Relief for innovative employees – how does it work and who can benefit from it?

This solution is particularly attractive for technology, manufacturing, IT companies, R&D centers and startups – but not only. Check who can use it and how the preference mechanism works.

What is research and development (R&D)?

Definition R&D activities results from tax regulations (Article 4a point 26 of the CIT Act).

This is a creative activity that includes:

• scientific research or
• development works

conducted in a systematic manner in order to:

• increasing knowledge resources,
• using this knowledge to create new applications.

In practice, this may mean, among others:

• creating new products,
• improving technology,
• developing new production processes,
• software development,
• prototype testing.

Who can benefit from the relief?

WITH relief on innovative employees taxpayers who:

• incur eligible costs of research and development activities (R&D),
• they did not fully deduct them in the classical framework R&D relief (due to loss or low income),
• are tax payers PIT (i.e. they employ employees).

Preference applies to:

• entrepreneurs taxed under the Personal Income Tax Act,
• taxpayers operating under the Corporate Income Tax Act (with respect to revenues other than capital gains).

What is the relief mechanism?

The relief for innovative employees works differently than the classic R&D relief.

• It does not involve an additional deduction in the annual return.
• It allows you to reduce current PIT advances on the salaries of employees involved in R&D.

The taxpayer may reduce the income tax advances collected as a payer by the amount corresponding to the undeducted part of the R&D tax relief.

In the case of PIT taxpayers:

Pursuant to Art. 26eb of the PIT Act, it is possible to reduce by:

• 12% of the undeducted R&D amount – for taxpayers on the tax scale,
• 19% of the undeducted R&D amount – for flat-rate taxpayers.

In the case of CIT taxpayers:

Pursuant to Art. 18db of the Act CIT – the reduction is the product of:
undeducted amount of relief R&D × rate CIT applicable to the taxpayer (e.g. 9% or 19%).

What remuneration is covered by the relief?

The reduction may be made in relation to payroll tax advances paid for:

• employment relationship,
• service relationship,
• homework,
• cash benefits from social security paid by the employer,
• mandate contracts,
• contracts for specific work,
• copyright.

From when can relief be used?

You can use preferences:

• from the month following the month of submitting the annual return,
• until the end of the tax year in which the return was submitted.

This means that the relief actually improves financial liquidity during the year – the company pays lower PIT advances on salaries.

What if the relief is not fully used?

If taxpayer still will not use the amount due:

• may settle it in the next 6 tax years,
• when settling, reductions already made under the relief for innovative employees should be taken into account.

The mechanism is therefore flexible and allows the tax benefit to be spread over time.

Why is the tax relief for innovative employees attractive?

In conditions of rising labor costs and pressure on innovation, relief:

• improves current cash flow,
• supports companies investing in development,
• allows you to recover some of the funds faster than with classic R&D settlement,
• is particularly beneficial for startups and companies in the intensive investment phase.

For many enterprises this is real support for financing R&D teams without having to wait for full settlement in the following years.

Summary

Relief for innovative employees is a practical tool for companies operating R&Dwhich:

• have suffered a loss or low income,
• employ employees involved in research and development projects,
• want to use their deductions faster.

If implemented well, it can significantly improve the financial liquidity of an enterprise and constitute an element of a broader tax optimization strategy.