Tax Exemption in The Polish Investment Zone From 2023 in Yet a Different Shape

It contains a number of important last minute changes affecting new investments, which may come as an unpleasant surprise to investors familiar with the draft regulation published in August 2022.

In particular, effective 1 January 2023, the new PIZ regulation:

• introduces the principle that a tax exemption based on capital expenditure (as opposed to an exemption based on two years’ payroll costs) will only be triggered after the investment period indicated in the PIZ decision has expired, and therefore usually only several years after the investor has obtained the PIZ decision,
• requires investors to demonstrate that assets (other than land) have been acquired by them as part of a new investment (including in the form of a finance lease) on an arm's length basis, whether or not the assets have been acquired from a related entity (otherwise the assets will not qualify for the PIZ exemption),
• suggests that the cost of fixed assets will only be eligible once they have been completed,
• indicates that in the case of finance leases, only costs incurred during the validity of the finance lease agreement will be considered eligible,
• with regard to the qualitative criterion “Support for the acquisition of education and professional qualifications and cooperation with vocational training establishments”, to the extent that it would be met by the investor incurring training or education costs of at least PLN 1,000 per employee per year, the obligation to incur these costs applies to 50% of all employees employed in the new plant covered by the PIZ decision (and not only 50% of the employees employed as part of the new investment, as per the previous rules),
• with regard to the qualitative criterion “Taking care of the employee”, the obligation for the investor to bear the costs of non–wage benefits of at least PLN 800 gross per employee per year for the entire period of maintenance of the investment applies to all employees employed in the new plant covered by the PIZ decision (and not only to employees employed in the new investment, as per the previous rules),
• for certain qualitative criteria obliges investors to adopt a three– or five–year period of maintenance of the level of employment,
• introduces other modifications to the qualitative criteria,
• expands the range of waste–related activities that can now be supported to include activities covered by 2015 PKWiU code 38.22.19.0 – Treatment services for other hazardous waste,
• allows for the eligibility of investment costs for energy generation and the costs of related infrastructure if the following three conditions are cumulatively met:

a) energy generation is not the primary purpose of the whole project (most of the costs should not be related to energy generation
b) the energy production capacity is matched to the needs of the company, meaning that the aim is to use the energy produced for own consumption and a maximum of 20% of the energy planned to be produced can be sold (based on an ex ante analysis), and
c) the costs relate only to investments in energy sources that would be eligible for aid under the rules on state aid in the energy sector (this condition would be met by, e.g., RES or high–efficiency cogeneration).

Notwithstanding the above, the new PIZ regulation also introduced other changes, as provided in the draft published in August 2022.

These include, in particular, changes concerning:

• facilitation of reinvestment (due to a 50% reduction in the threshold of respective eligible costs),
• eligible costs relating to the rental or lease of land, buildings and structures,
• how to verify the qualitative criteria,
• the content of the qualitative criteria (including in particular the criteria “Use of human resource potential” and “New investment in renewable energy sources”),
• support in PIZ for investments related to the provision of modern services for business,
• the range of activities excluded from support in the PIZ, and
• obligation of durability (maintenance) of the investment.

We covered the above changes in webinars and meetings in late 2022.

The new PIZ regulation, including all of the above amendments, applies to tax exemptions granted on the basis of applications submitted after 31 December 2022.

By Cezary Przygodzki, Dariusz Stolarek, Partners, Michal Bernat, Managing Counsel and Aleksandra Siemieniec-Dulska, Associate, Dentons