Foreign Direct Investments in Polonia

Poland’s economy is one of the fastest-growing in the European Union. According to the newest Global Best to Invest 2019 ranking Poland maintained high 5th place (the same as in the year 2018) what proves that this is a safe and advantageous country for foreign investments.

Forms of economic activity for EU and EEA citizens are not limited. The same rules apply to foreigners who have received:

• a permit to stay in Poland under the status of a long-term resident of EU,
• a permit to settle in Poland,
• a permit for a tolerated stay,
• a residency permit or refugee status granted by the Republic of Poland, or who enjoy temporary protection in Poland.

Other foreginers can run a business only in the form of limited partnership, partnership limited by shares, limited liability company or stock corporation. The most popular type of company for foreign investors is a limited liability company.

Foreign entrepreneurs can conduct business activity in the form of a branch office – a part of foreign company without its own legal personality. They can also establish a representative office in Poland which can promote and make publicity of the services performed by the main entity abroad.

[1]General permits and licences

Some types of economic activity require the fulfillment of additional conditions, e.g.

• security services,
• transportation services,
• fuel and energy sale,
• telecommunication services,
• mining,
• employment agencies,
• medical services.

These activities can be performed after obtaining of a respectively : a concession, a permit, a license or upon entry into the register of regulated activity. This applies to all companies regardless of whether they are domestic or foreign.

Strategic industries:

1. Relevant Ministers may oppose against investments in some strategic industries (e.g. energy, fuel, explosives, arms industry, telecommunication, chemical industry, mining of metal ores[1]) . This applies to Polish or foreign investors.
2. On 24th July 2020 the new regulations related to Codid-19[2] entered into force. They have introduced more strict rules related to the investments in Polish bussiness by entities out of EEA or OECD area.

The examples of industries which are subject to increased State protection :

• Energy and fuel,
• Communication,
• Computer networks,
• Banking and finance,
• Food supply,
• Water supply,
• Health system,
• Transportation,
• Rescue and lifesaving services,
• Services which provide for the continuity of operation of public administration,
• Production and storage of chemical and biohazard substances,
• Pharmacy,
• Meat, milk, grain, fruit and vegetables processing,
• Production of software used in some specific sectors (including the abovementioned ones)
• Cloud computing

Any aquisition by a foreign investor out of EEA or OECD area of shares in the publicly listed company (regardless of the sector) or any aquisition of shares in the company from the abovementioned sectors is subject to the prior approval of the President of the Office of Competition and Consumer Protection. The country of origin of the investor is determined by the citizenship or the registered seat of the ultimate parent.

The restrictions indicated in the present point II are of a temporary character and will most probably be revoked after the covid-19 pandemic.

General antitrust clearances:

The President of the Office of Competition and Consumer Protection[3] controls the investment in all sectors of the economy, regardless of whether the investor is Polish or foreign, provided that the financial thersholds are exceeded (see chapter below).

Real estate:

Acquisition of a real estate or share in companies/partnerships which own real estate by EU or EEA person or entity does not require any permit. Other foreign persons/entities have to obtain a permit issued by the minister of internal affairs. Sale and purchase of land which is or may potentially be used for farming (agricultural land) and the sale or purchase of companies or partnerships which own such land is subject to various limitations regardless of whether the buyer is a Polish or foreign entity.

[1] Act on the Control of Certain Investments as of 24 July 2015

[2] Act on subsidies for interest rates on bank loans granted to entrepreneurs struck by effects of COVID-19 and on simplified settlement proceedings in the context of the COVID-19 outbreak as of 19 June 2020

[3] The act on the protection of competition and consumers as of 16th February 2007

General antitrust clearances:

The following operations constitute concentration and require the prior notification of the President of the Office of Competition and Consumer Protection:

• merger of two or more entrepreneurs,
• aquisition of shares leading to the direct or indirect control of an entity,
• creating a new entity (e.g. a company, a partnership) by two or more entrepreneurs,
• aquisition of assets (in particular an ongoing business or a part of an ongoing business) which in the 2 years preceding the notification has generated the turnover of at least Euro 10 million within the territory of Poland.

The abovementioned operations are subject to the clearance procedure only if:

• the aggregated worldwide turnover of the parties in the year preceding the application exceeded EUR 1 billion or
• the aggregated turnover of the parties within the territory of Poland in the year preceding the application exceeded EUR 50 million.

The clearance procedure is not required if:

• the turnover within the territory of Poland of the target of the acquisition or of any of the parties of the merger of the creation of the new entity in any of the two financial years preceding the transaction did not exceed EUR 10 million,
• the acquisition takes place within the insolvency proceedings (with some exceptions)
• if the merger concerns companies belonging to the same capital group.

The President of the Office of Competition and Consumer Protection may oppose to the concentration if it leads to a significant restriction of competition. To this end the President issues an administrative decision.
The President can also clear the concentration subject to fulfillment of some additional terms and conditions, e.g. resale of a part of assets, licensing exclusive rights to a competitor. Moreover, the President will give consent for the concentraation that leads to a significant weakening of competition if it contributes to economic development or technical progress or has a favorable impact on the economy.

The decisions of the President of the Office of Competition and Consumer Protection are subject to appeal and control by the civil court.

The general antitrust clearance in Poland is independent from the antitrust clearance at the European Union level according to the rules unified for all EU Member States.

Strategic industries : In case of the strategic sectors the investors are obliged to give prior notification to (a) the relevant Ministry (in cases stated in point I above) or to the President of the Office of Competition and Consumer Protection (in cases stated in point II above) about planned transaction that results in acquisition of:

• dominant position (e.g. acquisition of shares which give at least 50% of votes in the corporate bodies of the controlled company, authorization to appoint or revoke the majority of members of the management or supervisory body of the controlled company) or
• significant participation(acquisition of shares which give at least 20% of votes at the General Meeting of Shareholders, at least 20% of shares in a partnership or participating in the profit of any other entity in at least 20%).

The Minister and the President of the Office of Competition and Consumer Protection may oppose to the transaction, through an administrative decision if there is at least potential threat for public safety, public order or public health in Poland.

The trasanction conducted without the prior notification to the President or/ the Ministry is null and void. It also gives raise to the severe financial sanctions which may be imposed by the President.

Real estate: The transfer of agricultural land having the surface exceeding 1 ha to a non-farmer requires the consent of the State, through an administrative decision. If the surface does not exceed 1 ha then the consent for the transfer is not required but the State has a right of first refusal with respect to such land. These rules do not apply to the real estate situated in the cities. Similar limitations apply to acquisition of shares in companies and partnerships which own agricultural land.

Employment: The labour costs are significantly lower than in other EU countries. Poland offers well-qualified and educated employees speaking fluently foreign languages. Provisions of the Labour Code strongly protect empoyees’ intrests. The parties of the employment contact may alter the statutory model only to the employee’s favour. No work permit is required for EU and EEA citizens. Citizens of other countries generally have to obtain a visa and, in some cases, a work permit.

Tax & Accounting: In general, foreign companies pay the same taxes as Polish companies. The main taxes are the personal income tax (PIT), corporate income tax (CIT), value added tax (VAT), tax on civil law transactions, real estate tax and excise duty.

• PIT/CIT: the taxation basis for a resident for CIT purposes is its worldwide income, for a non-resident it is income generated in Poland. Poland concluded Double Tax Treaties with about 90 countries. On the basis on these Treaties taxation of non-residents may be further limited.
• VAT : charged for most goods and services according to rates 8% and 23% (the most frequently). Companies conducting business activities which are subject to VAT are obliged to register as VAT taxpayers.

Accounting books should be kept in Polish currency and Polish language.
Foreign enterprises which conduct activity in Poland through a representative or have a fixed place of business may in some instances be obliged to register the permanent establishment according to article 5 of the OECD Model Tax Convention. Consequently they are obliged to keep accounting, pay CIT and VAT in Poland.

Special Economic Zone, Industrial and Technology Parks:

To support investment in Poland authorities created 14 Special Economic Zones and the Industrial and Technology Parks. These territories are intended to run a business on preferential conditions with many privileges, especially tax breaks.

UBO Declarations: Each company registered with the Polish National Court Register is obliged to report and keep updated information about its ultimate beneficial owners (natural persons who – directly or indirectly - hold more that 25% of shares or stock in a company, who enjoys more that 25% of votes at the general meeting of shareholders or who control a legal person who holds more than 25% of such votes jointly).

GDPR: Collecting and processing personal data is regulated by the EU General Data Protection Regulation. Everybody who collects (directly or indirectly) and processes personal data is obliged to comply with disclosure requirements. The administrative authority that controls compliance of GDPR’s provisions is the President of the Office for Personal Data Protection who – in case of infringements - is entitled to apply sanctions, including a financial penalty.