IP Box tax relief – reduce your income tax to 5%

April 24, 2023

If you are a programmer or own a company providing services in the field of new technologies, you can reduce your income tax to 5%. This applies to both PIT and CIT. All due to the IP Box (Innovation Box) relief, which was introduced into the Polish legal and tax system on January 1, 2019.

IP Box tax relief

The IP Box relief was introduced into the Polish legal and tax system on January 1, 2019. In the simplest terms, the IP Box relief can be described as the possibility of applying a preferential tax rate of 5% to income obtained from intellectual property rights – in place of “traditional” forms of taxation, e.g. the 19% rate or tax scale. The IP Box relief is sometimes also referred to as a “relief for programmers” – since the entry into force of the regulations, it is they who benefit from this relief most often. Starting from 2022 taxpayers may combine the settlement of the IP Box relief with the research and development relief.

Important! Taking advantage of the IP Box relief is possible only in the annual tax return – income obtained during the tax year from qualified intellectual property rights is subject to taxation in accordance with the originally selected form of taxation.

Who can take advantage of the IP Box relief?

The IP Box relief can be used by both taxpayers taxing their income on the basis of the Personal Income Tax Act (UoPIT) and the Corporate Income Tax Act (UoCIT).

Important! The IP BOX relief cannot be used by natural persons settling on the basis of a lump sum on registered income.

What income do we settle under the IP BOX relief?

The use of the IP Box relief depends on conducting research and development activities and obtaining income from qualified intellectual property rights (so-called IP rights) as part of this activity. The term research and development activity under the IP Box relief should be understood as creative activity involving scientific research or development work, undertaken in a systematic manner in order to increase knowledge resources and use knowledge resources to create new applications.

The next stage, verifying the possibility of applying the IP Box relief, is to familiarize yourself with the list of qualified intellectual property rights – what is important, this catalog is closed:

• patent
• utility model protection right
• right from registration of an industrial design
• supplementary protection right for a patent for a medicinal or plant protection product
• the right in registration of a medicinal product and a veterinary medicinal product authorized for marketing and the exclusive right referred to in the Act on the legal protection of plant varieties
• integrated circuit topography registration right
• copyright to a computer program

How do we calculate IP Box relief

As part of the IP Box relief, you can only settle the so-called income obtained from qualified IP rights, in particular:

• profit from the sale of qualified IP
• receivables received under license agreements for qualified IP
• profit from qualified IP included in the selling price of the product or service

Nexus indicator

The next stage of settlement of the IP Box relief is the calculation of the so-called nexus indicator. This is necessary because the tax base with the preferential income tax rate of 5% is the product of income from qualified IP and the nexus index.

Calculation of the nexus indicator is made in accordance with the following formula:

n = (a + b) x 1,3 / (a + b + c + d)

where:

a – costs of research and development related to qualified IP;
b – costs of acquired results of research and development works related to qualified IP, from an unrelated entity,
c – costs of acquired results of research and development works related to qualified IP, from a related entity
d – costs of qualified IP purchased by the taxpayer.

Important! If a taxpayer, as part of its research and development activity, works on more than one qualified IP, in order to benefit from the tax relief, it will be required to calculate the nexus indicator separately for each IP right.

Records of income

Taxpayers benefiting from the IP BOX Tax Relief are required to keep detailed records of income earned under qualified income and other income. This is a requirement resulting directly from tax laws and will certainly be the first element of verification in the event of an inspection by tax offices.

Tags tax reliefs, ulga IP Box