Poland as Special Economic Zone

Analysis

The entire Poland as Special Economic Zone

The executive regulation to the act on the support of new investment projects has become effective

SEZ Newsletter (4/2018) | 13 September 2018

On 4 September 2018, Regulation on Public Aid Available to Certain Businesses for New Investments (henceforth: Regulation) was published. In particular, it sets eligibility criteria to apply for public aid pursuant to a new Act on the Support of New Investment Projects of 10 May 2018.

Poland as a special economic zone — what does it mean in practice?

The Act on the Support of New Investment Projects introduces a new way of supporting investment projects and is to encourage businesses to invest all over Poland.

The incentive offered has the form of a income tax exemption (credit), which is similar to incentive offered previously for investments located in Special Economic Zones. The new programme provides an opportunity to obtain public aid to all businesses that invest in Poland, regardless of investment location, provided the investment fulfill relevant quantitative and qualitative criteria.

A business intending to carry out a new investment project will be offered aid based on a decision to provide support. The decisions to provide support will be given for a specific period of time: 10, 12 or 15 years, depending on the intensity of the state aid in a given region. The tax exemption is available over the decision validity period.

What support can an investment receive?

The state aid available under the new scheme (just as the aid offered under the act on special economic zones) will take the form of an income tax exemption. The amount of tax that the business will be allowed not to pay will be calculated multiplying the eligible  expenses and the aid intensity ratio set out for the region in which the investment project will be carried out. The intensity ratios are as follows:

Higher tax exemption thresholds are available to SME as the Regulation sets out that the maximum aid intensity is increased:

  • by 20 percentage points for small enterprises, and
  • by 10 percentage points for medium enterprises.

 

What investments qualify?

Whether the decision to provide support will be favourable will depend on the satisfaction of qualitative and quantitative criteria. To obtain public aid, an investment must meet the following criteria:

Quantitative

In order to qualify for the scheme, an investment must involve sufficient eligible expenses, depending on the investor’s status (small/medium/large) and on the unemployment rate in the county where it is located. The following table presents base values for a large business; in case of small and medium businesses and certain investment types the figures are reduced.  Additionally, preferences (a reduced minimum expense threshold) are offered in selected locations.

Unemployment is evaluated based on the announcement of the President of the Central Statistical Office of Poland  (issued once a year, and new announcement is expected 26 September 2018).

The above requirements are reduced:

  • for investment projects in the area of modern business services (e.g. shared services centers) and research and development (R&D) by 95%;
  • for micro-enterprises by 98%; for small enterprises by 95%; for medium enterprises by 80%.

In 122 medium cities that have lost socio-economic functions and in municipalities adjacent to such cities businesses are obliged to invest at least PLN 10 million of eligible expenses.

Qualitative

Qualitative criteria to be fulfilled diverge depending on whether the investor intends to invest in services or industrial production.

Qualitative criteria applicable to industrial production investments:

A.  ECONOMIC SUSTAINABILITY

1. Investing in projects supporting industries which — in line with the current national development policy — may provide Poland with a competitive advantage;

2. Achieving a pre-determined export sales level;

3. Being a part of a National Key Cluster;

4. Carrying out R&D activities;

5. Being classified as a micro-enterprise or SME.

B.  SOCIAL SUSTAINABILITY

1. Creating specialised jobs in business operations of the new investment and offering stable employment;

2. Carrying business operations with low negative environmental impact;

3. Undertaking investment projects in regions with high unemployment rates or one of the 122 medium cities listed in the REgulation;

4. Supporting education and obtaining professional skills; cooperating with industrial schools;

5. Offering employee care.

Qualitative criteria for investments in services (including those in shared services centers):

A.  ECONOMIC SUSTAINABILITY

1.  Investing in services supporting industries which — in line with the current national development policy — may provide Poland with a competitive advantage;

2.  Achieving a pre-determined export sales level;

3.  Carrying out R&D activities;

4.  Establishing a modern shared services center for business with cross-border reach;

5.  Being classified as a micro-enterprise or SME.

A.  SOCIAL SUSTAINABILITY

1.  Creating high-salary jobs and offering stable employment;

2.  Carrying business operations with low negative environmental impact;

3.  Undertaking investment projects in regions with high unemployment rates or in one of the 122 medium cities listed in the Regulation;

4.  Supporting education and obtaining professional skills; cooperating with industrial schools;

5.  Offering employee care.

Not all of the above conditions must be met by the business seeking the support.

The qualitative criteria are considered to be met if a 60% threshold has been met, i.e. 6 out of 10 points have been awarded. The requirements will be reduced as the intensity of the state aid available in Poland increases: 50% for areas with 35% percent intensity of the state aid and 40% for areas where the intensity of state aid is 50%.

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