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Poland: Tax exemption for new investments

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From 1 July 2018, Poland became one special economic zone (SEZ) with extensive tax exemptions available. Since the early 90s, taxpayers have been able to benefit from public aid in the form of the income tax exemption that applies to profits earned in SEZs. Most of the exemptions resulted from qualifying expenses relating to new investments and increases in employment, but only within very specified locations.

Nowadays, taxpayers do not have to start or move their businesses to dedicated areas (SEZs) or ask to extend that area for the purpose of a given investment.

Under the new law, a taxpayer can apply for a decision granting tax exemption on profit derived from new investments. The decision remains valid for 10 years and cannot be extended beyond 15 years. The period depends on the region in which the new investment is to be made.

The decision will specify the period for which it is valid, as well as the scope of business within which the taxpayer may operate, and the conditions the taxpayer will have to meet in order to be entitled to the tax exemption. These include:

  • Number of employees and minimum employment period;

  • A minimum value of qualifying expenses and at the same time the maximum amount that will be taken into consideration when setting a limit for public aid;

  • The area in which the new investment is to be made; and

  • The deadline for fulfilling the new investment, after which the expenses will no longer qualify for public aid.

If the requirements mentioned in the decision ultimately are not met, the permit will be cancelled and the tax exemption abolished. The latter will have retroactive effect and the taxpayer will have to return all the public aid (the amount of the tax exemption) received under the decision.

Investors wishing to begin new business interests in Poland are strongly advised to take the new law into account, as the tax exemption available may substantially increase the rate of return of the investment.

In terms of the numbers involved: assuming that a large entrepreneur taxpayer makes an investment in a region where the public aid intensity is 35%, the limit for qualifying expenses is €40 million ($45.7 million). Thirty-five percent of that €40 million is public aid in the form of income tax exemption, which means, that taxable profit of up to around €74 million will be corporate income tax-exempt. Note that very large investments (more than €50 million) will be discussed individually.

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