proceedings or arbitration.
How to calculate the tax base
The preferential tax rate is 5% on the tax base. The latter is calculated according to a special formula: the total income received from a particular IP is reduced by a significant part of expenditures on the R&D activities as well as on the creation, acquisition and development of this IP. The appropriate factor, named «nexus», is applied to calculate the tax base.
The tax relief is applicable at the end of the calendar year. This means that during the year the income tax advance payments are due according to the regular rate. Consequently in many instances the taxpayer will recover a part of the tax already paid during the previous calendar year.
It is advisable that the taxpayer applies for the individual tax ruling to the competent authority in order to receive a binding confirmation that its particular IP is eligible for the tax reduction.
It is also crucial that the taxpayer keeps the detailed accounting records of all R&D activities as well as the income and the expenses related to each R&D project (including employment costs). The records should reflect the link of incurred R&D costs with the income from intellectual property rights.
Obligations related to the application of the tax relief
In particular such a taxpayer is obliged to keep records which allow for monitoring and tracking the effects of research and development works. If, based on the accounting records kept by a taxpayer, it is not possible to determine the income (loss) from qualified intellectual property rights, the taxpayer will be obliged to pay the tax based on general rules.
The tax relief may be applied throughout the duration of the legal protection of eligible intellectual property rights.In case if a given IP is subject to notification or registration procedure (the expectative of obtaining a qualified intellectual property right), a taxpayer may benefit from tax relief from the moment of filing or submitting an application for registration. In case of withdrawal of the application, refusal of registration or rejection of the application , the amount of relief will have to be returned.
The above tax relief combined with a governmental programme of grant aid for R&D projects make Polish research, development and innovation environment more and more beneficial for investors.