‘Estonian tax’ scheme for a limited number of companies

The draft legislation allowing companies to retain profits for investment, modelled on an idea put into action in Estonia, puts limits on the availability of the scheme to companies employing three employees or more.

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The Estonian tax model of incentivising innovation by allowing companies to pay tax on profit dividends and not on amounts invested in growth is due to be introduced into Poland as of 2021.

The move was announced by Prime Minister Morawiecki in his policy speech at the end of last year and follows other incentives for small companies, including a ten percent tax rate introduced as of 2020.

Authors of the draft law said that up to 200,000 companies were thought likely to be able to benefit from the innovation-focussed scheme next year, which would cost up to PLN 5bn (EUR 1.14 bn) in reduced corporate profit tax revenue for the state coffers in 2021.

However, by 2025 it would lead to surpluses of up to PLN 0.8 bn (EUR 182 mln) PLN, growing to 1.4 bn (EUR 319 mln) in year ten of the scheme, due to the accelerator effect of the extra investment the incentive would engender.

After reading the draft, tax experts told Rzeczpospolita daily that there are likely to be around 20,000 beneficiaries, as only those firms employing three or more people can apply. An additional restriction is that only companies owned by private individuals with annual sales of up to PLN 50 mln (EUR 11.4 mln) will be eligible. Meanwhile, investments in real estate or patents will not qualify for exemption under the scheme.

While concentrating on employers when jobs are under threat because of of COVID-19 seems a prudent move by the government, advisors warn that many of the companies most in need of incentives to invest in growth - small startups - will not be able to benefit from the tax break.

“Very few small companies will consider taking on staff just to qualify for the tax benefits,” Łukasz Cichoński of the Polish Employers Association told “Rzeczpospolita”.

The Estonian tax scheme was intended as a spur for growth. Poland’s investment in R&D has been rising steadily for several years, reaching 1.21 percent of GDP in 2018 but falls short of the OECD’s average for that year of 2.38 percent