R&D tax relief

R&D tax relief

What is R&D tax relief?

R&D tax relief is a tax mechanism that allows businesses to reduce their tax base or tax liability when they incur eligible costs on research and development activities. In practice, it is designed to support innovation by recognising that work aimed at creating new or improved products, services, processes or technologies often involves technical uncertainty, experimentation and measurable cost.

Although the detailed rules depend on the jurisdiction, the general purpose of R&D tax relief is similar across tax systems – to encourage investment in innovation and compensate businesses for part of the financial burden associated with development work. In Poland, this relief functions within the corporate and personal income tax framework and is commonly referred to as the R&D relief, allowing an additional deduction of qualifying costs. The legal basis is found primarily in the Polish Corporate Income Tax Act and Personal Income Tax Act. The scope of eligible costs, the method of settlement and documentation requirements follow statutory rules and tax practice.

From a practical perspective, R&D tax relief is not limited to laboratory research or advanced science. It may also apply to systematic work carried out by technology companies, manufacturers, engineering businesses, software developers, life sciences entities and, in some cases, service providers, provided that the activities meet the statutory criteria. The key issue is not the industry itself, but whether the work is creative, systematic and aimed at increasing knowledge resources and using them to create new applications.

What does R&D tax relief cover?

R&D tax relief usually applies to specific categories of expenditure linked to eligible R&D activity. Under Polish rules, qualifying costs may include, among others, employee remuneration and social security contributions related to R&D work, certain civil law contract remuneration, purchases of materials and raw materials directly connected with R&D, specialised equipment not treated as fixed assets used directly in R&D activity, expert opinions, advisory services and equivalent services provided under certain conditions, paid use of research equipment under certain conditions, and, depending on the taxpayer’s status and the applicable year, depreciation charges on certain fixed assets and intangible assets used in R&D.

The amount that may be additionally deducted depends on the type of taxpayer and the category of cost. These percentages result from statutory provisions and may change over time, so each settlement should be verified against the rules applicable to the relevant tax year. In practice, this means that a company may first recognise a cost as a tax-deductible expense under general rules and then, if statutory conditions are met, claim an additional deduction within the R&D relief mechanism.

In many cases, the main challenge is not identifying whether a business is innovative in a broad business sense, but determining whether specific projects, tasks and costs satisfy tax criteria. Tax authorities and courts often focus on the existence of technical or technological uncertainty, the planned and systematic nature of the work, project documentation, allocation of employee time and the direct link between incurred expenditure and R&D activity.

When is it worth using R&D tax relief?

R&D tax relief should be considered whenever a business develops or improves products, software, manufacturing methods, internal tools, prototypes, formulas, devices or operational solutions in a structured way. It may be relevant both for established companies with dedicated development teams and for growing businesses that do not describe their work internally as research and development, but in substance carry out qualifying activities.

Typical situations in which R&D tax relief may be available include creating new software functionalities, designing production improvements, testing new materials, developing automated systems, refining technical parameters of products, building prototypes, conducting validation tests or adapting technology to meet new performance requirements. The relief may also be important in tax planning connected with other instruments, such as the IP Box regime, transfer pricing arrangements within innovation groups, or broader corporate tax reviews.

For entrepreneurs, early legal and tax analysis is often important because the possibility of claiming the relief depends not only on the character of the activity, but also on how the business documents projects, staff involvement and cost allocation. A prompt consultation may help avoid errors in classification, disputes with the tax authorities, challenges during an audit, or the loss of a tax benefit due to incomplete records. It may also reduce the risk of overstating eligible costs, which could result in tax arrears, interest and penal-fiscal exposure.

In more complex cases, differences of interpretation may arise as to whether particular work constitutes routine optimisation or genuine R&D, whether a given cost is sufficiently linked to the project, or whether supporting functions may be included in the settlement. Where such doubts exist, the assessment should be based on statutory wording, administrative practice, tax rulings and current case law.

Law firm support in the area of R&D tax relief may include in particular:

• assessment of whether a business activity meets the statutory criteria for R&D,
• review of projects, processes and internal documentation,
• identification and verification of eligible costs,
• support in preparing a compliant tax settlement methodology,
• analysis of interactions between R&D relief, IP Box and other tax instruments,
• preparation of tax explanations and internal procedures,
• assistance in obtaining an individual tax ruling,
• representation in tax audits and disputes concerning R&D settlements.

If you need advice on R&D tax relief, contact us.

See also

• Corporate tax
• Tax Law
• Transfer pricing
• Financial reporting