Are ZUS contributions a cost under the IP BOX relief?

Service-Tax

In the era of digitization, the development of modern IT solutions is very important for every country. Currently, the computerization of life is progressing very much. Thus, more and more entrepreneurs are involved in software development. Countries, wishing to encourage enterprises to introduce new innovative solutions, introduce numerous discounts.

Entities entitled to IP BOX relief

One of the forms of supporting innovative economy is the IP BOX relief. According to the legislator, its aim is to support innovative projects, in particular IT projects. What is very important, the IP BOX relief is addressed to all PIT and CIT taxpayers conducting activities that qualify as research and development activities, earning income from qualified IB. According to the PIT Act, these are natural persons running a sole proprietorship or running a business as:

  • companies in decline,

  • partners of a civil partnership,

  • partners of a general partnership,

  • partners of a partner company,

  • partners of a limited partnership.

However, in the light of the CIT Act, these are:

  • legal persons;

  • capital companies in organization;

  • organizational units without legal personality;

  • limited joint-stock partnerships with their seat or management board in the territory of the Republic of Poland;

  • tax capital groups;

  • companies without legal personality having their seat or management board in another state, if the law of that state treats them as legal persons and are subject to taxation on all their income regardless of where they are earned.

The IP BOX relief is included in the PIT Act, but it is not in the Act on flat-rate income tax on certain revenues earned by natural persons. Therefore, taxpayers conducting business activity taxed in the form of a registered lump sum cannot benefit from the IP BOX preferences. Therefore, it does not cover natural persons conducting business activity taxed in the form of a registered lump sum.

Taking into account the above, various entities can take advantage of the relief. However, these taxpayers must conduct research and development activities.

Research and development activities

Taxpayers wishing to take advantage of the tax relief must create, develop or improve qualified IP, i.e. an intellectual property right that meets three conditions jointly:

  • it was produced, developed or improved by the taxpayer as part of his research and development activities;

  • belongs to one of the categories listed in the catalog in art. 24d paragraph. 2 of the CIT Act (Article 30ca (2) of the PIT Act, respectively);

  • is subject to legal protection under the provisions of separate laws or ratified international agreements to which the Republic of Poland is a party, and other international agreements to which the European Union is a party.

In the case of the IP BOX relief, research and development activities are as important as creating a qualified IP. Its definition can be found in Art. 4a point 26 of the CIT Act. Research and development activities means "creative activities involving research or development undertaken on a systematic basis to increase knowledge resources and to use knowledge resources to create new applications". The use of the conjunction "or" means that, in order for the taxpayer's activity to be classified as research and development, it is sufficient for the taxpayer to conduct research or only development work. Of course, the taxpayer may conduct research and development work. In each of the above situations, the definition of research and development activity will be met.

Example 1.

An IT taxpayer develops control software for production devices at the customer's request. In each case, the order differs as it is tailored to the specific customer. Thus, each software requires significant changes (each is innovative and creative). The taxpayer carries out IT work (software development department) for this purpose. Does such an activity meet the definition of research and development?

In this case, the taxpayer conducts research and development activities. His activity is innovative and creative. The above confirms that research and development activities are not only new products and services, but also a significant improvement or adaptation of the existing ones.

IP BOX-related costs - Nexus pattern

A taxpayer who wants to take advantage of the IP BOX relief must count the so-called Nexus indicator. The above is due to the fact that the income from eligible IB is determined as the product of the income from eligible IB earned in a tax year and the Nexus index. The formula used to calculate this indicator is included in the CIT Act. Thus, the above indicator shows what part of the income can be taxed at the preferential tax rate (5%).

One of the cost categories included in the Nexus template are the costs actually incurred by the taxpayer for the research and development activities carried out directly by the taxpayer related to the eligible IB.

Importantly, the formula does not include costs that are not directly related to the eligible intellectual property right, in particular interest, financial fees and costs related to real estate.

Thus, the legislator obliged the taxpayer to divide the costs related to IP BOX and those not related to the qualified good. The taxpayer must determine himself how to account for the costs.

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ZUS contributions with the costs of IP BOX

The activities of IT companies include not only large international concerns, but also small entities - often sole proprietorships. We apply the tax rate of 5% to the income generated by creating copyrights to a computer program. The copyright to the computer program is guaranteed pursuant to Art. 74 of the Act on Copyright and Related Rights. Pursuant to Art. 74 sec. 2 of the Act on Copyright and Related Rights, the protection granted to a computer program covers all forms of its expression. The ideas and principles underlying any element of a computer program are not protected.

We can apply the IP BOX relief to the copyright to a computer program when we give it a functional, purposeful and expanding meaning, in accordance with the most important international context of the IP Box regulations.

As we have already shown, the size of the entity does not matter for the possibility of using the IP BOX relief.

Example 2.

The taxpayer runs a sole proprietorship. As part of it, he creates a computer application. The above piece, in accordance with Art. 74 sec. 2 of the Act on Copyright and Related Rights is protected. The taxpayer makes the work available online and therefore charges a license fee. It only obtains revenue from the sale of licenses. One of the costs it incurs are ZUS contributions. Should the ZUS contributions paid be considered costs directly related to the IP BOX?

In such a situation, ZUS contributions (for social insurance and labor fund) for entrepreneurs running a sole proprietorship in such a part that, according to the proportion of revenues, fall into the eligible data of the IB, should be considered a direct cost.

To sum up, taxpayers may recognize ZUS contributions, including contributions related to their own business activity, as costs. The above solution is certainly beneficial for taxpayers (especially smaller ones) because it may affect the calculation of the IP BOX tax relief.