FAQ

In accordance with the Income Tax Act, individuals who run a sole proprietorship are eligible for tax exemption, alongside:

• companies in succession management,
• partners in a civil partnership,
• partners in a general partnership,
• partners in a partner company,
• partners in a limited partnership

– whose income from economic activity is taxable in line with general principles, according to the tax scale, or with a uniform 19% income tax, according to the principles set out in Article 30(c) of the Income Tax Act (the so-called flat tax).

The entities eligible for tax exemption may be taxpayers who are Polish tax residents. The exemption may also apply to taxpayers whose seat, registered office or management board is abroad (non-residents), who obtain income from economic activity conducted in the territory of the Republic of Poland through a foreign establishment, provided that the foreign company is carrying out a new investment project for which they have obtained a decision on support. Therefore, the taxpayer may benefit from the exemption if the taxpayer’s income generated from business activity as specified in the decision on support is subject to income tax in Poland.

State aid cannot be granted to a project that is purely a replacement investment. Simple replacement of individual assets is not covered by the scope of regional investment aid under Commission Regulation (EU) no. 651/2014, as such investments do not lead to any fundamental changes to the entire production (service) process. This also applies to equipment replaced with newer, more effective machines, unless such replacement leads to a fundamental change in the entire production (service) process.

In the application, the entrepreneur indicates the types of activities (in accordance with the Polish Classification of Goods and Services [PKWiU]) in which the new investment project is carried out. The decision on support should therefore specify the type of activity that only applies to the new investment in a specific area.

Pursuant to Article 13(6) of the Act on Support for New Investments, if the economic entity has at least two decisions on support, the settlement of public aid takes place in accordance with the order of issuance of the decisions on support.

The investment project must not begin before submitting the application for the decision on support. The commencement of the investment process is defined as activities such as the beginning of construction works, the first legally binding obligation to order equipment, or other obligation that makes the investment irreversible. Purchasing the land or carrying out preparatory work in the form of obtaining permits or conducting feasibility studies are not considered as the commencement of the investment.

It is possible to use assets owned by a company before the date of issuing the decision on support that are not covered by support in the form of state aid. In practice, the goal of creating a new investment may be achieved with the use of a group of acquired assets, or assets already existing in the enterprise, as long as it is indispensable for the successful implementation of the new investment project.

If the new investment is carried out in a way that involves the use of assets already owned, and when the new investment is a functional element that is dependent on an already existing group of assets (close connections), the amount of tax-exempt income includes the cost of the assets existing before the issuance of the decision on support. This situation is possible when the method of integrating the new investment and the existing investment, located in the same area, makes it impossible to determine the income (revenue) generated only by the new investment, without taking into account the whole or part of the existing investment integrated with it. In this case, the income cannot be separated due to the strict economic and functional connections between the existing investment and the new one.

Calculating the amount of a loss does not include the revenue, or cost of obtaining revenue, from sources of revenues that are not subject to income tax or are tax-free. Therefore, the provisions of the CIT Act and the PIT Act do not allow for including losses incurred on sources of revenue where the revenue is tax-free in the tax settlement. A loss that can be carried forward in subsequent tax years must be a tax loss in the sense that it is incurred on a taxable activity.

In the case of conducting business activity outside the area specified in the decision on support, the activities carried out in the area specified in the decision on support are separated organizationally, and the amount of the exemption is determined based on the revenues and costs of obtaining revenues of the organizational unit conducting the activities that are specified in the decision. The organizational separation of activities conducted in the area specified in the decision on support means:

1.  separation for accounting purposes – i.e. separation of revenues and costs in the books of accounts (e.g. off-balance sheet records or an appropriate chart of accounts; alternatively, tagging entries assigned to a given activity);
2. separation of fixed assets – e.g. into fixed assets assigned to activities benefiting from income tax exemption or to taxable activities.

The purpose of organizational separation is to correctly calculate the taxable income exempt from CIT and PIT generated by a new investment carried out on the basis of a decision on support in the area covered by this decision. Importantly, “organizational separation” does not mean the need to formally establish a branch that will prepare its own financial statements. However, it is necessary to modify the accounting and tax records system in such a way as to provide all the information necessary to properly document the scope of the tax exemption in question.