50% Tax-Deductible Costs – Rules for Application in the IT Industry

50% tax-deductible costs are one of the most commonly applied tax preferences with respect to creative activity. In particular, 50% tax-deductible costs are widely used in the IT industry, where the work of specialists very often leads to the creation of works within the meaning of copyright law.

By reading this article, you will learn, among other things, when 50% tax-deductible costs may be applied, what the records of creative work consist of, how to determine copyright remuneration, when 50% tax-deductible costs cannot be applied, which forms of employment allow for the settlement of 50% tax-deductible costs, when the remuneration of IT employees may be exempt from PIT, what constitutes a “work” and what significance it has for 50% tax-deductible costs, as well as what benefits arise from applying 50% tax-deductible costs.

 

TABLE OF CONTENTS 

1. 50% tax-deductible costs for creators in the IT industry
2. Records of creative work and 50% tax-deductible costs
3. Calculation of copyright remuneration with 50% tax-deductible costs
4. When 50% tax-deductible costs cannot be applied
5. Forms of employment and 50% tax-deductible costs
6. PIT exemption for young people and 50% tax-deductible costs
7. What constitutes a “work” in the context of 50% tax-deductible costs
8. Benefits of applying 50% tax-deductible costs
9. FAQ

 

50% Tax-Deductible Costs for Creators in the IT Industry

For IT specialists—such as programmers, IT analysts, system administrators, cybersecurity specialists, IT architects, or DevOps engineers—who perform creative activity as part of their professional work, the Polish legislator has provided for the possibility of applying preferential 50% tax-deductible costs arising from copyright.

This preference consists in applying increased tax-deductible costs to that portion of remuneration which constitutes copyright remuneration for the transfer of economic copyrights or for granting a licence to a work.

 

Records of Creative Work and 50% Tax-Deductible Costs

According to the general tax interpretation of the Minister of Finance of 18 September 2020 (No. DD3.8201.1.2018), the application of 50% tax-deductible costs requires meeting specific conditions. The most important include:

• the creation of a work within an employment relationship that is subject to copyright law,
• possession of objective evidence confirming its creation,
• clear separation of copyright remuneration from other components of the employee’s remuneration,
• documentation of works created by employees,
• appropriate provisions in employment contracts, remuneration regulations, and other internal documents concerning 50% tax-deductible costs,
• maintaining records and a register of works by the employer.

The lack of such documentation may result in the tax authorities challenging the right to apply 50% tax-deductible costs during a tax audit.

 

Calculation of Copyright Remuneration with 50% Tax-Deductible Costs

Determining the amount of copyright remuneration to which 50% tax-deductible costs apply lies with the parties to the employment relationship. In practice, the following methods are used, among others:

• a method based on calculating the working time devoted to creating works;
• a percentage-based method (a percentage of total remuneration);
• a fixed-amount method (a specifically defined amount of copyright remuneration).

The calculation of copyright remuneration requires an individual approach that takes into account the actual nature of the employees’ involvement.

It is also worth noting that copyright remuneration received for the transfer of economic copyrights or for granting a licence to a work is not included when calculating the statutory minimum wage. Therefore, attention should be paid—especially in the case of employees—that the remuneration remaining after deducting copyright remuneration is not lower than the minimum wage specified in employment contracts.

 

When 50% Tax-Deductible Costs Cannot Be Applied

It should be remembered that 50% tax-deductible costs do not apply in every situation. For example, remuneration paid for periods of annual leave cannot be covered by 50% tax-deductible costs, as no works are created during that time.

 

Forms of Employment and 50% Tax-Deductible Costs

Copyright-related 50% tax-deductible costs may be applied regardless of the form of employment, both under employment contracts and civil law contracts.

However, the key importance lies in the proper drafting of the contract, in particular: separating copyright remuneration for the transfer of economic copyrights or the granting of a licence, and indicating the subject matter of the copyrights.

• Employment contract: it is necessary to precisely indicate which part of the remuneration relates to the disposal of copyrights.
• Contract of mandate or contract for specific work: the contract may be less formalised, but it must still clearly specify the subject of the transfer of rights and demonstrate that the performed activities are creative in nature and lead to the creation of a work.

 

PIT Exemption for Young People and 50% Tax-Deductible Costs

In certain cases, the remuneration of young IT professionals (under the age of 26) may benefit from a PIT exemption, even if it concerns creative activity.

Example: A company conducts business activity in the field of software design and development. For project purposes, it entered into, among others, contracts of mandate with persons under the age of 26. Under these contracts, the contractors performed services including designing, developing, and programming applications and computer systems, preparing documentation, analysing, testing, modifying, and developing the created software.

The contracts of mandate provided for the transfer to the company of economic copyrights to works (or parts thereof) created in connection with or as a result of performing the contract.

The remuneration of the contractors consisted of a single component covering all amounts due from the company to the contractor, including remuneration for the transfer of economic copyrights to the works. Copyright remuneration was not separated as a specific amount in the contract. The contractors did not keep records of the time devoted to creating copyrighted works. The contractors’ remuneration was not to exceed PLN 85,528 in the tax year.

The entrepreneur asked the tax authority whether the contractors’ remuneration could be fully exempt from income tax under the so-called PIT exemption for young people.

The tax authority confirmed that remuneration under a contract of mandate in which copyright remuneration is not separated as a specific amount may be fully exempt from PIT under the PIT exemption for young people (taking into account the PLN 85,528 limit).

 

What Constitutes a “Work” in the Context of 50% Tax-Deductible Costs

The basis for applying 50% tax-deductible costs is the creation of a work, i.e. a manifestation of creative activity of an individual nature. A work may include, among others:

• computer software,
• a fragment of source code,
• technical documentation,
• a database of an individual nature.

Two features are of key importance for the existence of copyright: originality (the creator’s individual creative contribution) and fixation (e.g. in the form of a file).

It should be remembered that a work does not have to be completed for the creator to benefit from increased tax-deductible costs. It is sufficient for the work to be properly fixed, for example, a fragment of source code saved in a repository.

 

Benefits of Applying 50% Tax-Deductible Costs

50% tax-deductible costs constitute one of the most effective forms of tax optimisation for companies employing creative workers. They allow companies to:

• reduce the tax base,
• increase employees’ net remuneration,
• maintain competitiveness in the IT market without increasing gross costs.

The condition for tax security is the proper implementation of the 50% tax-deductible costs mechanism.

 

FAQ

What are 50% tax-deductible costs?

50% tax-deductible costs are a tax preference consisting in applying increased tax-deductible costs to income obtained from the use of copyrights or the disposal thereof. This means that half of the income covered by copyright remuneration is not subject to PIT.

Who may apply 50% tax-deductible costs?

50% tax-deductible costs may be applied by persons performing creative activity whose work leads to the creation of a work within the meaning of copyright law. In practice, these include programmers, IT analysts, system architects, DevOps specialists, UX designers, and other creators, provided that the formal conditions are met.

What conditions must be met to apply 50% tax-deductible costs?

To apply 50% tax-deductible costs, the following conditions must be met, among others:

• the creation of a work protected by copyright,
• the existence of evidence confirming its creation,
• separation of copyright remuneration within the remuneration,
• contractual provisions concerning copyrights,
• maintaining records of works.

Is keeping records of creative work necessary for 50% tax-deductible costs?

Yes, records of creative work are a key element enabling the application of 50% tax-deductible costs. The lack of records may result in the tax authorities challenging the right to apply the preference.

Is there a limit on applying 50% tax-deductible costs?

Yes, 50% tax-deductible costs are subject to an annual limit specified in the PIT Act. Once this limit is exceeded, the taxpayer may not apply increased costs to further income in a given tax year.

 

Author:
Ewa Branicka-Kublik, Junior Manager