In May 2018, Poland enacted a law that made it possible to apply CIT or PIT exemption throughout the country. Earlier, for nearly 25 years, it was possible to take advantage of these investment incentives only in Special Economic Zones (SEZ), which, however, accounted for less than 1% of Poland. Currently, investments are possible in both public and private areas. In addition, the amendment of 31 July 2019 gives support for investments located in areas with undeveloped mineral deposits.
The new investment support instrument is aimed at adjusting to the realities of modern economy and increasing the investment attractiveness of Poland. Similar solutions have been introduced by our neighbours: Czech Republic, Slovakia and Hungary. At the same time, the goal of the new law was to increase the amount of investments of Polish companies, small and medium-sized enterprises, as well as promoting innovative projects.
According to the Ministry of Development, Labour and Technology, at the end of 2019 there were 432 decisions to support new investment projects under the Polish Investment Zone, with a total declared value of 20.9 billion PLN. Investments will also contribute to the creation of more than 8.5 thousand jobs in the industrial sector and modern business services.
Polish SMEs eagerly benefit from tax exemptions. 74% of beneficiaries were companies with domestic capital, who plan to invest 9.26 billion PLN. 113 foreign investors also benefited from tax privileges. Most foreign direct investments under the Polish Investment Zone comes from Germany (32 decisions), the US and Italy (8 decisions each).
How to invest in the Polish Investment Zone?
The first step is to select the area for the creation of new investment. Then, the entrepreneur must submit an application for grant. The application defines the duration of tax relief, the nature of business activities, as well as the conditions that the entrepreneur is obliged to fulfil. The decision is made on behalf of the minister in charge (currently the Minister of Development, Labour and Technology) by Area Managers, or the Board of the zone, who are responsible for the area of investment.
Which industries and types of investments can receive support?
The provisions on regional public aid stipulate that a new investment is the establishment of a new company, increasing the production capacity of an existing establishment, a fundamental change in the manufacturing process or its diversification, acquisition of assets belonging to a plant that has been closed or would have closed had it not been purchased. The exception is an investment in Mazowieckie province, where new investments mean those with the establishment of new businesses.
All companies from traditional industries can benefit from public aid, with the exception of enterprises producing, among others, alcohol, tobacco products, explosives, steel, energy and gas. Support is also provided for companies operating in the sector of business process outsourcing (BPO).
For how long is tax exemption granted?
The period for which a decision is issued depends on the intensity of public aid for the area. The time to use aid in the given region is the same for all companies, regardless of the type of business and company size. Decisions are given for a fixed period of not less than 10 years and not longer than 15 years.
In regions where the level of public aid is from 10 to 25% (Lower Silesia, Silesia, Wielkopolskie, Warsaw West and the city of Warsaw) this period is 10 years.
In regions with the level of public aid of 35% (Kujawsko-Pomorskie, Lubuskie, Lodzkie, Malopolskie, Opolskie, Pomorskie, Swietokrzyskie, Zachodniopomorskie, and sub-regions: Ciechanow-Plock, Ostroleka-Siedlce, Radom, Warsaw West) this period is 12 years.
In Lubelskie, Podkarpackie, Podlaskie and Warminsko-Mazurskie, where the level of public aid reaches 50%, investors can benefit from 15 years of tax exemption.
If the area of new investment is located in at least 51% within the borders of Special Economic Zone within the meaning of art. 2 of the Act of 20 October 1994 on Special Economic Zones, new investments are supported for the period of 15 years.
What is the amount of tax relief?
The amount of aid in the form of CIT or PIT exemption is established based on the map of regional aid for 2014-2020. Depending on the region, you can get up to 50% of eligible costs. Support for medium and small/micro-sized companies increases the level of aid by 10% and 20%, which means that the maximum level of aid is 70%.
Eligible costs of new investments are the costs of land acquisition, expansion or modernization of fixed assets such as machinery, acquisition costs of intangible assets (software, licences, certificates etc.), or 2-year labour costs.
What projects can count on the support?
The new rules are intended to support regions with high unemployment and 122 cities losing social and economic functions, small and medium-sized companies and high-tech projects. This is reflected in the way projects are evaluated and scored. Decisions on support are granted if new investments meet certain quantitative and qualitative criteria.
Quantitative criteria are the minimum required eligible costs of the new investment which the company will have to incur in order to obtain tax exemptions. Quantitative criteria are dependent on two factors: unemployment rate in the region and the size of the company. The smaller the company and the higher the level of unemployment, the lower the eligible costs.
Depending on the region, the minimum eligible costs for micro-sized companies are from 200 thousand to 2 million PLN, and for small businesses from 500 thousand to 5 million PLN. For medium-sized companies, eligible costs amount from 2 million to 20 million PLN. For large industrial companies, the costs start at 10 million to 100 million PLN, and for companies operating in BPO, from 500 thousand to 5 million PLN.
Quantitative criteria are dependent on the level of unemployment in the county in which the company intends to pursue its investment. The lowest costs are required in counties with high levels of unemployment and in selected medium-sized cities losing their social and economic functions (122 cities).
Qualitative criteria are the conditions that the investment must meet to benefit from the tax exemption. The criteria are divided into two groups.
The first group is sustainable economic development, or investments in sectors such as ecological construction, production of high-quality food or sectors consisted with intelligent specializations of the given province. This group of factors also includes conducting research and development activities, the status of a micro-, small- or medium-sized company and belonging to the National Key Cluster.
The second group of criteria is sustainable social development. This means that points are given for the location of investment in one of the 122 cities losing their socio-economic functions or county with the highest unemployment rate; creation of well-paying and specialized jobs; activities with low impact on the environment and providing employees with insurance programs, medical care or recreational sports activities.
In total, the new investment can receive a maximum of 10 points for the qualitative criteria. However, to obtain support, the project must receive from 4 to 6 points, depending on its location: 4 points (Lubelskie, Podkarpackie, Podlaskie, Warminsko-Mazurskie), 5 points (Kujawsko-Pomorskie, Lubuskie, Lodzkie, Malopolskie, Opolskie, Pomorskie, Swietorzyskie, Zachodniopomorskie, sub-regions Ciechanow-Plock, Ostroleka-Siedlce, Radom, Warsaw West), 6 points (Lower Silesia, Silesia, Wielkopolska, Warsaw, subregion Warsaw-West).
The condition is also getting at least 1 point for sustainable economic development and sustainable social development.
Planned changes in the Polish Investment Zone
Currently, works are under way to amend the Act on supporting new investments. It is planned to introduce, among others, the strategic investor’s passport, or support for the largest investments (1000 jobs or an annual turnover of 1 billion). With the passport, investors would have a quicker way to obtain, among others, environmental permits, construction permits or employment of foreigners. It is also planned to clarify the qualitative criteria. The new rules can come into force at the beginning of 2021.