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Finance & Financial Services

The whole of Poland as one special economic zone

By Hubert Hajdukiewicz, tax specialist at KR Group
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The Polish government has accepted the draft bill on supporting new investments which expands special economic zones (SEZ) to cover the entire country.

The draft legislation, supplemented with draft implementing regulations, will be backed up with a tool that has a potential of becoming a vital component supporting businesses to invest.

The draft implementing regulation stipulates the scope of activities which can receive grant aid. Ruled out is the production of tobacco products, refining motor fuels, production of alcoholic beverages, gambling and waste management.

The investment must also satisfy the requirements of the government's medium-term development strategy. Supported investment projects need to conform with the requirements set out in the assessment criteria, part of appendix 1 to the implementing regulation.

Businesses applying for state aid for their investments will also have to comply with quantitative criteria stipulated in the implementing regulation. These depend on:

  • the ratio of the unemployment rate in the poviat (district) to the national unemployment rate

  • the business pledging to incur a minimum amount of eligible costs.

For instance, in the case of poviats where the unemployment is between 60% and 100% of the national rate, businesses will be required to undertake to incur eligible costs of at least 80 million złotys. However, In poviats where unemployment is above the national rate, the amount of eligible costs pledged falls accordingly. For example, where the rate is over 250% of national unemployment rate (at the time of writing, this would be over 16.6%), the eligible costs required to be pledged by a business would only be 10 million zlotys.

In case of investments in modern business services, such as business process outsourcing, IT, shared services centres and R&D made by micro, small or medium-sized enterprises, the specific requirements relating to the amount of eligible costs of investments will be reduced accordingly:

  • by 98% for micro businesses (one to nine employees)

  • by 95% for small businesses (ten to 49 employees)

  • by 80% for medium-sized businesses (50 t0 249 employees)

Consequently, in the case of poviats where unemployment is above the national average, but not higher than 130% of the national rate, businesses will be required to incur eligible costs of at least 60 million zlotys. However, investments in modern business services will entail reduced amounts of eligible costs which will stand at:

  • up to 1.2 million zlotys for micro businesses;

  • up to 3 million zlotys for small businesses;

  • up to 12 million zlotys for medium-sized businesses.

State aid granted to businesses in the form of tax exemptions constitutes regional investment support for the costs of new investments. The maximum size is calculated by multiplying the maximum aid intensity for a given area by the investment costs incurred that are eligible for being subject to aid.

Granting state aid for a new investment is contingent on the business’s share of its own funds. These need to be at least 25% of the total eligible cost of an investment. Expenses qualifying for support for new investments are deemed to comprise of investments costs reduced by input VAT and excise tax.

To obtain income tax exemption, the businesses must maintain ownership of the assets to which the investment costs were related for over five years, and three years in case of micro, small and medium-sized enterprises, but considering the fast pace of technological progress, replacing obsolete installations and equipment is not disallowed. A second prerequisite is that the investment remains in the region in which aid was granted for a minimum of five years from the moment when the entire investment is completed. In the case of micro, small and medium-sized enterprises, the minimum period is three years.

According to the draft bill, the supportive instruments will be applicable to the new investments undertaken across the whole of Poland. The amendment will eliminate lengthy and burdensome procedures concerning the marking out of SEZ borders and restraint of supported regions. The slogan “All of  Poland is a special economic zone” has been reflected in the draft bill.

By enabling micro, small and medium-sized enterprises to receive support, the legislators anticipate an increased influx of investment in to Poland's less developed regions, which are currently unable to satisfy larger investors’ needs in terms of infrastructure or availability of human resources   

The legislators have assigned particular importance to the role of regional administrators. Their responsibilities involve carrying out activities that lead to the creation of new investments, and their further development. The regional administrators' tasks include:

  • sharing assets with businesses, on the basis of a relevant agreement, of which the administrator is a proprietor, dependent possessor or vested to them for management

  • administration of assets, of which administrator is owner, dependent proprietor or vested to them for management, in a manner facilitating business activity

The regional administrator will deliver training and advisory services for businesses benefiting from support as defined in the investment development plan. The administrator will also be authorised to enter into remunerated agreements with the businesses for the purpose of providing other types of services. The salary of the administrator will take into account in particular: costs, amount of work and expenses incurred by the regional administrator in the course of their services.

Managing companies (element which surfaced in the impact assessment of the regulation) will perform tasks, as stipulated in the bill, on the territory of the poviat assigned to them on the basis of the regulation. They will serve as knowledge hubs for the businesses providing information on all aspects of business activity in the region. They will also continue to focus on given industries and sectors where they have expertise.

The bill presented by the Ministry of Investment and Development is an answer to the lack of change to the current supportive instruments intended for businesses in relation to their tax exemptions vis-à-vis their changing needs and economic challenges. The prerequisites for obtaining the exemption are dependent upon the size of the business, stipulated in accordance with the EU's definition as well as the unemployment rate in the poviat. Quantitative criteria (required investment outlay) will be modified in accordance with the capabilities of companies from the micro, small, and medium-sized segment, and this anticipates an increased influx of investment in the less-developed regions.

In light of the changes, Poland will bolster its competitiveness relative to its neighbours. Other countries' offers were up to this point more beneficial primarily in relation to the areas where investors can obtain tax exemption. The differentiation of criteria for receiving support will promote those investments that add most value to the Polish economy.

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