Goveranment policy towards foreign investors
The government continues its policy of incentives for foreign investors. Following an amendment to the regulation's on special economic zones (SEZ) effective January 1, 2001 to harmonize and comply with the European Union legislation, in March of the same year, the government adopted the Investment Enhancement Strategy.
Special Economic Zones (SEZ) are separate administrative areas designated for conducting business activity on favorable terms. Investors in the zones, who managed to get licensed for business operation by December 31, 2000 will continue activity under regulation from the amendment till the year 2015 or 2017, respectively.
Generally, investors starting up manufacturing projects in special economic zones, benefit from corporate income tax exemptions and other forms of government budget support.
Newly implemented investment stimulus package for investors in the zones, as well as in other regions of the country awards creation of new jobs and capital investment in development of fixed assets along with the project.
Three levels of government assistance are available to investors: regional grants, central grants and investment support. Grants may be in the form of loan, subsidy or donation, distributed by regional or central administration bodies depending upon the scope of a company's activity and/or purpose of the grant.
Apart from the above incentives, companies investing in the SEZ are often granted exemptions from real estate tax by local authorities. Local Employment Offices offer a wide range of labor force programmes and special training schemes for the unemployed that are financed by the Labor Fund.
In order to take advantage of these favorable terms, the investment should be of at least EUR 100,000 and should last for at least five years. Enterpreneurs doing business within the SEZ are obliged to inform the Office for the Protection of Competition and Consumer interest about the subsidy received.
Legal basis
The legal basis of economic activity in Poland is specified in the Civil Code, Commercial Code and the Law on Economic Activity, and in the new Economic Activity Law of 19th November 1999. The new law was entered into force as of January 1, 2001.The civil code regulates property relations between natural persons, legal persons, and the natural and legal persons as well as protection of personal rights.
The law of July 27, 1990 adjusted the code to the requirements of the systemic and economic transformations taking place in Poland. The regulations of the Civil Code respect the principle of the equality of entities; participants in a given relation, irrespective of the form of ownership; have equivalency of benefits, and there is independence and freedom of contracts. The Civil Code defines property rights of an absolute character: effective erga omnes, execution and expire of obligations; types of contracts ( e.g. contract of sale, contract of deliveries, for performing of a specified task, assignment contract, contract of sale on commission, contracts of transport, forwarding, rent lease, loan, or bank account ); rights effective only between parties of a given inter parties relation under civil law, statutory and testamentary succession ( last will and legacy).
Legal forms of businesses in Poland
- Enterprises run by a natural person; these are subject to registration according to the type and scope of activity,
- Civil partnership established under the regulations of the Polish Civil Code,
- Commercial companies, established by natural or legal persons under the regulations of the Polish Commercial Company's Code,
- Co-operatives established by natural or legal persons,
- State-owned enterprises.The Commercial Company's Code of September 15, 2000 regulates two groups of companies:
- Partnerships ( registered partnership, limited partnership, professional partnership
and limited joint-stock partnership),
- Corporations ( joint-stock company and limited liability company),
- Societies, foundations and trade unions may also carry out economic activity.
Social Security
An employer is obliged to pay contributions to Social Insurance Office ( ZUS), both on behalf of employee and the employer, amounting to:
- for old-age pension (19.52%) - paid half by the employer and half by the employee,
- for disability pension ( 13%) - paid half by the employer and half by the employee,
- for sick benefit, including maternity benefit (2.45%) - paid by the employee,
- for accidents ( from 0.97% up to 3.86% ( from January 1, 2003 to March 3, 2006).
- The employer is still obligated to pay a 2.45% contribution to the Labor Fund and 0.15% contribution to the Fund of Guaranteed Labor Benefits ( from January 1, 2003 - December 31, 2003).
- The health insurance contribution amounts to 8% since January 1, 2003.
Taxes in Poland
The following are the taxes encountered in Poland:
- Tax on goods and services" (VAT) and excise tax:
- Income tax, which is imposed on legal persons ( corporate income tax) and natural persons (personal income tax), with the exception of income from forestry and agricultural activities, where an agricultural tax is imposed
- Local taxes and charges
- Stamp duty
- Tax on civil law transactions.
All taxes imposed on legal and natural persons are subject of regulation in the act passing by the Polish Parliament. This law is published in the form of ministerial decrees
( Minister of Finance ). Also Ministry of Finance issues bulletins with official interpretations of specific provisions.
Rules of taxation
All new businesses have to be registered with the appropriate local tax office and obtain a NIP number ( taxpayer identification number ).
Taxpayers conducting business activities are required to maintain accounting records, being the basis for the calculation of tax. Businesses are obligated by law to calculate taxes due during the financial year, to make prepayments and to fulfill certain other duties.
VAT
VAT is charged on sales and supplies of goods ( raw materials, supplies, goods for resale, products and fixed assets) and services by registered businesses in Poland, and on the import and export of goods and services into and out of Poland.
There are four basic rates of VAT; 22%, 7%, 3% and 0% plus certain other transitional rates. The general rate of VAT is 22%.
Law provides for specific exemptions from VAT for certain goods and services, including banking and brokerage services.
Tax is not deductible on purchases related to sales of goods and services exempt from VAT. Businesses with total annual sales for the fiscal year of at least 10,000 EUR of taxable goods and services are obliged to register for and charge VAT. Businesses with total annual sales for the fiscal year of less than 10,000 EUR are not required to register for VAT unless their sales in the fiscal year will not exceed the registration threshold.
The application to register a company for VAT must be submitted to the appropriate Tax Office before any VAT-able activities are performed.
As of July 2001, foreign entities that are not registered for Polish VAT can also apply for a direct refund of VAT incurred on purchases made in Poland under certain conditions.
Excise tax
Excise tax is imposed at the selling, export and import stages. Tax is calculated in most of the cases as either a percentage of the sales price of the goods ( net of VAT) or as a percentage of the customs value of the goods sold plus the value of the customs fees, or as a fixed amount per unit of the goods. Excise tax is imposed on selected goods as a example: alcoholic beverages, motor fuels, passenger cars as per Ministry of Finance ordinance No 27 item 269 dated 22 March 2002.
Corporate income tax
Corporate income tax is levied on all taxable income, with the exception from forestry and agricultural activities. Exemption does not apply to greenhouses, poultry farms, etc.
All limited liability and joint stock companies ( including companies with foreign participation) that are resident in Poland are automatically liable for corporate income tax payments on their taxable income, irrespective of whether it results from domestic or foreign operations. All foreign companies, i.e. those resident or having their seat of management abroad, only pay corporate income tax on their earnings from sources in Poland, subject to the provisions of the double taxation treaty ( between United States and Poland, Law of October 8, 1974).
The corporate income tax rate was 28 % in 2002 and it is scheduled to be 24 % in 2003 and 22 % in 2004. This applies irrespective of the level of taxable income.
Corporate income tax ( Branch)
Since January 1, 2000 foreign companies have been able to establish branches in Poland.
Generally, a foreign company will be subject to tax on the profits of a Polish branch and any other income from Polish sources. If the provisions of a double taxation treaty apply, the tax liability of the foreign company will generally be limited to the profits of the branch and other income subject to withholding tax at source ( dividends, interest and royalties). The taxable income is calculated as a percentage of revenues, depending on the type of activity performed.
Personal income tax
Natural persons who are not residents in Poland and who stay in Poland for a period of less than 183 days in a given tax (calendar) year are obliged to pay personal income tax on their income from Polish sources ( limited tax liability). This also includes income earned in respect of employment in Poland but physically paid abroad.
Taxes are levied on total income (with the exception of income earned, for example from dividends, interest on loans and proceeds from property sales).
An applicable double taxation treaty may modify the income tax liabilities of persons not domiciled in Poland.
For 2002 the following rates of income tax are payable:
-
Up to 37,024 PLN 19% less 518.16 PLN
- 37,024 - 74,048 PLN 6,516.40 + 30% over 37,024 PLN
- Over 74,048 PLN 17,623.60 PLN + 40% over 74,048 PLN
The above tax rate brackets apply regardless of whether the individual has limited or unlimited tax liability. Income from interest on loans and from interest on bank deposits is taxed at a fixed rate of 20% ( the latter is effective from March 1, 2002). Income from dividends received from Polish companies is taxed at a fixed rate of 15%.
Stamp duty and tax on civil law transactions
Stamp duty is levied on various documents submitted by individuals during administrative procedures, e.g. applications, appeals, complaints, certificates, permits or licenses.
Tax on civil law transactions
Polish law provides for a list of specific transactions subject to the tax on civil law transactions, including the following examples:
- Sales contracts tax rate on sale of goods: 2%
- Tax rate on sale of property rights: 1%
- Loan agreements tax rate: 2 %
- Tax rate on loans from shareholders: approx. 0.1 %
- Articles of association tax rate: approx. 0.1 %
Local taxes and charges
Among the various taxes and charges imposed by local authorities ( e.g. cities, communes), the most important are those levied on real property and transportation equipment. The local authorities decide the actual rates.
Employment
Polish law is applicable to foreign companies operating in Poland with respect to employment, labor relations and conditions, social benefits and social insurance of employees as well as the activity of trade unions. Foreigners who are in Poland temporarily to work in companies with foreign participation are subject to tax only on income made in Poland and in accordance with the principles applying to Polish citizens.
They have the right to transfer their remuneration abroad in convertible currencies without an individual foreign exchange permit with a certificate made out to their name by the company and giving the value of the remuneration.
Agreement on avoiding double taxation
Poland has concluded agreements on avoiding double taxation with the United States (Law of October 8, 1974), and most other countries. Under the terms of these agreements, taxes paid in Poland are credited towards foreign companies and individuals tax obligations in the home country.
Purchase of Real Estate by Foreigners
The law on land economy of September 29, 1990 allows the sale, perpetual usufruct, lease or rent to foreigners of land that is the property of the State Treasury or the property of a commune provided a permit from the Minister of Internal Affairs and Administration is obtained in case of first two instances.
No permit is required for the acquisition of:
- an individual apartment by a foreigner,
- real estate by a foreigner residing in Poland for at least five years since the date of obtaining a card of permanent residence,
- real estate by a foreigner being a spouse of a Polish citizen residing in Poland for at least two years since obtaining a card of a permanent residence,
- real estate by a foreigner if on the date of the acquisition the person in question is entitled to interstate succession, and the seller has been the owner ( or perpetual usufructuary) of the real estate for a period of at least 5 years,
- land of a surface not exceeding 0.4 hectare in urban areas by a legal person with the seat in Poland and controlled by a foreigner, for its statutory purposes.
A permit, valid for one year, is issued on the application containing information on the buyer and the seller of the real estate, a detailed description of the real estate and an indication of sufficient funds for the buyer to make the declared investments.
Foreign business operation in Poland
A bilateral investment treaty between Poland and U.S. under title "Treaty between the Republic of Poland and the United States of America concerning business and economic relations" was signed on March 21, 1990, came into force on August 6, 1994.
It stipulates the principles of treatment of American investment in Poland and Polish investment in the United States, trade between two countries, protection of intellectual property, transfer of payments, compensation of expropriation, exchange of information and transparency as well as settlement of investment disputes, if any.
The economic activity is also governed by the following major legal acts:
- Commercial Code, Decree of the President of the Republic of Poland of June 27, 1934 ( Journal of Law No.57 of 1934, Item 502), with amendments,
- Civil Code of April 23, 1964 ( Journal of Law 16 of 1964, Item 94), with amendments,
- Law on business activity of November 19, 1999 ( Journal of Law No 101 of 1999, Item 1178)
Permissions for economic activity and licenses
Some types of economic activity require a license. The law on economic activity has substantially decreased the number of required licenses and permissions.
Since January 1, 2001 a license has been required for conducting economic activities in the fields of prospecting for, recognition and extraction of minerals; tank-free storage of substances in rock mass; manufacture of and turnover in explosives, arms and ammunition and articles and technologies of military and police use; manufacture, processing, storage, transmission and distribution of fuels and energy; protection of persons and property; air transport and providing of other air services; construction and management of toll motorways; management of railway lines and providing rail transport services; radio and television broadcasting.
The license is granted by the appropriate state administrative body depending on the field of economic activity ( for example, minister of agriculture, minister of health) or a voivodship. A license is issued for a limited time, not shorter than 2 years and not longer than 50 years.
Registration of economic entities
The provisions of the law of August 20, 1997 concerning National Court Registry
(Journal of Law 2000, No 60, item 702, No 114, item 1193) came into force together with the Law on Economic Activity, i.e. on January 1, 2001. The National Court Registry includes: 1) register of entrepreneurs; 2) register of associations, other social and professional organizations, foundations and public health care entities; 3) register of insolvent debtors.
The rules for entry into the register of foreign entrepreneurs representative offices are set by the Law on Economic Activity. Establishment of a representative office requires entry into the register of representative offices of foreign entrepreneurs kept by a minister with responsibility for economic matters.
Export and Import Regulations
All business entities in Poland, including companies with foreign capital, have equal access to foreign trade operations. All goods and services can be traded without restrictions. However, there are some exceptions. A license is required for imports and exports of products and technologies for the police, military sector, such an explosives, weapons and ammunition and their parts basing on the Law on Economic Activity of November 19, 1999. Licenses are also essential for importing and exporting fuels and energy. Separate legislation relates to export and import of such a goods, as antics and hazardous substances ? they require a permit.
In all specified cases prior consulting to the custom authority is highly recommended
Custom duties
Poland is certainly not a newcomer to international cooperation, being a member of GATT for 25 years. Poland took part in the negotiations of the Uruguay Round, presented tariff concessions with GATT member countries and signed the final protocol of the Uruguay Round. Poland also joined the WTO and adjusted its foreign trade regime to the requirements of WTO.
On December 20, 2000 the Council of Ministers issued an ordinance adopting a new Customs Tariff.
The new Tariff provides for the following types of rates:
- autonomous, applied to commodities originating from countries other than WTOmembers and not covered by the most favored nation clause and not to which
preferential rates do not apply,
- conventional, applied to commodities coming from WTO countries and regions,
as well as countries to which Poland granted the most favored nation clause within bilateral trade agreement or unilaterally,
- preferential, applied in line with the Polish system of customs preferences, for
commodities coming from developing and the least developed countries,
- reduced, applied to commodities coming from the EU, EFTA, the Czech
Republic, Slovakia, Hungary, Slovenia, Bulgaria, Romania, Lithuania, Latvia,
Estonia, Turkey, Israel and the Faro Islands.
Custom duties exemptions
Some items are exempted from custom duties, including models and samples of non-
commercial value, brought to Poland for publicity purposes, for a limited period of time or in order to be exhibited.
US - Poland' s relations: GSP system of tariffs.
As a result of President Bush ?s visit to Warsaw on 15th June 2001, the United States and Poland signed a Comprehensive Trade Package. This agreement is designed to lower tariffs on key U.S. exports to Poland by January 2002, establishes a process for addressing further the problem of tariff differentials ( whereby United States companies faced higher tariffs than their European Union counterparts) with respect to both agricultural and industrial products and the bilateral trade issues. The United States intends to continue its support for Poland ?s participation in the U.S. trade preferences Program, known as the U.S. Generalized System of Preferences ( GSP).
The Trade Act of 2002, which was signed into law on August 6, renews retroactively the U.S. Generalized System of Preferences (GSP) program.
The products included in this program have been listed under separate GSP title on the Embassy website. On the other hand, the Polish exporters will find there the complete information about the program, being prepared specially for them.
Poland - U.S. business partnering initiative
On July 19, 2002 during the state visit of Aleksander Kwasniewski, President of Poland in the United States, a Memorandum of Understanding between Chamber of Commerce of both countries was signed.
The main goals and initiatives of the Memorandum are:
- To expand the commercial and investment relationships between Polish and U.S.
business enterprises, especially among mid-sized and small companies (SMEs) in sectors of strong mutual interest.
- To strengthen the working collaboration between Polish and U.S. business
development organizations at both the local and national levels.
- To raise the level of Polish firms technical, managerial and productive
Capabilities through increased business relationships between U.S. and Polish
firms.
- To stimulate more U.S. - Polish private sector technology transfer, joint ventures,
joint research and development and investment in technology ? intesive sectors of mutual interest.
The both Parties will proceed to sign the detailed program agreement at a later date.
WARNING: The following is article
discussing legal issues. It is not intended to be a substitute
for legal advice. We recommend that you get competent legal
advice specific to your case. If you would like such advice
from our office, call (415) 777-4445 or (916) 349-2900 or
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