What are the benefits of the IP box and R&D? Who can reduce their taxes through these reliefs?
The development of a new product or service or the implementation of improvements to the processes taking place in the company often requires large financial investments. Entrepreneurs who decide to make such an investment, however, may benefit from various concessions and subsidies facilitating the implementation of the project.
What is R&D relief?
R&D tax relief is an instrument supporting research and development activities, which has become more attractive in recent years due to favorable changes in the calculation of deductible costs. As a result of the entry into force of the Act on the amendment of certain acts in order to improve the legal environment for innovative activities, from January 1, 2018, every entrepreneur conducting R&D work may deduct up to 100% of incurred expenditure. The R&D relief is an exceptionally attractive instrument to support innovative activities that does not require a complicated application procedure. The entrepreneur calculates the value of the R&D tax relief, which reduces the tax base, on the basis of the expenditure on research and development incurred in a given tax year.
The R&D tax relief is the possibility of lowering the PIT / CIT tax base in connection with the expenses incurred on research and development activities. As a result, costs allocated to research or development for tax purposes can be counted twice.
Revenue - tax deductible costs (including R&D costs) = income
Income - deductions (e.g. ZUS) - R&D relief (equal to R&D costs) = tax base
The inconvenience of the R&D tax relief is the need for separate recording of research and development costs. It should also be remembered that not all costs may be included in the calculation of the discount. However, a one-time effort to adjust the accounting records to the possibility of using the R&D tax relief will pay off in the following years in the form of lower income tax.
List of eligible costs, i.e. costs that may be deducted under the relief.
Eligible costs are expenses included in the catalog of eligible costs determined on the basis of the provisions of tax acts.
The catalog of eligible costs has been defined in Art. 18d of the Corporate Income Tax Act and in Art. 26 of the Personal Income Tax Act. These include the following costs:
- work
- purchase of materials, raw materials and equipment
- carrying out expert opinions, research and opinions
- obtaining protection titles for inventions as well as utility and industrial models
- depreciation write-offs on fixed assets
Labor costs
Labor costs include amounts paid as remuneration for employment contracts, orders and specific work (monthly). The eligible costs are the basic salary and all kinds of additional remuneration components, such as bonuses and allowances. The remuneration costs are increased by the accrued and paid in connection with the performance of the above-mentioned social insurance premium contracts.
Costs of materials, raw materials and equipment
Eligible costs, within the meaning of tax laws, are the burdens incurred for the purchase of materials, raw materials and specialized equipment (not being fixed assets). Costs incurred for the use of research equipment (as part of an external service) can also be deducted from the tax base.
Costs of making expert opinions, research and opinions
Beneficiaries of the R&D tax relief may recognize as eligible costs expenditure on expertise, opinions, advisory services and services of a similar nature. The criterion for the possibility to benefit from the relief in this respect is the choice of the entity providing the services. Remuneration paid to universities, university federations or institutes of the Polish Academy of Sciences may be deducted from the tax base.
Costs of obtaining protection titles for inventions, utility and industrial designs
There is a high probability that the result of research and development activity will be subject to legal and copyright protection. It is also possible that the creator will be able to cover the results of research and development activities with protection resulting from the provisions of the industrial property law. Costs incurred in connection with obtaining and maintaining a patent, a utility model protection right or an industrial design registration right are eligible for deduction under the R&D tax relief.
Depreciation write-offs - fixed assets and intangible assets
Eligible costs are also depreciation write-offs on fixed assets and intangible assets used in research and development activities. As a rule, depreciation write-offs for passenger cars, buildings, structures and premises should be excluded from this group.
Depreciation charges on development costs
Entrepreneurs settling depreciation write-offs from development costs may deduct from the tax base the above-mentioned depreciation write-offs in the amount in which they cover the expenses indicated above.
Special rules for settlements of entities with the status of research and development centers (CBR)
The above restrictions do not fully apply to entities that have the status of a research and development center. Tax laws grant them certain privileges. CBR is not subject to, for example, limitations as to the settlement of the costs of expertise acquired only from universities or institutes of the Polish Academy of Sciences. Entities with the CBR status may deduct depreciation write-offs from fixed assets in the form of structures, buildings and premises as part of the relief.
No settlement of costs
The taxpayer deducts the amount of eligible costs from the tax base. If the taxpayer recognizes a loss or it is not possible to deduct all eligible costs, he deducts the eligible costs in the six consecutive years following the year in which he was entitled to the relief.
Cashback
Tax Acts provide an interesting solution for start-ups in the first year of their existence. If they are unable to deduct eligible costs from the tax base, they do not have to wait for such an opportunity to arise in the future. The tax office pays them the amount by which the tax would be reduced as a result of the relief. The above also applies to the second year of operation for micro, small and medium-sized enterprises.
What is the IP Box?
IP Box is a preferential taxation of income obtained from the sale of products or services produced on the basis of intellectual property law. The solution is to increase the attractiveness of conducting research and development activities in Poland. It is to encourage entrepreneurs to bolder search for business potential in intellectual property rights. It is therefore an important step towards a knowledge-based economy.
Who can use the IP Box?
Entrepreneurs who earn income from intellectual property rights (IP) obtained from research and development (R&D) or from R&D services purchased from other entities, but patented by them, will be able to benefit from a preferential CIT or PIT tax rate. .
A prerequisite for using the IP Box is to conduct research and development activities directly related to the creation, development or improvement of a qualified intellectual property right.
In order to use this solution, it is necessary to satisfy several axioms.
Axiom 1
Income from intellectual property rights
According to the regulations, the 5% tax rate will be applicable only to income from the intellectual property rights specified in the act, the so-called Qualified Intellectual Property Rights.
The following are qualified rights entitling to a 5% tax rate:
- patent,
- protection right for a utility model (utility model covers e.g. new functions of a piece of furniture or a technical method of its production)
- right from registration of an industrial design (an industrial design includes e.g. a different shape, color, etc., e.g. of a piece of furniture)
- right from registration of integrated circuit topography
- an additional protection right for a patent for a medicinal product or a plant protection product (obtaining a patent is a long-term process, so in the case of drugs (active particles), an additional protection right is applied, which extends the patent protection)
- the right to register a medicinal product and an authorized veterinary medicinal product (in the case of drugs, the patent is granted for the active particle.
- the exclusive right referred to in the Act of June 26, 2003 on the legal protection of plant varieties (Journal of Laws of 2018, item 432),
- copyright to a computer program
However, it is important that these rights are created, developed or improved as part of the entrepreneur's research and development (R&D) activity.
Axiom 2
Characterization of proportions
The preferential tax rate can be applied to the so-called eligible income. This income is the product of the total income from qualified intellectual property rights and the so-called Nexus indicator.
This indicator is calculated with the following formula:
Where the individual letters represent the costs actually incurred by the entrepreneur for:
a - research and development activities carried out directly by the taxpayer related to a given right;
b - acquisition of the results of research and development works related to a given right from unrelated entities;
c - the acquisition of the results of research and development related to a given right from related entities, and
d - acquisition by the taxpayer of a qualified intellectual property right.
Axiom 3
Type of contract
The 5% tax rate will be applicable to income resulting from contracts:
- license,
- sales,
- sale of products or services where the price (remuneration) includes the price of a given right,
- as well as compensation for violation of the above-mentioned rights.
Axiom 4
Separate accounting
The regulations indicate how to keep the accounts to be able to take advantage of the preferential rate. And so it is necessary, among others the separation of each of the rights in the books kept and the keeping of relevant records allowing for the allocation of revenues and costs to a given right (group of rights). The records are to enable the determination of the amount of income (loss) from a given law.
Since when?
In 2020, entrepreneurs will be able to take advantage of the IP Box tax relief for the first time, which gives them the right to settle the income obtained in 2019.
How to take advantage of the lower tax rate?
The IP Box preference is a solution that the taxpayer can use after the end of the tax year in the annual tax return.
During the tax year, taxpayers pay tax advances according to the general rate (9% or 19% - CIT taxpayers, 17% / 32% - the tax scale or 19% - PIT taxpayers).
A taxpayer who meets the conditions set out in the provisions on the IP Box declares in the annual tax return the amount of income from qualified IP separated from the general income earned during the tax year. Then, the taxpayer applies a 5% tax rate to eligible income from qualified IP, instead of the general rate.
Objective
The IP Box solution has been designed for:
- increasing employment in the research and development sector in the private sector,
- stimulating investment in research and development of companies that have benefited from EU funds for the development of their own research and development units,
- increasing the number of patent applications and patents issued by the Patent Office in Poland and the number of European and international patents obtained by Polish entities,
- increasing companies' awareness of IP rights as potential sources of income.
IP Box is an element of pro-development policy functioning in many countries that have focused on innovation as the driving force of the economy. It is also a response to the demands of the business community reported during the work on the government's White Book of Innovation. The IP Box type solution has been implemented, among others in Israel, the Netherlands, Great Britain, Ireland and Luxembourg.
The condition for taking advantage of both the R&D tax relief and the IP Box is that the taxpayer carries out research and development activities. It does not automatically mean that only research centers are eligible for the relief. Research and development activities are activities carried out in order to acquire new knowledge, develop new products, processes or services, or introduce improvements. This activity can be carried out by both a large multinational corporation and a small start-up. It is important, however, that work continues on an innovative and new product, process or service.
IP BOX and R&D relief complement each other. The first of the tax incentives includes a preferential tax rate on income from the commercialization of intellectual property rights. They must be produced, developed or improved as part of the entrepreneur's research and development activity. On the other hand, the R&D tax relief reduces the tax base in connection with conducting research and development activities.
An entrepreneur planning to use the IP Box will be required to keep accounting records enabling the determination of revenues, tax deductible costs and income, as well as distinguishing R&D costs assigned to a specific intellectual property right. The project approach to cost accounting is the main difference between the R&D relief and the IP Box. In the case of the latter, it is necessary to keep detailed accounting records. This will make it possible to demonstrate the relationship between the income eligible for the relief and the expenses incurred to obtain the qualifying intellectual property right.
The scope of our competences
- We check and analyze the possibilities of implementing reliefs
Our certified advisors carry out an audit in terms of tax optimization opportunities related to the use of R&D and IP Box relief, the result of which are recommendations regarding the implementation of the most favorable settlements for the taxpayer.
- We recommend in the area of keeping accounting records
We prepare recommendations for necessary changes in the accounting policy, in particular regarding separate recording of R&D expenditure or revenues, tax deductible costs and income (loss) for each eligible intellectual property right.
- We diagnose income or eligible costs
Our team qualifies costs or income that can be assigned to the R&D or IP Box relief and advises on concluding contracts related to qualified intellectual property rights and using the R&D relief.
- We guarantee full security of using the discount
We apply for tax interpretations and opinions on the eligibility of the activity as R&D in order to ensure the safety of using the reliefs.
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