Since 2016, the popularity of Alternative Investment Companies (ASI) — new entities in the Polish venture capital market — has been steadily growing. This form of investment activity is encouraged by regulatory simplifications, high operational flexibility, and above all, tax preferences and exemptions. It is expected that in the coming years, as these entities become more widely adopted in the financial market, their numbers will continue to rise. One contributing factor may be the new tax regulations for ASIs introduced on January 1, 2022, under the so-called Polish Deal (Polski Ład).

Purpose of the Tax Reform

The aim of the new tax provisions is to stimulate investment in ventures with high economic risk — particularly small and medium-sized enterprises operating in growth markets and implementing innovative projects with strong profit potential. The venture capital relief is targeted at individual investors subject to personal income tax (PIT), who wish to support such companies by purchasing their shares or equity.

Scope of the Tax Relief

Under the Polish Deal, investors may deduct from their taxable income 50% of the expenses incurred in acquiring shares in an ASI or its subsidiary — defined as a company in which the ASI holds at least 5% of shares or acquires such a stake within 90 days of the investor’s initial shareholding. The deduction applies in the year the qualifying expenses are incurred and is capped at PLN 250,000 per tax year. It is available to investors taxed under general rules (17% or 32%) or the flat rate (19%).

Conditions and Restrictions

To qualify for the relief, several conditions must be met:

  • The shares must be acquired using, at least in part, repayable European funds earmarked for venture capital investments in Poland
  • The investor must enter into an investment agreement with the ASI, outlining mutual rights and obligations related to the share acquisition or joint investment in the ASI’s subsidiary
  • The investor must not be affiliated with the ASI or its subsidiary during the two years preceding the acquisition
  • The investor must hold the shares for at least 24 months. If sold earlier, the previously deducted amount must be added back to taxable income in the year of sale

Outlook

Introducing tax relief for private investors financing high-risk ventures is undoubtedly a positive development for the venture capital sector. However, the financial needs of this segment are significantly greater. Therefore, it is debatable whether this isolated regulatory change can serve as a true catalyst for investment growth. Nonetheless, when viewed alongside other tax preferences and exemptions available to ASIs, it suggests that interest in this investment model will likely continue to grow steadily in the coming years.