- What is the IP BOX relief?
- Will IP BOX require employment?
In August 2024, general proposals for planned changes to income tax laws were announced in the list of legislative and program work of the Council of Ministers. Importantly, the proposed changes represent significant limitations in the application of the IP BOX relief—what do they entail, and will they come into force?
What is the IP BOX relief?
A taxpayer earning income from a qualifying intellectual property (IP) right that was created, developed, or improved by the taxpayer within the framework of research and development (R&D) activities can tax such income at a preferential 5% rate. This lower tax rate is widely used, especially in the IT industry. A key requirement is maintaining special accounting records, which essentially involves separating each qualifying IP in the accounting books, ensuring that revenues, deductible costs, and income (or loss) associated with each qualifying IP are clearly identifiable. Additionally, expenses necessary for the calculation of the NEXUS ratio must be recorded separately for each qualifying IP to determine the qualifying income.
Will IP BOX require employment?
According to the Council of Ministers’ website, the draft law amending the income tax laws will also include “sealing measures, particularly changes in the IP BOX preference—introducing an employment requirement.” The draft law has not yet been published, so it is difficult at this stage to predict the specifics of this limitation. However, based on verbal statements from the Ministry of Finance representatives, there are plans to introduce a requirement for entities benefiting from the IP BOX relief to employ at least three people, similar to the rules for entities using the Estonian CIT. This will significantly narrow the scope of entities eligible for IP BOX. We are still waiting for the draft law, and it remains unclear when the new regulations will come into effect.
