Tax relief for research and development (R&D relief) – is it available in your industry?

Author: Tomasz Wisiecki / Of Counsel / Tax

Tax relief for research and development is available from 1 January 2016 and entitles taxpayers working in certain industries (especially IT, chemical, food, pharmaceutical, and construction but also many others) to an additional deduction from the tax basis (income) of part of the expenses for research and development, which had already been included in tax-deductible costs.

The relief has been in force since the beginning of 2016. However, only since 1 January 2018, the regulations on R&D relief have been amended, which makes benefits even more attractive for entrepreneurs involved in R&D activity.

What is the R&D relief?

The relief for research and development activity entitles taxpayers to an additional deduction from the tax base of a part of expenses incurred for R&D activity, previously classified as tax-deductible costs. As a result of the amendment of tax regulations, the R&D relief has become exceptionally attractive, and its popularity has been growing every year since 2018.

Currently, entitlement to the R&D tax relief may be equal to treating some expenses twice as tax-deductible costs (by recognition in overall costs and by additional deduction of these expenses, as 100% of eligible costs from the tax base).

Currently, the R&D relief is considered to be the most attractive form of support for R&D activity on the Polish market. Its rather simple mechanism allows taxpayers to deduct from the tax base costs incurred for R&D activities, the so-called eligible costs.

What do we understand by research and development?

Research and development should be understood as a creative activity involving work, among others, within the company, which consists in increasing knowledge and creating new products or systems to be introduced to the market, or improving existing market solutions.

In practice, any undertaking or individual business activity in which work is carried out consisting of creation or improvement of a specific technology, product, service, or creation of new solutions from scratch may satisfy the conditions for carrying out eligible R&D activities.

Who is entitled to R&D relief?

The R&D relief is not limited in the subject of the conducted activity (if the activity is of a research and development character), nor in the amount of obtained revenue (income), whereas the R&D relief is most often used by enterprises from IT, technological, pharmaceutical, food, research, chemical, technological and robotics (production) industries.

The right to the relief applies thus to all entrepreneurs regardless of the company’s size or reach and the industry in which they operate. The only condition is to conduct research and development activity. Moreover, it is also possible to deduct the costs of projects started in previous years.

The right to the R&D relief is independent of the final result of research. In other words, the relief is granted even if the work on a specific development or research project is still ongoing.

What are the benefits of implementing the R&D relief for the period between 2016 and 2019 and beyond?

The R&D relief can be implemented to the current or for previous years back to 2016.

When the R&D relief is implemented, it may turn out that certain expenses of an entrepreneur may be qualified for the R&D relief, which will result in a potential increase (for instance, double) of standard tax-deductible costs. As a result, there may be no income tax to be paid, and it will be refundable from the tax office.

A simplified example of tax settlements:

Settlements without R&D reliefSettlements with R&D relief
Entrepreneur’s revenue: PLN 2 million 
Tax-deductible expenses: PLN 1 million
R&D costs: not included
Income: PLN 1 million (PLN 2 million – PLN 1 million)
Tax (19%): PLN 190 thousand (PLN 1 million * 19%)
Entrepreneur’s revenue: PLN 2 million
Tax-deductible expenses: PLN 1 million
R&D costs (additional 100%): PLN 1 million
Income: PLN 0 (PLN 2 million – PLN 1 million – PLN 1 million)
Tax (19%): PLN 0 (PLN 0 * 19%)

Thus, thanks to the R & D relief implementation, it is possible to implement a mechanism for qualifying a certain portion of expenditure for the R & D relief and include it in the costs for the second time (i.e. twice).

As a result, the income tax (PIT or CIT) paid between 2016 and 2019 will be refundable from the tax office.