Challenges and opportunities - new rules in the Polish Investment Zone

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Challenges and opportunities - new rules in the Polish Investment Zone

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Bartosz Głowacki of MDDP analyses the new rules surrounding the Polish Investment Zone, with significant tax windfalls to be found by intrepid investors.

From January 1 2023 there are new rules on regional investment state aid in the Polish Investment Zone. The Polish Investment Zone provides corporate income tax exemption in return for investment in specific regions. It applies to all types of taxpayers, such as individuals, partnerships, companies and other corporate bodies.

Part of the expenses incurred by making new investments returns via the personal income tax/ corporate income tax exemption. One may also ask for a state aid decision, valid for between 10 to 15 years. The amount of the exemption depends on the region, the value of the investment and the size of the enterprise. In general, the smaller the enterprise and the poorer the region, the bigger the exemption.

The most important change is that now the exemption applies only after the declared investment is completed, and it must be finished within three years. Previously, investors were allowed to benefit from the exemption right after first investment costs had been incurred and profit earned. That worked if the investment was made in parts that could operate separately before the process ended (like one production line out of many planned). Thanks to that approach the Polish Investment Zone (PIZ) allowance was more efficient. Now the exemption period will be shorter, and investors will be taxed if the investment starts to operate but is not formally finished. Further, even if the investment is completed before the deadline outlined in the support decision, this will not make the tax exemption available earlier.

Although the PIZ is available in most of Poland, there are some regions where it is not. Large enterprises will not be granted support for investments in the Wielkopolskie and Dolnośląskie regions as well as communes in Mazowieckie.

The list of sectors which do not qualify for PIZ exemptions has been also extended. For example, no-one will obtain support to produce weapons and ammunition.

What may be welcomed is that the minimum required investment value in the development of already existing business is now reduced by 50% for all. Previously, only medium and large enterprises could qualify for that discount. Considering that other discounts are still applicable (up to 98% for micro-enterprises), today the entry level for development investments is quite low.

Speaking of discounts – the 95% discount that used to apply to new investments by medium and large enterprises into modern business services now will apply if modern business services are the main function of the enterprise. Previously, modern business services had to be the only function of the enterprise. At present, this means a medium-sized entrepreneur may ask for support, such as some new IT investment, and a 95% discount will be granted even if there is some other activity possible.

Though consistently limited, the PIZ remains the most efficient instrument of tax support for development. Besides the PIZ, taxpayers are allowed additional deductions like the R&D allowance, robots allowance, test production and prototypes or CSR allowance. These however, in principle, cannot be combined with the PIZ exemption.

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