Guide to doing business in Poland

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April, 2018

Ways to invest in Poland

A) Company with separate legal personality

There are two main types of companies: the spółka z ograniczoną odpowiedzialnością (Sp. z o.o.), or limited liability company, and the spółka akcyjna (S.A.), or public limited company.

Main characteristics of Sp. z o.o.s include:

  • Capital: At least PLN 5,000.
  • Managing body: One or more individuals.
  • Incorporation: Before a notary.

Main characteristics of S.A.s include:

  • Capital: PLN 100,000.
  • Managing body: One or more individuals.
  • Incorporation: Before a notary.

B) Branches

Both small businesses (micro- and small enterprises) and large companies (banks) can establish branches in Poland.

C) Agency

This option is available only in the advertising sector.

Procedural formalities for incorporating a company

  • Signature of the deed of incorporation (generally before a notary).
  • Capital must be paid in.
  • Appointment of members of the managing bodies.
  • Entry in the National Court Registry (Krajowy Rejestr Sądowy).
  • Request for a taxpayer identification number (Polish NIP).

General matters regarding investment

Freedom of economic activity

Poland protects the freedom of economic activity, which means that any individual, on equal footing, may pursue the business of his or her choosing. However, this principle is subject to certain restrictions, mainly regarding the persons eligible, and the conditions that must be met, to engage in certain economic activities.

Tax issues

A) Direct taxation

Corporate income tax

  • Nature: Tax levied on the income of corporate enterprises.
  • Partnerships: Not subject to corporate income tax (tax transparent entities). A priori, income obtained by partnerships is taxed at the level of the corporate partners.
  • Tax rate: 19% (fat rate). Start-ups and companies with income below €1.2 million are taxed at a reduced rate of 15%.
  • Tax base: Capital gains and self-employed income are taxed separately and independently, at a rate of 19%. Consequently, capital losses cannot be offset against self-employed losses, or vice-versa.
  • A priori, self-employed income is taxed on an accrual basis, while capital gains (and interest income) is taxed on a cash basis.
  • Income from the sale of shares is considered a capital gain and taxed at 19%.

Thin capitalization and debt push-down

Restrictions apply to the deductibility of third-party and related-party financing costs (credit facilities, loans) as well as other specific finance costs, such as fees, commissions, premiums, interest on leasing arrangements, late payment fines and penalties, costs of guarantees and costs of financial derivatives.

The aforementioned costs are deductible up to PLN 3 million per year or 30% of tax EBITDA.

Costs of third-party financing obtained for the acquisition of shares can be deducted as an expense once the shares are sold.

Tax relief for research and development activities: (innovation box)

  • Tax relief for research and development is available, entailing the effective double effective deduction of R&D costs (salaries, capital expenditure, outsourced services, etc.). Poland is currently considering the possibility of extending this tax relief, reducing the tax rate on income derived from research and development to 4% (innovation box). Poland is also considering introducing broad investment incentives.
  • Deductibility of costs of related-party intangible services: Up to PLN 3 million of these expenses are fully deductible each year, while any excess will be limited to 5% of tax EBITDA. This limit refers only to the costs of services, fees and credits incurred directly or indirectly with related parties.
  • Dividends and capital gains: Where certain basic criteria set out in the Parent-Subsidiary Directive (PSD) are met (dividends distributed to a qualifying EU shareholder that holds at least 10% of capital for a period of at least two years), dividends are exempt from withholding at source. This exemption does not apply to gains on the sale of shares.
  • The same withholding rules apply to dividends distributed to Polish resident companies. The exemption may also apply to dividends received by Polish companies from non-EU sources, providing certain conditions are met.
  • Tax treaties: Poland is party to tax treaties with approximately 100 different countries. Double taxation avoidance with Taiwan is governed by applicable legislation.
  • General anti-avoidance rule (GAAR): Although Poland has introduced the general anti-avoidance rule, the rule does not apply to taxpayers who have requested the corresponding tax ruling from the tax authorities.

Personal income tax and tax on members of partnerships

  • Tax rate: The personal income tax rates are 18% or 32% (for income above PLN 85,529). Individuals are entitled to a personal allowance, providing income does not exceed PLN 127,000 per year.
  • Self-employed income is generally taxed at a flat rate of 19%. However, the self-employed may choose between different taxation methods applicable to small taxpayers.
  • Tax residence: Tax residence is governed by common rules based on generally applicable criteria, such as the location of the individual’s permanent home or center of economic interests. Individuals who become tax resident in Poland are subject to Polish income tax on their gross worldwide income. There are no specific rules on taxation of expatriates.

B) Indirect tax

Value added tax (VAT)

  • The Polish value added tax system complies with EU regulations and with Council Directive 2006/112/EC.
  • Tax rate: The standard rate is 23%, although reduced rates of 8%, 5% and 0% also apply.
  • Exemptions: Financial services, certain public services (education, health care, etc.) and certain real estate-related transactions are exempt from VAT.
  • In addition, the domestic supply of certain goods (electronic equipment) and services (construction) must be reported on a reverse-charge basis.
  • Single control file: In Poland, taxpayers are required to file monthly VAT transaction reports using the standard-form single control file.

Other tax issues

Capital duty (Polish PCC): In Poland, certain transactions, particularly capital contributions (only share capital, at 0.5%) and contributions to partnerships, are subject to capital duty. In principle, transactions subject to VAT are exempt from this tax (with some exceptions).

Interpretation of tax regulations: In Poland, there is a broad practice of protecting taxpayers, whereby the tax authorities are required to issue binding tax interpretations upon request, including the concept of business substance.

Social security contributions

Contribution rates under the general program:

Rates depend on the contingency covered.

  • Retirement: employee contribution of 9.76%; employer contribution of 9.76%.
  • Disability: employee contribution of 1.5%; employer contribution of 6.5%.

Labor and employment matters

The Polish Labor Code governs the relationship between companies and workers. The provisions of employment contracts or other documents establishing labor relationships cannot be any less favorable to workers than those established in labor legislation.

Types of contracts:

  • Trial period: up to 3 months.
  • Indefinite-term.
  • Fixed-term (including contracts for the substitution of an employee on authorized eave. In this case, companies may hire replacement workers through fixed-term contracts covering the time of the absence). The total temporary hire period cannot exceed 33 months, and the company cannot issue more than three fixed-term contracts in a row. Any fixed-term contracts that do not meet these conditions must be changed to indefinite-term contracts.

Working hours: May not exceed eight hours per day and an average of 40 hours in an average five-day working week in the applicable settlement period (maximum of four months). Nevertheless, the Labor Code establishes certain exceptions to this rule, including tasks that, due to the related manufacturing technology, cannot be interrupted (continuous process work). In these cases, the work day may be longer than the general eight-hour limit.

Vacation: Under 10 years worked = 20 days; 10 or more years worked = 26 days.

Salaries: The minimum gross salary for 2018 is PLN 2,100.

Other forms of employment:

Other forms of employment include private law contracts (mandate contracts, service contracts, contracts for a specific service or project, agency contracts, etc.). In principle, the provisions of the Labor Code do not apply to employees providing services under these types of contracts.