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Special economic zone - tax relief

Special economic zone is administratively separate part of the territory on which it is possible to conduct economic activities on preferential terms, in particular, to exercise the right of exemption from legal person or natural person income tax. Pursuant to art.

12 of the act of 20 October, 1994 on special economic zones (Journal of Laws of 2007, no. 42, pos. 274), entrepreneurs who run business in the special economic zone receive so called regional state aid in the form of income tax exemption on income derived from business made in the area under permit, on terms specified in the provisions of income tax from legal persons or in the provisions on income tax on natural persons. Pursuant to article 16 paragraph 1 of the act, the authorization to conduct business within the zone, qualifying for state aid, is the basis for benefiting from such aid, granted in accordance with the act. The authorization shall specify the object of economic activity and conditions relating to in particular:
- employment of a certain number of employees for certain time by an entrepreneur with business activity in the zone
- investments made by the entrepreneur in the area with a value exceeding the specified amount,
- the deadline for completion of the investment;
- maximum eligible cost of investment and two-year eligible labour costs. 
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According to art. 17 paragraph 1 point 34) of the act of 15 February, 1992 on income tax from legal persons (Journal of Laws of 2000, no. 54, item 654, as amended.), the income, subject to act. 4-6, derived from business done within the special economic zone under a permit referred to in art. 16 paragraph 1 of the act on special economic zones, is tax free. However, the amount of public aid granted in the form of this exemption may not exceed the amount of state aid for entrepreneurs, allowed for areas eligible for assistance in the highest amount, according to separate regulations. 

According to the disposition of article 17 paragraph 4 of the act, the exemption referred to in paragraph 1, point 34, is entitled to a taxpayer only in respect of income derived from business done within the zone. Similar regulations contain provisions for the income tax act on natural persons.

Thus, the entrepreneurs operating in special economic zone are, after performing certain obligation, provided with income tax relief exempting taxation of income from this activity. The provisions of these laws also define the limit of exemption, as the value of state aid limit for eligible areas to obtain it in the greatest amount.

The provisions of article 11 paragraph 1 of the act of 30 April, 2004 on proceedings in matters concerning state aid (Journal of Laws of 2007, no 59, pos. 404) state that the value of state aid is expressed in monetary amount, which has been recalculated in order to determine the amount which the beneficiary would have received if had been granted in the form of subsidy.

Regulation of the Council of Ministers of 11 August, 2004 on the detailed method of calculating the value of state aid granted in various forms (Journal of Laws of 2004 no. 194, pos. 1983, as amended.) indicates in § 3 that subsidy equivalent of the value of aid is equal to the GGE or NGE, as fixed in the manner specified in § 4-9, unless otherwise determined by the particular circumstances under which the gain is achieved, particularly when some part of the gain is conducted on market conditions. While § 2 of the regulation defines:

  1. GGE (gross grant equivalent) - should be understood as the amount of aid the beneficiary or body applying for it would receive, had they received aid in the form of subsidy not including income tax calculated to two decimal places;
  2. NGE (net grant equivalent) - should be understood as the amount of aid the beneficiary or body applying for it would receive, had they received aid in the form of subsidy including income tax calculated to two decimal places.

In accordance with the provisions of § 9 paragraph 1 of the above mentioned regulation is expressed by the formula: NGE = GGE * (1 - t).
The letter "t" means the tax rate expressed in absolute figure.
And according to § 4 point 2. b of GGE regulation, subject to § 5, in case of reduction of tax base, in particular in case of tax-exempt income, the difference between the amount of tax due without regard to the tax base and the amount of tax after the reduction is settled. Under the provisions of § 9 act. 3 of the regulation, for aid in the forms referred to in § 4 point 2, 8, 9, 13-18, 21 and 22 of the regulation, it is assumed that the NGE is equal to the GGE.

What stems from these provisions is that state aid received by entrepreneurs operating in special economic zone is equal to the unpaid income tax on tax-exempt income.

To sum up, it is clear that the maximum amount of state aid is equal to the value of actually unpaid income tax on income subject to exemption for activities carried out within the special economic zone under the permit. In other words, the amount of aid is equal to the income calculated as: 

  1. the product of maximum aid intensity specified for a given area and investment costs eligible for assistance,
  2. the product of the maximum aid intensity specified for a given area and two-year costs of new employment, including the costs of workers' gross wages, plus the compulsory contributions, such as social security contributions, paid by an entrepreneur from the day of the workers' employment.

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