R&D relief vs. relief for innovative employees

Based on the provisions of the so-called “Polish Deal”, a “relief for support of innovative employees” was introduced into the CIT Law and the PIT Law as of January 1, 2022. The purpose of the relief is to support taxpayers acting as wage earners who employ employees to perform R&D activities and have incurred a loss in the tax year or their income does not allow full deduction of qualified expenses under the relief.

Under this relief, a taxpayer is entitled to reduce the amount of PIT advances by the product of the amount not deducted but eligible under the R&D relief and the tax rate applicable to that taxpayer in a given tax year.

These regulations apply to advance payments on income earned by individuals collected on account of:

  • service relationship, employment relationship, contract work, cooperative employment relationship, and social security cash allowance paid by the taxpayer;
  • performance of services under a contract of mandate or contract for specific work;
  • copyrights.

However, persons employed by the taxpayer in order to take advantage of this deduction should be directly engaged in research and development activities and the working time devoted to research and development activities remaining in the total working time in a given month is at least 50%.

Such authority to reduce the amount of advance PIT payments is vested in the taxpayer from the month immediately following the month in which he filed his annual tax return until the end of the tax year in which it was filed.

For example, if a taxpayer incurred a loss in a given tax year and did not deduct the R&D tax credit, then in the tax return for that year he can show the credit to be deducted in the amount of PIT tax advances collected from the income of those who provide work for him and are directly involved in R&D activities in the proportion designated by law.

In practice, the innovation tax credit is a favorable solution for taxpayers conducting R&D work who have recorded a tax loss in a given year. Introduced from 2022, the allowance will accelerate the deductibility of the unsettled R&D allowance and, in addition, will have a positive impact on reducing the mandatory financial burden on the entrepreneur.