In our previous article on R&D relief, we explained what constitutes research and development. Identifying R&D activities is essential to claim the relief. To establish how much can be gained from it, it is necessary to determine which costs are eligible.
General principles
Three principles should guide the identification of eligible R&D costs.
Eligible costs must already have been recognised as tax-deductible expenses under the general rules of tax law.
Eligible costs are expenditure directly and exclusively related to research and development.
EXAMPLE: An employee carries out R&D duties but is also assigned tasks outside that field. Only remuneration for the working time devoted to R&D activities counts as an eligible cost.
Eligible costs are expenditure included in the statutory list of eligible costs under the tax Acts.
Categories of costs
The list of eligible costs is set out in Article 18d of the Corporate Income Tax Act and Article 26e of the Personal Income Tax Act. It includes: (1) labour costs; (2) purchases of materials, raw materials and equipment; (3) expert reports, research and opinions; (4) obtaining protection for inventions, utility models and industrial designs; and (5) depreciation of fixed assets.
Labour costs
Labour costs include remuneration paid under employment contracts, contracts of mandate and contracts for a specified result (umowa o dzieło), calculated monthly. Eligible costs comprise basic pay and all additional remuneration components, such as bonuses and allowances. Social insurance contributions calculated and paid in connection with those contracts are added to remuneration costs.
Materials, raw materials and equipment costs
Under the tax Acts, eligible costs include expenditure on purchasing materials, raw materials and specialist equipment that does not constitute fixed assets. The cost of using scientific research apparatus through an external service may also be deducted from the tax base.
Expert reports, research and opinions
A claimant of R&D relief may treat expenditure on expert reports, opinions, advisory services and similar services as eligible costs. Eligibility in this category depends on the choice of service provider. Remuneration paid to universities, federations of universities or institutes of the Polish Academy of Sciences may be deducted from the tax base.
Costs of obtaining protection for inventions, utility models and industrial designs
The results of R&D activities are highly likely to qualify for copyright protection. Their creator may also be able to obtain protection under industrial property law. Costs incurred in obtaining and maintaining a patent, a utility model protection right or an industrial design registration right qualify for deduction under R&D relief.
Depreciation and amortisation: tangible and intangible assets
Depreciation and amortisation of fixed and intangible assets used in R&D are also eligible costs. As a rule, this category excludes depreciation of passenger cars, buildings, structures and premises.
Amortisation of development costs
Businesses amortising development costs may deduct those amortisation charges from the tax base to the extent that they comprise the expenditure described above.
Special rules for research and development centres
The above restrictions do not apply in full to entities with research and development centre status. The tax Acts grant them certain privileges. For example, such centres are not restricted to deducting expert-report costs only where the reports are purchased from universities or institutes of the Polish Academy of Sciences. Entities with this status may also deduct, under the relief, depreciation of fixed assets consisting of structures, buildings and premises.
Where costs cannot be deducted
The taxpayer deducts eligible costs from the tax base. If the taxpayer reports a loss or cannot deduct all eligible costs, those costs may be deducted in the six consecutive years following the year in which entitlement to the relief arose.
Cashback
The tax Acts provide an interesting solution for start-ups in their first year. If they cannot deduct eligible costs from the tax base, they do not have to wait for a future opportunity. The tax office pays them the amount by which the relief would have reduced their tax. This also applies in the second year of operation to micro, small and medium-sized enterprises.
Read our other articles on R&D relief
If R&D relief interests you, we encourage you to read the first article on this subject on our blog. Our next article will explain how to claim the relief safely.
