"Companies conducting research and development activities can pay a tax of only 5% on their income—even when utilizing subcontractors. The Supreme Administrative Court has confirmed this."
Are these privileges so simple in Poland? What about Lithuania?
The landmark Polish Supreme Administrative Court ruling (Case No. II FSK 61/25) confirmed that companies can claim the 5% IP Box tax rate even when using B2B subcontractors, provided the taxpayer manages the project and retains the copyrights. However, applying this relief is highly scrutinized by tax authorities.
Are these privileges so simple in Poland?
No, it is not "simple." The 5% rate is incredibly lucrative, but qualifying for it requires strict adherence to legal and administrative hoops:
• The Nexus Formula: You must accurately calculate the nexus ratio, which ties your IP income directly to your actual Research & Development (R&D) expenses.
• Strict Record-Keeping: Taxpayers must maintain separate, highly detailed project records for each qualifying intellectual property right (e.g., copyrighted computer software).
• Substantive Role Required: To use subcontractors, the company must prove it holds the concept, coordinates the work, and owns the economic property rights. The court ruled that writing the code is less important than who coordinates the development.
• Prior Interpretations: Tax authorities previously tried to disqualify subcontracted work entirely. While this court ruling provides a major legal win for taxpayers, companies must be prepared to defend their operational processes and nexus calculations in an audit.
What about Lithuania?
Lithuania does not have an identical "IP Box" program, but it offers highly competitive R&D tax incentives that achieve a similar goal for businesses:
• Reduced Tax Rate: Commercial profits derived from patented inventions and copyrighted computer programs can be subject to a reduced 7% Corporate Income Tax (CIT) rate.
• Triple Deduction (300%): Companies can deduct eligible R&D expenses up to three times from their taxable income.
• Eligible Assets: Qualifying assets include patents and software copyrights. Trademarks and utility models do not qualify.
• Strict Conditions: The company must create the property entirely in-house and incur all expenses directly.
While Lithuania’s tax rate for qualifying IP is slightly higher (7%) than Poland's (5%), Lithuania offers front-end expenditure incentives (the 300% deduction) that can significantly minimize your overall tax base before the income is even realized.
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