Innovation Box – new regulation introducing tax relief on the commercialization of innovations

by Klaudia Blach-Morysinska from ZM Legal (Zaborski, Morysinski Law Office – Poland)

On January 1, 2019, new tax regulations come into force in Poland. The new laws impose a number of income tax changes, including introduction of a new mechanism allowing a significant reduction in taxation of income derived from intellectual property rights, known as the “Innovation Box”. The new regulations are part of the implementation of the “Plan for Responsible Development” and “Strategy for scientific excellence, modern higher education, partnership with business and social responsibility of science” in the area of innovation.

The Innovation Box is the proposed solution which aims to stimulate innovation in Poland. Its aim is to
increase interest in research and development works carried out in Poland. This new solution is also an important initiative that makes the tax system competitive and attractive for high technology companies. Moreover it supports development and investments of innovation sectors.

The Innovation Box has been implemented and operates in many other countries, including the Netherlands, Great Britain, Ireland, Luxembourg, Slovakia, France and Hungary. It is known under various names, as Patent Box, Intellectual Property Box, IP Box or Knowledge Development Box. Usually, the involved relief mechanisms consist in taxing income from intellectual property rights with a reduced tax rate or exempting some of this income from taxation.

In Poland new tax relief may be used for: patents; SPCs; protection rights for a utility model; rights in registration of an industrial design; rights in registration of topography of integrated circuit; medicinal and veterinary products admitted to trade; new varieties of plants and animals; and rights to a computer program. The tax preferences may be used until the right expires, for example in the case of a patent for 20 years.

Thanks to the Innovation Box, taxation level of income from intellectual property rights is lowered to 5%. The income eligible for the Innovation Box is income derived from royalties or other charges related to the use of intellectual property rights, income from the sale of intellectual property rights, and income from intellectual property assets included in the sale price or services based on the market price. The reduced rate is applied to an adjusted taxable base calculated in a way specified in the Act.

The main requirement for using the preferential tax rate is conducting research and development activity related to the development, creation or improvement of the intellectual property. The condition of taking advantage of the Innovation Box is the separation of income from intellectual property commercialization in the account books.

The Polish Group of AIPPI took an active part in working on the Innovation Box regulation. At the preliminary stage, one of our board members acted as an intellectual property expert for the Ministry of Finance. Moreover, on the level of public consultation, the Polish group of AIPPI filed its proposed comments and amendments to the wording of the Innovation Box regulation, which were accepted by the legislator and introduced into the wording of the new regulation.

The new solution shall increase the attractiveness of conducting research and development activities in Poland by Polish and foreign enterprises, change the economic model for a knowledge-based economy, and increase awareness of intellectual property rights as potential sources of income. The Innovation Box will constitute an important support for innovative activities in Poland.