You do not have to own a property to benefit from support under the Polish Investment Zone scheme. A substantial proportion of business activity conducted in leased production or warehouse facilities qualifies for tax exemptions. How come few tenants apply for tax reliefs then?
Introduced in 2018, the Polish Investment Zone (PIZ) was designed to extend tax exemptions that were previously available only in Special Economic Zones (SEZ) to the whole territory of Poland, excluding Warsaw and its suburbs. SEZ exemptions were replaced by decisions on state aid. According to legislation in force, they will remain valid until the end of 2026.
Legislation that benefits investors
The Polish Investment Zone was introduced to attract new investors to Poland and to encourage those present in the country to reinvest. It proved at least partially successful, because more than 2,500 decisions on state aid have been issued since 2018 – far too few, says Katarzyna Adamska, Advisor, Industrial and Warehouse Department, Newmark Polska.
“Investors are still unaware that they can apply for state aid, but once they are better informed, the total volume of state aid may increase markedly, translating into more investments. Despite significant changes introduced by a 2018 regulation, the prevailing belief in business circles is that the PIZ covers only designated investment areas most of which have already been developed or require higher levels of investment spend than other sites. The truth is that investors may apply for a tax exemption anywhere in the country. Tax exemptions are granted for 12-15 years, depending on investment location,” explains the expert who adds that this results from an amendment to the regulation which took effect in late 2023 and extended state aid for companies in many regions for two more years.
For both small and large companies
A substantial proportion of business activity conducted in leased production and warehouse facilities qualifies for tax exemptions under the PIZ scheme. Sectors ineligible for state aid include retail, hospitality, construction and primary agricultural production.
“Companies applying for a CIT exemption must meet quantitative and qualitative criteria. The former concern declared capital expenditures, with thresholds varying by company size and unemployment level in an investment area. If the unemployment rate is higher than the national average, less capital expenditure will be required,” explains Joanna Gasek, Deputy Director of the Investment Department, Pomeranian Special Economic Zone. “As regards qualitative criteria, additional scores will reward investments in sustainable economic growth such as R&D activities, membership in a Key National Cluster or having an SME status (micro, small and medium-sized enterprises). Extra points will also be allocated to investments in social sustainability including stable employment, low environmental impact operations and collaboration with sectoral schools. Importantly, state aid conditions can be met by both small domestic companies and large corporates.”
You invest and make money but pay no tax
Another big question facing a company applying for state aid from the PIZ is: What can be classified as an investment and reinvestment in the light of the said regulation? According to Katarzyna Adamska, there are no ambiguities here: “State aid from the PIZ is available to any company undertaking investments in business development to increase and improve profitability. Such investments may include the construction of a new production plant or extension of an existing facility, as well as leasing production or warehouse space. There is also the requirement to conduct specific business activity as part of the planned investment, but given the types of business operations in commercial buildings, a vast majority of tenants meet pertinent criteria.”
Lease expenses are a qualified cost
How does the zone work in practice? Let’s assume that a logistics company X is planning to provide warehousing services for third parties. To deliver on all contracts, it needs to increase and adapt or adjust its warehouse space to its business operations, and to purchase fixed assets necessary to provide such services. In accordance with its business strategy, the company does not invest in freehold properties, but leases warehouse space.
“This company will receive a decision on state aid once the above criteria - which are, in fact, fulfilled by most tenants, especially logistics providers and manufacturers - have been reviewed. In practice, this means an exemption from tax on income from warehousing services provided in a new location,” says Katarzyna Adamska. The expert cites another example of a company that is aiming to increase its manufacturing output and will therefore need a larger facility. At the same time, its managers expect to have leased space tailored to the requirements of its manufacturing plant - that’s why they will choose to lease a BTS building on a long-term basis. Unlike its previous property, the new facility will be able to accommodate modern machinery and new production lines. Such an investment will significantly increase the company’s manufacturing capacity and its income will be exempt from corporate income tax.
Assistance in filling out documents and short procedures
It takes little time to obtain a decision on state aid and investors can count on the full support of PIZ employees, assures Joanna Gasek, Deputy Director of the Investment Department, Pomeranian Special Economic Zone. “At first, our manager checks whether a company and an investment qualify for a relief. If they do, the company is assigned a dedicated project manager who helps fill out all the required documents. It will receive a decision within 14 days from filing the complete application. Tenants of production and warehouse facilities already account for a growing proportion of investment projects reviewed by the Pomeranian Special Economic Zone,” she notes.
In the case of reinvestments by large companies in Greater Poland, Lower Silesia and Mazovia (excluding Warsaw) more in-depth analyses are required to determine whether they are eligible for corporate income tax exemptions under the Polish Investment Zone scheme. As of the beginning of 2022, the status of these regions changed, so large enterprises qualify for regional state aid only for initial investments connected with a new economic activity, i.e. for setting up a new company or a significant diversification of activity of an existing one. “As a result, a more detailed analysis will be necessary to establish whether they are, in fact, investing there in launching new business operations,” says Magdalena Skurowska, New Investment Expert, Rödl & Partner.
High-value information
It has been six years since the introduction of the regulation which extended the Polish Investment Zone to almost the whole of Poland. Everything that was required in terms of legal and formal arrangements has already been done. What is needed now to increase the volume of investments and reinvestments in Poland is more publicity.
“I think the whole production and warehouse property sector, real estate advisers and SEZ employees should do their best to inform companies, increase their awareness and demonstrate meaningful benefits of leasing commercial space in the context of CIT exemptions. The task for the near future is to make prospective tenants aware that the whole of Poland is a special economic zone and that state aid in leasing warehouse, logistics and production space may mean substantial savings for them,” concludes Katarzyna Adamska.