IP Box is a relief consisting in the possibility of using a lower - 5% income tax rate calculated on income derived from the commercialization of intellectual property rights created, developed or improved as a result of research and development activity or acquisition of research and development services.
Who can benefit from this relief?
If you would like to use the IP Box relief, your company should:
1. conduct research and development activity. Research and development activity is the activity that:
2. have the qualified intellectual property rights. These rights must be created, developed or improved as a result of your business activity, and your company must be an owner, co-owner, user of the qualified intellectual property rights or your company use them under a license agreement. The qualified intellectual property rights (so-called "qualified IPR") are:
3. these rights are already subject to legal protection or an application for their protection has been submitted to the competent authority (that is, you have the so-called a prospect of obtaining these rights);
4. obtain an income from the above rights in the following form:
5. keep appropriate records, which consist in the separation of each intellectual property right in the accounting books.
How does it work?
1. We calculate the income from qualified IPR
We sum up the income derived from qualified intellectual property rights in a given tax year (i.e., license fees collected during the year).
2. We set the indicator according to the following formula:
[(a + b) × 1,3] / (a + b + c + d)
where the above letters mean the costs actually incurred by your company for:
"a" - research and development activity carried out directly by your company, which is related to the commercialized intellectual property right;
"b" - acquisition of research and development works results’ related to the commercialized intellectual property right from an entity not affiliated with an entrepreneur;
"c" - acquisition of the results of research and development works related to the commercialized intellectual property right from an entity related to the entrepreneur;
"d" – acquisition a qualified IPR.
With the reservation that if the indicator amounts to more than 1, it is assumed that the indicator is 1.
3. We set the tax base
The taxable base is the income derived from qualified IPR in a given tax year (point 1) multiplied by the calculated indicator (point 2). The income calculated in this way is covered by a lower, 5% income tax rate.
The tax base, i.e. qualified income, is calculated according to the following formula:
Income from qualified IPR × [(a + b) × 1,3 / (a + b + c + d)] = Qualified income
It should be noted that the losses incurred from qualified IPR can be deducted from income related to the same qualified IPR or from the same type of product or service in which the qualified IPR was used (in consecutive 5 tax years).
If your company conducts research and development activity and:
1. your company is the owner, co-owner or user of at least one of the following rights:
2. your right is subject to legal protection or you have even applied for a protection right to the competent authority;
3. you obtain income from these rights in the form of fees, sale price, compensation for infringement;
you can be potentially qualified for the possibility of using the IP Box relief, and thus reduce the income tax rate to 5%.
If you are interested in taking advantage of the relief, you need additional information on this subject or a practical explanation, please contact us (our contact details can be found here: https://www.esb-legal.pl/en/contact) - we'll be happy to help you.
16th May, 2019, attorney-at-law Magdalena Piechowicz