Doing Business in Poland & Lithuania: Corporate and Entrepreneurial Tax Reliefs

In this article, we explore the wide range of tax reliefs, preferences, and grants available to businesses in Poland and Lithuania. From R&D incentives and IP Box regimes to investment project incentives and specialized corporate reliefs, these measures can significantly reduce taxable profit and enhance cash flow. 

The article also highlights reliefs tailored to sole proprietors, showing how preferential social contribution schemes help new entrepreneurs lower initial costs. By comparing these incentives, businesses can better plan investments, optimize tax liabilities, and make informed growth decisions.

Reliefs Primarily for Companies (sp. z o.o., CIT payers)

R&D Relief

CIT payers such as sp. z o.o. can deduct qualifying R&D expenses twice: once as normal tax-deductible costs and again as an additional deduction from the tax base. In some cases, the uplift reaches 200% of eligible costs. This relief targets companies systematically developing new products, technologies or processes.

In Lithuania, companies can benefit from two key innovation-related tax incentives, i.e., R&D incentive (triple deduction) and Investment project incentive (taxable profit reduction by up to 100%). Lithuanian CIT payers may deduct qualifying R&D expenses three times:

• once as ordinary business expenses, and

• twice as an additional deduction from the taxable profit.

In terms of Investment project incentives, companies satisfying the conditions for their application may reduce their taxable profit by up to 100% of eligible investment expenditures. This incentive enables accelerated cost recovery for capital-intensive projects, particularly in manufacturing, high-tech, and technologically modernizing businesses. 

As of 2026, this regime will be complemented by momentary deduction, meaning that companies will be able to fully deduct the acquisition cost of new fixed assets immediately in the year they are put into use, instead of depreciating them over several years.

IP Box: 5% Effective Tax on Qualified IP Income

Under the IP Box regime, income from qualifying IP (such as software or patents created in R&D projects) can be taxed at a 5% CIT rate. The regime can be combined with the R&D relief, making it especially powerful for technology and engineering companies.

Lithuania applies a similar preferential regime. Income derived from qualifying intellectual property created through the taxpayer’s own R&D, such as patented inventions or copyright-protected computer software, may be taxed at a reduced 6% (7% as of 2026) CIT rate. The relief applies only where the IP is created by the Lithuanian entity itself and all related development costs are borne by that entity. As in Poland, this regime can be combined with Lithuania’s triple R&D deduction, significantly enhancing the overall tax benefit for innovative and technology-driven companies.

Estonian CIT: 0% on Retained Earnings

The Estonian-style CIT regime allows eligible companies to pay no CIT on retained earnings. Tax arises only when profits are distributed to shareholders or channeled into certain non-business expenses. This is attractive for growth companies reinvesting profits into expansion and capital expenditure.

Lithuania does not have such an Estonian-style practice, meaning that CIT is calculated on annual profit, regardless of whether it is distributed or retained.

Polish Investment Zone (PSI)

Within the PSI framework, companies may secure a CIT exemption for income generated from qualifying new investments. The maximum value of tax savings is linked to the amount of eligible investment costs and regional aid intensity, and can reach the equivalent of 60–70% of those costs.

Lithuania offers similar benefits through the Investment Project incentive and Large-Scale Investment Project incentive. By applying Investment Project incentive companies can reduce taxable profit by up to 100% of eligible investment costs in new long-term assets used for production or service expansion, process modernization, or technology implementation. By applying the Large-Scale Investment Project incentive and satisfying related strict conditions, companies can benefit from 0% CIT on income from that project for up to 20 years.

Other Corporate Reliefs: Expansion, Prototype, Robotization, IPO

In Poland, additional, more specialized reliefs exist for costs related to entering new markets, developing prototypes, robotizing production, and preparing for an initial public offering. These instruments mainly benefit sp. z o.o. and larger corporate taxpayers.

Reliefs Tailored to Sole Proprietors

“Ulga na Start” – 6 Months Without Social Contributions

New sole proprietors can benefit from six months without pension, disability, accident, and labor fund contributions. They only pay the health insurance contribution during this period, which significantly lowers the initial cost of running a business.

In Lithuania, individuals starting a social proprietorship for the first time (or after more than 10 years) are exempt from social security contributions (VSD) for up to one year. During this period, they only pay the mandatory health insurance (PSD) contribution (currently about EUR 72.45/month), significantly reducing initial business costs.

24 Months of Preferential Social Contributions

For the next 24 months, JDG owners can use a reduced contribution base equal to 30% of the minimum wage, rather than 100%. This further extends the low-cost phase of the business.

Lithuania does not have an identical scheme to Poland’s 24-month preferential social contribution regime for JDG, but after the first year, social contributions (VSD) and health insurance (PSD) are calculated on 90% of taxable income after allowable deductions, not 100%, which slightly reduced tax burden compared to full income taxation.

“Mały ZUS Plus” – Income-based Contributions

After the preferential period, entrepreneurs meeting income and revenue criteria can switch to “Mały ZUS Plus”, where contributions are calculated based on real income. The relief can be used for 36 months within a 60‑month window.

In Lithuania, such a specific regime does not exist. What is offered in addition in Lithuania for sole proprietors is either a flat 30% deduction (no receipts required) of expenses or an actual documented deduction of expenses related to their business activity.

Conclusion

Poland and Lithuania offer robust support mechanisms for companies and entrepreneurs, with significant benefits for innovation, investment, and business expansion. Key tools include R&D deductions, IP Box regimes, investment project incentives, and specialized reliefs for production modernization, robotization, and market entry. For sole proprietors, preferential social contribution schemes provide an additional boost during the early years of operation.

In the next article of this series, we will examine grants, subsidies, and partially forgivable instruments, providing practical guidance on how businesses can leverage public funding to further reduce costs and accelerate growth.