Expansion relief and its importance for e-commerce

In recent months, expansion relief has become one of the most discussed topics, particularly in the context of e-commerce. It is a support measure introduced by governments to stimulate the growth of online businesses through tax benefits and financial incentives. In this article, we will take a closer look at what expansion relief is, what importance it has for e-commerce and also analyze its benefits and the risks it brings to companies in this sector.

What is expansion relief?

Introduced in 2022, expansion relief is a form of government support that allows companies to reduce their tax burden or obtain other financial benefits to encourage them to both invest in growth and expansion of their business. It is often used as an economic policy tool to encourage investment, create jobs, and stimulate economic growth in specific sectors, including e-commerce.

Expansion relief (also known as growth tax relief) is regulated by article 18eb of the Corporate Income Tax Act (dz.U.2022.2587; “CIT Act”) and article 26gb of the Personal Income Tax Act (dz.U.2022.2647; “PIT Act”). It allows companies that generate income other than from capital gains to deduct from the tax base the tax-deductible costs incurred to increase income from product sales, up to the amount of income generated by the taxpayer in the tax year from income other than from capital gains, but not more than 1 million PLN in the tax year.

The relief applies, among others, to entrepreneurs who incur expenses for generally understood marketing and information measures, obtaining relevant certificates, registering trademarks, as well as adapting their product packaging to the requirements of contractors. However, it should be noted that entrepreneurs can deduct such costs from the tax base if they demonstrate an increase in revenue from the sale of the said products or generate revenue from the sale of products not previously offered or not offered in the given country within at least one of the two subsequent tax years, starting from the year in which the costs of increasing revenue were incurred.

What costs can be deducted under the expansion relief?

Here are some examples of costs that can be deducted under the expansion relief by companies in Poland in 2024:

• Investments in technological infrastructure: Costs related to purchasing new computer hardware, software, servers, or modernizing existing IT infrastructure can be deducted as business expansion costs.
• Education and staff training costs: Companies can deduct the costs of training staff to use new technologies, business processes, or marketing strategies.
• Marketing and advertising costs: Costs related to the promotion of new products, services, or brand development on the internet, including the costs of internet advertising, social media marketing campaigns, or creating content for a blog or websites.
• Logistics costs: Costs related to developing logistics infrastructure, such as building or renting warehouses, purchasing new means of transport, or modernizing warehouse management systems.
• Research and development costs: Costs related to conducting research and development work on new products, services, or technologies, including the remuneration of research and development employees and the purchase of necessary equipment and software.
• Consulting costs: Costs of engaging external firms to provide strategic, legal, or financial advice may also be deductible.
• Cost of participation in trade fairs: Costs related to participating in trade fairs, incurred for organizing the exhibition venue, purchasing airline tickets for employees, or their accommodation and meals.
• Product documentation costs: Costs of preparing documentation that enables the sale of products, in particular for the certification of goods and the registration of trademarks.
• Tender costs: Costs related to preparing the necessary documentation for participating in tenders and submitting offers to other companies.

However, it should be noted, that these costs must be directly related to the company’s expansion and e-commerce activities. They must also be documented and compliant with tax regulations. Before making deductions, you should consult an accountant or tax advisor to verify compliance with current tax regulations.

At the same time, it should be noted that there are certain costs that cannot be deducted under the expansion relief, including:

• Travel costs by company car to the venue of the fair.
• Wage costs for employees while participating in fairs.
• Costs of developing new packaging or their production for products included in the sales range at the company’s initiative, not the contracting party.
• Wage costs for the time spent developing new packaging for products included into the offer by the company.
• Expenses for marketing and sales training for employees.

Importance for e-commerce

Expansion relief is of great importance for companies operating in the e-commerce sector. It serves as an important tool from both a tax and business perspective, and its use can bring both benefits and potential pitfalls. Why is expansion relief so important for e-commerce? Here are some reasons:

Investment incentive:

Expansion relief encourages e-commerce companies to invest in the development of their business, such as expanding the range of products or service, technological modernization, or developing logistics infrastructure. This, in turn, can increase competitiveness in the market and market share.

Cost reduction:

The expansion relief brings significant tax benefits for e-commerce companies by reducing their tax burden and enabling financial savings that can be reinvested in further business development. This, in turn, helps to increase profitability and the ability to survive in a competitive market.

Promoting innovation:

Thanks to the expansion relief, companies operating in the e-commerce sector can more easily invest in innovations and new technologies, which can bring benefits to both the companies and consumers through better products, services, and shopping experiences. This can help build stronger customer relationships and increase brand loyalty.

If we were to list the pros and cons of the expansion relief for e-commerce companies, it could be summed up in these few points:

Benefits:

1. Increased competitiveness: Expansion relief can help e-commerce companies increase their competitiveness by investing in development and expansion, which can translate into larger market share and sales growth.
2. Increased profitability: Reducing tax costs can significantly impact the profitability of e-commerce companies by enabling savings which can be reinvested in further business development or other strategic goals.
3. Promoting innovation: Expansion relief can promote innovation in e-commerce by encouraging companies to invest in new technologies and solutions, which can bring benefits for both companies and customers.

Disadvantages:

1. Risk of abuse: There is a risk that some companies may try to use the relief in a way that is not in line with its intended purpose, which can lead to abuse and fraud and damage the image of the e-commerce sector.
2. Budgetary burden: The expansion relief may impose costs on the state budget, especially if it is not effectively managed and monitored, which can have a negative effect on other sectors of the economy or require additional funding from other sources.

At the same time, it is important to note that an e-commerce company applying for expansion relief in Poland in 2024 may face several difficulties due to changing regulations, market competitiveness, as well as documentation and qualification criteria requirements. Here are some potential difficulties they may face:

1. Changes in tax and legal regulations: Tax and legal regulations can change constantly, which can cause confusion and uncertainties in understanding tax relief and the procedures related to business expansion.
2. Documentation requirements: The process of applying for expansion relief requires the submission of detailed documentation that must be complete and compliant with the requirements of the tax authorities. The lack of properly prepared documentation can delay or prevent obtaining the relief. We will discuss this aspect of difficulties in more detail below.
3. Qualification criteria: To receive expansion relief, an online seller must meet certain qualification criteria, such as employing staff, investing in new technology, or developing local business relationships. Failure or inability to meet these criteria can be an obstacle to receiving the relief.
4. Bureaucracy and administrative procedures: The process of applying for relief can be complicated and time-consuming due to the required administrative and bureaucratic procedures. There can be significant difficulties in navigating these procedures and completing them in a timely manner.
5. Market competitiveness: The e-commerce market in Poland is highly competitive and competition can be particularly fierce among companies applying for tax relief. The need to demonstrate innovation and competitiveness can be a major challenge.

The documentation requirements for applying for expansion relief in Poland in 2024 are set out in the current tax legislation and business support programs. Here are some examples of documents that may be required:

Company documents:

• Current entry in the National Court Register (KRS).
• Certificate that there are no outstanding tax debts and social security contribution.
• Documents confirming the authority to represent the company (e.g., powers of attorney).

Financial documentation:

• Financial reports for the last accounting period (e.g., balance sheet, profit and loss statement).
• Financial forecasts related to the planned expansion.
• Evidence of the sources of financing the expansion (e.g., loan agreements, agreements with investors).

Expansion plan:

• Detailed description of the planned expansion, including objectives, strategies, and measures.
• Projected impact of the expansion on the market and the local economy.

Employment documentation:

• If the tax relief requires the employment of a certain number of employees, documentation confirming employment (e.g., employment contracts, payroll lists) may be required.
• Information on planned jobs and working conditions.

Investment documentation:

• If the tax relief is linked to investments in specific areas or technologies, documentation confirming these investments (e.g., invoices, contracts, progress reports) may be required.

Tax documentation:

• Evidence of tax compliance, including tax returns and payment confirmations.

Evidence of compliance with incentive program requirements:

• If the expansion qualifies for a specific incentive program (e.g., governmental), additional documents or certificates may be required.

It is also advisable to review current regulations and, if necessary, consult with a tax or legal advisor to ensure that the application for expansion relief includes all necessary documents and meets the requirements applicable in 2024.

In summary, expansion relief plays an important role in the development of e-commerce by providing companies with financial and tax support that can contribute to their growth and success in a competitive market. However, the pros and cons must be weighed against each other and effective administration and monitoring is needed to ensure that the relief brings positive results for e-commerce businesses.

If you have an e-commerce business and are looking for comprehensive and unique VAT Compliance services, we invite you to contact the experts: contact – amavat®.

This article was prepared in cooperation with amavat®.

The amavat® law firm is part of the getsix® Group, offering comprehensive tax services in the field of e-commerce and VAT Compliance. amavat® combines accounting with IT solutions, facilitating integration with the largest marketplaces and optimizing accounting processes.

If you have any questions regarding this topic or if you are in need for any additional information – please do not hesitate to contact us:

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CUSTOMER RELATIONSHIPS DEPARTMENT

ELŻBIETA NARON
Head of Customer Relationships
Department / Senior Manager
getsix® Group

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