High employment costs are currently one of the serious challenges hindering the operation and development of Polish companies. “A potent solution could be a research and development (R&D) incentive,” says Piotr Frankowski, Managing Director of Ayming Poland. This tool enables businesses to deduct up to 200% of personnel costs, including salaries, from the tax base. The R&D incentive is known to 90% of domestic companies, but less than a quarter of eligible businesses make use of it. The company, together with the Confederation Lewiatan, has proposed a series of recommendations to the government that could improve these statistics.
“Polish companies need to think about their development and increasing competitiveness, but they also face numerous challenges. In a Norstat study conducted last year for Ayming, we asked financial directors and HR directors about their biggest challenges. The most frequent answer, which received 60% of votes, were labor costs. Within this category, salary costs accounted for 80% of mentions. This indicates that the cost associated with human resources exploitation is increasingly becoming a problem for companies in their development and competition strategy,” says Piotr Frankowski, Managing Director of Ayming Poland.
The increasing employment costs (comprising salaries, social insurance contributions, and employer-paid taxes) remain the biggest concern for employers. According to data from the Confederation Lewiatan, 67% of Polish companies consider this factor as the most significant challenge this year. On the other hand, the “Monthly Economic Index” of the Polish Economic Institute shows that in November last year, 70% of Polish companies pointed to high labor costs as the main barrier to their operations (a 4 pp increase m/m).
Similarly, conclusions from last year’s “Survey on Labor Costs and the Business Environment in Poland,” conducted by Norstat on behalf of Ayming, highlight that 60% of surveyed financial directors and HR directors rated labor costs as being too high. Employee remunerations proved to be the most problematic area, presenting a challenge for 82% of companies.
“Labor costs per working hour in Poland now stand at 14.5 euros; although still over twice less than the EU average, Poland is becoming at least as expensive or even more expensive than other countries in Central Europe, particularly Bulgaria or Romania, and even Western European countries such as Greece or Portugal, where labor costs are only slightly higher than in Poland,” explains Piotr Frankowski. “Another aspect that has huge significance is the dynamics of these costs growth. Poland is one of the countries where salary costs have been growing relatively the strongest in the last few years. We have the third highest growth dynamics among OECD countries. This shows that the cost of salaries poses a challenge which will become even more serious over the next few years.”
According to Eurostat data, in 2023 the average hourly labor costs in Poland increased by 12.4% year on year. Across the EU, this growth was much lower, amounting to 5.4% (and 4.8% in the eurozone). At the end of last year, average labor costs in Poland were equivalent to 14.5 euros per working hour, with an average EU level of 31.8 euros.
Statistics Poland data show that in October last year, the average monthly salary in the enterprise sector increased by 10.2% year on year and amounted to PLN 8,316.57. The Confederation Lewiatan points out that wages in Poland continue to grow at a double-digit rate and are likely to remain at this rate until at least the end of this year.
“A successful response to increasing labor costs could be a research and development incentive,” points out the Managing Director of Ayming Poland. “This mechanism was introduced into Polish regulations in 2016 and has been growing since then. For two years now, or since 2022, there has been the possibility of deducting up to 200% of qualifying costs in the area of salary costs; that part of the costs borne by employees for conducting R&D activities. There is also another mechanism that complements the R&D incentive; it is an incentive for innovative employees. This mechanism allows for an additional deduction of costs in situations where the company incurs a loss or the tax level is insufficient to recognize all qualify costs that the company incurs in a given tax year.”
The R&D incentive allows businesses to deduct up to 200% of personnel costs (including salaries) from the tax base. According to an Ayming report, 89% of Polish companies are familiar with this tool. Nevertheless, only 23% of companies that develop their products and processes use the R&D incentive. Based on Ministry of Finance data, in 2022 just over 2.36 thousand taxpayers took advantage of the incentive (12% more than a year earlier), and saved almost PLN 1.3 billion as a result.
“The R&D incentive is a very important mechanism for those companies that already benefit from it. Our research showed that 19 out of 20 companies that use the R&D incentive reinvest the funds obtained from this title into further business development, conducting additional research, and increasing their innovation. This shows that these companies are accelerating compared to those that do not use this mechanism,” says Piotr Frankowski.
A total of 87% of Polish companies that benefited from the R&D incentive rate the scale of the obtained support positively. A significant 94% reinvest the funds obtained through it into next R&D projects, which directly enhances their development and competitiveness.
According to Ayming estimates, in 2023 about 27,000 companies (or 10 times more than the actual number making use of the solution) could benefit from this tool, saving around PLN 4 billion a year for Polish businesses. These funds could be reinvested into further R&D projects, boosting innovation in the business sector.
“The potential of the Polish market is enormous, but the level of use still leaves much to be desired,” says the Managing Director of Ayming.
As he points out, the main obstacles to a wider use of the R&D incentive by Polish businesses are a lack of resources and knowledge about this tool. Many companies may not even be aware that they qualify for this instrument.
“The understanding of how this mechanism works is often the problem,” says Piotr Frankowski. “We have encountered a belief that this instrument is intended for entities conducting innovative activities at least at regional or national scale. However, it is intended for organizations that undertake development activities within the framework of their own business. Improvements to products, production chains, or the introduction of improvements, such as reducing energy consumption, also qualify for the incentive.”
Many entrepreneurs who have applied for the R&D incentive do not hide their frustration linked to the formalities – 75% of them reported difficulties with collecting documentation, 74% found the application process complicated, and 78% pointed to the long waiting time for support. This means that although the R&D incentive is one of the most accessible instruments for acquiring additional funds for innovations, making use of it still requires experience and knowledge.
“Ayming has been in Poland for 20 years, and for eight years it has been helping companies in settling R&D incentives. Based on our observations, we suggested several changes that could help expand this market further,” says the expert. “One of our recommendations is to expand the catalog of qualifying costs, which could be subject to a 200% deduction. Currently, these are salary costs, but the catalog of these qualifying costs that have a lower deduction rate is much wider. Therefore, we propose to increase deductions to 200% for all qualifying costs, such as materials, consultancy services, depreciation, or patent protection.”
The second recommendation – developed in cooperation with the Confederation Lewiatan and already presented at the Ministry of Finance – is to enable those companies that temporarily generate a loss or do not generate sufficient income due to intense investments into innovations, which temporarily burden their finances, to also benefit from the R&D incentive.
“Today, this instrument is available only to companies starting their business operations. However, for enterprises in a transiently challenging macroeconomic situation, such an incentive or an additional financial injection would certainly be very useful,” says Piotr Frankowski.
As he points out, another important demand is the abolition of the obligation to collaborate exclusively with scientific entities, which would open the way for more flexible use of expert support from outside the scientific sector.
“Currently, many investments in R&D activities are implemented in cooperation with implementation companies, external enterprises, and experts. Therefore, such a solution would certainly help Polish companies build competitiveness,” says the Managing Director of Ayming.
