What is the relief for innovation (relief for a prototype)?
Relief for innovation is a preference allowing taxpayers to deduct from the tax base the expenditure associated with developing a new product. The relief will apply to the taxpayers who developed a new product as part of their research and development operations (R&D) and are planning its commercialization.
The preference, therefore, concerns the initiation of the production process, and not the stage associated with the product development or enhancement.
Tax relief for innovative activities allows to deduct from the tax base 30% of the sum of the costs of trial production of a new product as well as costs of placing a new product on the market.
The Act stipulates that the write-off cannot exceed 10% of income from operating activities in a fiscal year. The preference concerns all income tax payers – irrespective of the character of the form of business, turnover etc. In practice, it will concern mostly industrial activities and production.
What types of activities does the new relief for innovation concern?
Key to the proper application of the relief are the definitions specified in the CIT Act, i.e. the terms of “product”, “trial production of a new product” and “placing a new product on the market”.
By “product”, the legislator understands a product in the meaning of provisions of the Accounting Act, excluding a service. Therefore, a product, under the legislation concerning the relief being discussed here, is a tangible current asset produced or processed by an entity and fit for sale or being in the course of production. The term also includes semi-finished products.
“Trial production of a new product” is the stage of technological start-up of production requiring no further design-and-construction or engineering work, and the aim of which is to perform trials and tests prior to launching the production process for a new product developed as a result of conducting research and development operations by the taxpayer. This stage of technological start-up covers the period from the moment a first cost associated with the process was born to the moment of launching production of the new product.
By “placing a new product on the market”, the legislator understands, in turn, actions undertaken with a view to preparing documentation, which shall be utilized to obtain certifications and authorizations allowing putting the product, developed as a result of conducting research and development operations by the taxpayer, on the market.
What constitutes eligible costs?
As costs of trial production of a new product, which serve as a basis for taking advantage of the relief, the legislator regards:
- The acquisition price or the cost of producing brand new fixed assets, which are necessary to start trial production of a new product and are included in groups 3-6 and 8 of the Classification of Fixed Assets (Polish: KŚT);
- The expenses for upgrading a fixed asset (included in groups 3-6 and 8 of KŚT) incurred by the taxpayer with the aim of adapting the fixed asset to start trial production of a new product;
- The costs of acquiring materials and resources solely for the purpose of trial production of a new product
The costs regarded by the legislator as the costs of placing a new product on the market include the costs of:
- Research and expertise as well as preparing documentation required to obtain certification, approval, CE marking and a safety mark. Apart from this, the regulations also include the costs of obtaining and maintaining authorization for trading or other mandatory documents and markings associated with authorization for trading and using products. Finally, to be also included in this category are the costs of fees charged for obtaining, renewing and prolonging the above documents;
- Research on product lifecycle;
- Environmental technologies verification system.
The taxpayer is entitled to the deduction, if the costs of trial production of a new product (or placing a new product on the market):
- have actually been incurred in the fiscal year, for which the deduction shall be made (so we apply here the cash accounting scheme);
- have not been reimbursed to the taxpayer in any form or deducted from the tax base.
The legislator provided for specific rules for entities benefiting from the support associated with special economic zones or Polish Investment Zone. In the case of such entities, the deduction entitlement applies only in relation to these deductible expenses, which are not included by the taxpayer in the calculation of income exempt from tax.
In the case of incurring a loss in a given fiscal year – or in the case where the size of taxpayer’s income is lower than the amount of deductions they are entitled to – the taxpayer will be able to deduct an appropriate amount of costs in returns for the six consecutive fiscal years, directly following the year in which the taxpayer utilized (or was entitled to) the deduction.
How do the RSM Poland tax advisors assist in obtaining the deduction?
RSM Poland specialists have vast experience in preparing tax strategies, tax opinions and in providing tax advisory services to small, medium-sized and large companies. Using our assistance in the process of obtaining the relief for innovation you can expect a comprehensive approach. As part of our assistance we will:
- verify the conducted activity and identify operations qualifying for the deduction
- specify eligible costs and assist in their calculation
- analyze documentation justifying the entitlement to the deduction and fulfil other formal requirement
- apply to relevant authorities for issuing individual tax interpretation to maximally safeguard the process of implementing the relief.
See if the relief for a prototype concerns your company. Use the knowledge and experience of RSM Poland experts and recover part of the costs you incur for innovative activities.