A special investment fund (SIF) is a way to include future investment expenditure as tax costs

Pursuant to Art. 15 sec. 1hb of the CIT Act, a CIT taxpayer may include a deduction for a fund established for investment purposes, set aside in the reserve capital, in tax deductible costs. Making the above-mentioned write-off by a capital company that meets the statutory requirements allows for a one-off tax deduction of funds transferred to the fund's bank account maintained by Bank Gospodarstwa Krajowego.

However, the creation and use of a special investment fund is subject to a number of formal conditions.

Subjective conditions for establishing a special investment fund

A special investment fund is an alternative to the so-called Estonian CIT (The CIT taxpayer may alternatively choose either an Estonian CIT or set up an SFI). The fund may be established by a capital company, which, among others:

• in the previous tax year, its operating revenues were below PLN 100 million;
• less than 50% of revenues come from, among others, receivables, loans;
• employs at least 3 people;
• operates in the form of a limited liability company or joint stock company, and shares/stocks are held only by natural persons;
• does not hold any shares or stocks in the capital of another company.

The essence and objective conditions of a special investment fund

A capital company, allocating the profit from the previous tax year to a special investment fund, includes these funds on a one-off basis as tax deductible costs.

Consequently, it allows for a reduction in taxation in the tax year in which the funds were transferred to a special investment fund.

For example: a capital company, if it meets the subjective conditions, may allocate in 2021 the amount of profit achieved in 2020 to an investment fund, and the allocated amount is a tax cost for the Company in 2021.

The transfer of funds to a special investment fund takes place through a write-off to the reserve capital from the profit from the previous tax year (which limits the amount that can be included in tax costs), wherein the transfer to the above-mentioned company's fund must be made to an account maintained with Bank Gospodarstwa Krajowego (or the so-called qualified entity).

The funds transferred to the special investment fund may not come from a loan, grant or subsidy, and also constitute de minimis aid.

Moreover, the funds transferred to the investment fund should be spent for investment purposes in the year in which the write-off was made or in the next tax year, with the possibility of extending the deadline to 3 years.

The special investment fund may cover expenses for the acquisition and production of fixed assets (in net amounts).

Expenses may be incurred, also for leasing fees (not applicable to operating leasing), in the part intended for the repayment of the initial value of the fixed asset.

Allocation of funds to a special investment fund and including them as investments limits the possibility of including tax costs in the future, i.e. the tax cost will not be primarily expenses for the acquisition or production of fixed assets or write-offs for the consumption of fixed assets from the part of their value that has been financed from the fund.

Example: A company made a transfer of funds to an investment fund in 2021, as a result, the transferred funds constitute a tax deductible cost for it in 2021. The company purchased fixed assets in 2022, which it financed from the investment fund - the expenditure incurred is not a tax cost for the Company in 2022.

Summary

The main advantage of establishing a special investment fund will be the possibility of a quick and one-time reduction of the tax base (the possibility of a one-off tax deduction of expenses for fixed assets that will be purchased in the future). However, attention should be paid to the existing subjective and objective limitations regarding the possibility of using the SIF.

Therefore, before using a special investment fund, a CIT taxpayer should carefully analyze:

• fulfilment of the conditions for the creation of a special investment fund and
• forecasted financial results and investment plans.

Downloads

• PKF Alert - A special investment fund (SIF) is a way to include future investment expenditure as tax costs.pdf [PDF]