Tax incentives in the SEZ

Special Economic Zone (SEZ) is part of Polish territory which is administered separately, allocated for the running of businesses on preferential terms. The SEZ is a place which is subject to special treatment and tax exemptions where an entrepreneur can establish a business on a specially prepared site and run it without paying income tax.

If a company decides to invest in one of the SEZ’s, the income which it receives from business carried out on its terrain will be exempt from income tax (CIT - from legal persons or PIT – on physical persons, depending on the legal form used to run the business).

In an SEZ the entrepreneur can obtain the following privileges:

• tax exemption (CIT or PIT)
• a site fully prepared for development by the investor at a competitive price
• free assistance in dealing with formalities in connection with the investment
• exemption from property tax (on the territory of certain Gminas)

Exemption from income tax granted in the SEZ is regarded as publicly funded regional aid, which serves to speed up the development of  the most poorly developed EU regions; by supporting new investments and creating new workplaces linked to these new investments.

New investment:

Investment in fixed stock and also intangible or legal costs, involved with the formation of anew or the expansion of an existing business, the diversification of a firm’s production or the introduction of new additional products, or in the fundamental change of a complete production process of an existing business. The acquisition of an existing business which is in receivership or would have been wound up, if it had not been acquired by a new and independent investor - is also deemed a new investment.
 
The creation of new jobs in connection with new investments:

The net growth in jobs of a given enterprise in connection with the realisation of a new investment, is in relation to the average employment in the firm, during the 12 months prior to the day that acceptance was granted.

New employees are those employed after the day on which acceptance of the new investment is granted, however, no later than three years from that time. The number of employees are those employed full time, together with those employed part time and also seasonal workers, calculated on a full time basis.

The administrative-legal basis for being able to receive public assistance in a SEZ, is acceptance to set up a business in the SEZ, which is granted by the SEZ board.

The permitted level of regional aid available to the entrepreneur is dependant on:

• location of the investment
• level of capital input, or
• costs of employing new workers
• and also, the size of the business seeking tax relief

The maximum permitted level of aid in each Polish region is shown on the map of regional aid. From the 1st January 2007 a new map of regional aid is in force for the years 2007 – 2013. In accordance with the map, the basic maximum level of regional public aid is expressed in percentages of the amount of aid which qualifies for the receipt of assistance, amounting to:

1. 50% - in areas belonging to the regions of: Lublin, Lower-Carpathia, Warminsk-Mazury, Podlasie, Swietokrzyski, Opole, Malopolska, Lubuski, Lodz and Kujawy-Pomorski,
2. 40% - in the area belonging to the Pomeranian region,
3. 30% - in the area belonging to the capital city: Warsaw, and also during the period: 1st January 2011 till 31st December 2013, in the area belonging to the Mazowsze region.
   
   

Due to the relatively low GDP in Poland the permitted ceiling for regional aid is higher than in most EU countries.

The costs qualifying for cover under regional aid in a SEZ, i.e. costs forming the basis for calculating the maximum amount to be exempted from tax, can be:

• costs of new investment, or
• costs of work of newly employed workers

depending on whether the tax exemption is in the form of aid for a new investment or as aid for new workplaces.

There is also the possibility of utilising both forms of aid simultaneously, on a condition that the joint amount of aid does not exceed the permitted maximum in a given investment; so that the maximum aid level is determined by the ratio of  the aid’s intensity to the highest level of costs: the new investment, or two year costs of the newly employed staff.

Costs of new investment:

- expenditure which make up the costs of realising a new investment, reduced by the addition of taxes on goods and services and by excise duties, when  the possibility for the deduction is based on separate provisions, costs incurred in the area of the zone whilst under binding authority, for:

1. purchase of land or the right to its permanent use,
2. purchase or acquisition within their own scope of fixed assets on condition of  their deductibility – in accordance with separate provisions – to the estate of the taxpayer,
3. development or modernisation of existing fixed assets,
4. purchase of intangible values or legal services connected with the acquisition of patents, operating licenses or patented licenses i.e. know-how or unpatented know how.

Costs linked to the acquisition of assets that are hired or leased, other than land or buildings, can only be taken into consideration, when the hire or lease is in the form of a financial lease and includes the obligation to acquire the assets at the end of the period of hire or leasing.

Fixed assets acquired by entrepreneurs - that are not for small or medium sized businesses - should be new.

The minimal level of investment enabling a firm to utilise the public aid under a SEZ is 100 thousand EUR.

The cost of work of newly employed staff is the gross cost over a two year period, increased by the mandatory payments linked with their employment by the employer from their first day of employment.

The maximum level of regional aid which can be granted for the realisation of a large investment project is limited in relation to its basic scope and is calculated by the following formula:
            
                                I = R x ( 50 million EUR + 0.5 x B + 0.34 x C),

Where the given symbols are:

I – the maximum amount of aid for a large investment project,
R – intensity of aid (depending on the area in which the investment is to be located)
B – size of the costs qualifying for the allocation of aid, over the equivalent of 50,000,000 EUR – but not exceeding 100,000,000 EUR,
C – size of costs qualifying for the allocation of aid over the amount of 100,000,000 EUR.

A large investment project – is a new investment, undertaken over a period of  three years by one or more investors, in the case where fixed assets are linked together, which are economically indivisible and where the qualifying costs for aid are jointly valued at over 50 million EUR, as calculated according to the prices and exchange rates, on the day permission is granted.

In the case of investment projects which do not exceed 50 million EUR, the aid ceiling for small businesses may be raised by 20 percentage points, medium sized businesses may receive aid increased by 10 percentage points.

Small businesses are defined as - A business which employs fewer than 50 workers, the annual turnover of which and/or the annual balance does not exceed 10 million EUR.

Medium sized businesses – those which are not small businesses, which employ fewer than 250 workers, whose annual turnover does not exceed 50 million EUR, and/or whose annual balance does not exceed 43 million EUR.

Note:
The method of ascertaining whether a business qualifies in the category of  SB or MSB is more complicated. The European Commission has issued a special booklet defining SB& MSB.
Not every kind of  enterprise is eligible for tax exemptions in the special economic zones. Here you can find additional information on the subject.

The right of access to tax exemptions under the terms of a new investment in an SEZ, may be granted to an entrepreneur, on condition that:

1. there can be no transfer of any kind in the ownership of fixed assets, which are connected to investment expenditure – for a period of 5 years from the date of their entry into the inventory of fixed assets and of intangible and or legal expenses, under the interpretation of the rules for income tax, in the case of small and medium sized businesses for a period of  3 years;
2. the business will be conducted for a period of no less than 5 years, whilst in the case of small and medium sized businesses no less than 3 years;
3. new workplaces will be maintained for no less than 5 years, 3 years in the case of small and medium sized businesses.

To gain more detailed information relating to Special Economic Zones, please check the page: Special Economic Zones.