Taking advantage of the Research and Development (R&D) relief, companies are not exposed to additional scrutiny by the tax authorities. This is a myth often perpetuated in the market.
Deductions related to conducting R&D activities are a good strategy for improving the economic situation. However, some taxpayers are unaware of the opportunity to take advantage of attractive solutions for them. While others, completely unnecessarily, fear additional tax scrutiny. It should be stressed that if there is any scrutiny, it’s usually minor checks. Thanks to a well-prepared settlement, a lot can be gained, and one can confidently wait for a refund. The state favors innovative activities. This is indicated by the introduced preferences – R&D relief, prototype relief, expansion relief, or relief for robotization. We soon will find out how the new government will support companies in these areas and what changes, if any, will be introduced. This should be carefully observed, as interest in tax reliefs, especially in the field of innovation, will grow. Therefore, it is worth straightening out certain opinions circulating around.
Ignorance, Fear, and Flat-rate Taxation
Currently, companies are actively seeking ways to mitigate the difficult economic situation resulting from the post-pandemic period and high inflation. In many cases, the R&D relief can be an excellent solution, particularly since it became more attractive in 2022 due to increased deduction limits and an option to combine it with IP Box.
However, many entities conducting R&D activities are unaware of the potential tax deductions in this area. Some do not consider them attractive enough to invest in such projects. This is certainly a loss for these companies as the benefits could be very substantial. Proper preparation for tax deductions is necessary. Moreover, contrary to the popular opinion circulated among entrepreneurs, there is no need to fear it.
We often hear from businesses that they do not want to use the relief due to the increased risk of income tax investigations. Nevertheless, this should be clearly rectified, as it is not true. Indeed, we can expect checks before receiving a tax refund. However, if the settlements and documentation are properly prepared, these actions will be a mere formality. Hence, many companies use the support of tax advisors during tax relief settlements. They decide to take this step to ensure correctly gathered documentation and correctly executed settlements.
Interest in tax reliefs in the field of innovation will grow in the near future. More taxpayers than recently will benefit from these solutions in the 2023 settlements. As a result of the changes in the so-called Polish Deal, this form of taxation has become very attractive to many entrepreneurs, especially for sole proprietors in the IT sector. For some entities, switching to flat tax was more profitable than using tax reliefs. Choosing this form of taxation no longer allows the deduction of costs for R&D activities from income.
A Range of Possibilities With Deductions
The state takes inspiration from solutions functioning in other countries, introducing various tools into the Polish tax system. In my opinion, these encourage and promote innovative activities among taxpayers. New solutions have been implemented, such as the prototype relief, expansion relief, or robotization relief.
The relief for robotization supports companies in process automation. It is intended for enterprises implementing industrial robots to improve production. This allows for an additional 50% deduction of incurred income-related costs for robotization from the tax base. This, in turn, increases productivity, reduces production costs, and improves quality. This solution can have a massive impact on the competitiveness of Polish companies in the global market.
On the other hand, the prototype relief, allowing an additional 30% deduction of costs related to pilot production and launching a new product on the market, allows entrepreneurs to produce prototypes more cheaply and then implement the invention into production. This can lead to the creation of innovative solutions and increase product diversity on the market.
In addition to introducing new tax reliefs, existing regulations have been made more attractive. For example, the R&D relief allows additional deduction from the tax base for costs incurred on R&D activity, including – the purchase of materials and raw materials, expertise and opinions or obtaining a patent. From 2022, the limit of deductions under this relief was increased, which now reaches up to 200% (in the case of employee salary costs) and the possibility of combined use of R&D relief with IP Box relief was introduced.
The IP Box (an abbreviation for Intellectual Property Box, also functions as an Innovation Box) offers a preferential tax rate for income associated with intellectual property, such as patents or copyrights. Companies often invest vast amounts in research and development. This solution allows them to increase their return on these investments through lower taxation.
Between Us Innovators
Ongoing investment in research and development is required by companies in the industrial processing industry. This area provides broad opportunities to conduct developmental work and scientific research, the cost of which can be deducted under this preference. Technological changes in production, automation, and digitalization of processes are key in the industry, which increases the demand for research and development.
Specifically, taxpayers associated with industrial processing were the largest group to claim R&D relief in their 2022 settlement. This is evident from the data of the Ministry of Finance, taking into account the Polish Classification of Activities (PKD) sections. This is understandable as operating in this area of the economy requires constant improvements and investments. It is necessary to adapt to new trends, which leads to innovative solutions investments. Entities often work on improving products or production processes or on new technologies. This incurs significant cost.
According to the ministry’s data, most taxpayers who claimed R&D relief in their 2022 settlement were from the Mazowieckie region. This is also not surprising. Several factors influence the number and value of deductions related to R&D activities in a given area. These include the number of companies, access to funds, the technological advancement of the region, and cooperation between the public and private sectors.
In this case, we’re talking about one of the most developed regions of Poland. It is home to corporations and research institutes. The former often conduct intensive research and development, investing considerable resources in innovations, new technologies, and product development. The latter are often leaders in their fields in this region, attracting scientists, researchers, and experts. The presence of large companies and research institutes also attracts other smaller entities – suppliers and companies from related industries, creating the so-called innovation ecosystem. In such places, there is mutual interaction between various entities, which promotes knowledge exchange, research cooperation, and the development of new technologies. This is the ideal environment for using R&D relief. Additionally, Mazowieckie is the largest region in our country.
Preferential taxation in areas related to research, innovations, and intellectual property is one of the ways the state can support businesses. Lower tax rates encourage companies to invest in research and development, which in the long run can bring benefits to the economy as a whole. In recent years, there have been many criticisms directed at the authors of the tax changes. However, the state is trying to support entrepreneurs in terms of innovative activities. The wide range of reliefs in this area is evidence of this endeavor. Time will tell whether the direction chosen in this aspect will also be continued by the new government. It is only hopeful that it will be so.
The author of the comment is tax advisor Ewa Flor from the ATL Accounting & Payroll Office.
