05 12 2016

Ayming study reveals: businesses in Poland are unaware of the R&D relief … losses incurred as a result

A tax relief on research and development was launched in Poland at the start of 2016. 11 months into the life of this tax credit, as many as 40% businesses declare they do not know it at all, whereas only 6% are preparing to use it. At the same time, as many as 60% businesses declare that they do not do R&D, even though the study covered businesses from sectors where R&D is part of their regular operation. Failure to identify R&D activities and lack of awareness of the R&D credit brings about financial losses and missed growth opportunities for businesses.

The R&D tax relief is a new mechanism for fostering innovativeness made available to businesses in Poland at the start of 2016. Implementation of the relief was a postulate of entrepreneur organizations, such a Konfederacja Lewiatan, for several years. According to a study conducted by Kantar Millward Brown and commissioned by Ayming Polska, some companies are unaware of what constitutes research and development activity (14%), with some businesses associated it with advanced activities. Businesses are unaware that R&D activity is undertaken by their organizations as part of their regular operations. It is therefore no wonder that most companies believe that the R&D relief does not apply to them.

Without a proper understanding of what constitutes R&D activity, a significant improvement in the economy, expected by the government and business, cannot take place. Results of the Ayming Polska study clearly show that building an innovative economy, as deputy prime minister Mateusz Morawiecki announces, is a process planned for years. What seems to be an early-stage yet key barrier however, is the entrepreneurs’ unawareness of what can be described as R&D and what tools they can utilize to develop this area in their organizations.

Awareness of the R&D relief

According to the study by Ayming Polska, after nearly a year since the implementation of the R&D relief, only 16% surveyed companies declare to be very well and well aware of its mechanism. A vast majority of businesses know very little about it, with 40% companies not knowing the r&d credit at all. 

"This clearly shows that the R&D credit is still not talked about enough. Businesses have this tool at their disposal that can foster research and development, but they are in most cases unaware of it. Education in this field can easily help entrepreneurs drive innovativeness and save capital for the next growth stages " – stresses Magdalena Burzyńska, Managing Director at Ayming Polska.

Using the R&D relief

A consequence of the poor awareness of the R&D credit is the very low interest for the solution. Only 6% businesses declare that they are presently carrying out a preparatory process for using the relief. Only one in five respondents declares that they would be applying for the relief in the coming year or two.

"The small proportion of businesses planning to use the relief is first and foremost caused by the low awareness of this form of aid. Other causes are most likely the unclear definitions in the law itself, the scarcity of available tax interpretations and a relatively small amount of the deduction. However, it is worth stressing that with a large investment into R&D, already several percent saved can make a tangible difference for the company. At the same time, the R&D relief forces businesses to map their research and development processes in the organization, to identify R&D activities, organize works and record costs, which translates into more maturity of the business. If companies learn to use the R&D relief now, they will be prepared for using more advanced solutions. Let us keep in mind that the size of the deduction will increase at the start of next year, and the government-announced “Large bill on innovativeness” planned for 2018 will probably introduce the status of an innovative business, making companies eligible for tax deductions amounting to even 100% "– comments Magdalena Burzyńska, Managing Director at Ayming Polska.

The R&D relief requires promotion… and development

In the recent years, innovativeness in Poland has been developing thanks to EU funds. In 2016, the government has enacted tax regulations supporting R&D activity. The awareness of the available solutions is still very low, but some companies have clearly established expectations regarding the shape of the relief. One in three companies declares that an R&D relief would encourage that company to do R&D. The average level of the minimal tax deduction on R&D costs expected by these companies is 40%, which means a return of nearly half of the investment. In such a scenario, the size of the relief with a tax of 19% would need to amount to 200%. This is the tax credit amount available in Lithuania and Estonia, which remains a leader in innovativeness among Central-Eastern Europe countries. On the other hand, in Czech Republic, Hungary and Latvia, the deduction amount is 100%. Such solutions may soon be implemented by the “Large innovativeness bill” announced for 2018.

See more in the report by Ayming Polska: “R&D tax relief. Challenges, opportunities, solutions”, summarizing the first 11 months of the R&D tax credit.

----------------------------------------------------------------------------------------------------------------- Starting from January 1st, 2016, businesses investing in innovations can use an income tax (CIT/ PIT) credit. Every business can additionally deduct from 10% to 30% of the eligible costs of R&D specified in the accounting records. In November 2016, the president has signed the “Small innovativeness bill”, which introduced beneficial changes for companies conducting innovative active, in life since January 1st, 2017. Planned for 2018 is the implementation of the “Large innovativeness bill”, with more attractive incentives for business. It has been announced that the status of an “innovative business” will be introduced, making companies eligible for larger deductions – even up to 100%.