Choosing the right business structure in Poland

The Polish economy has proven resilient to multiple global shocks, including the 2020 recession, the war in Ukraine, the energy crisis and tighter global financing conditions. Poland’s rise as a potential global power can be attributed to a combination of factors that have set the stage for its success.

First and foremost, Poland has made significant strides in creating a favorable business environment. The country has embraced economic reforms and established a robust infrastructure that attracts both domestic and foreign investment. Secondly, Poland’s recent focus on education and skills development has helped the country to keep a talented workforce, which is a crucial asset in today’s competitive global landscape.

Poland’s strategic geographical location at the crossroads of Europe has also positioned the country as a gateway for trade and investment, further fueling its growth.

So, what is the best business structure if you are going to start your operation in Poland? Getting things right from the start will increase your chances for a successful investment.

There are five main business structure types in Poland:

- sole trader (self-employment)
- partnership
- branch office
- limited liability company
- joint stock company

There is no one-size-fits-all answer and deciding whether you should run your Polish business as a sole trader, a branch or a limited liability company can change depending on the circumstances.

As well as tax, legal and regulatory consideration, there are a number of commercial factors to consider when deciding which of these alternatives is the most appropriate, such as, product origin, available funding, size of the business, clientele and the level of risk to be incurred.

If your business is going to trade in more than one country, you need to plan how to fit your business structure in the complex world of international tax and legal agreements – deciphering the right answer here can be an expensive, albeit critical project in itself.

The majority of foreign entities wishing to do business in Poland set up a branch or incorporate a limited liability company. A sole trader option is popular for smaller operations. The table below addresses some of the main features of each type.

Sole trader (self-employment)

Being a sole trader means being in business on your own. It’s a relatively straightforward structure, where you are self-employed and, legally, you and your business are considered as one. It’s the most common structure used by self-employed individuals and small businesses. This option is available without any restrictions to the EU citizens.

Branch office

The main point to note about operating a branch is that it is not a separate legal entity. This means that the foreign company is directly responsible for the operations and liabilities of the Polish office. The main company needs to designate an authorised person who will represent the branch in Poland. The branch can also directly hire employees for the Polish establishment.

The Polish office is required to run the accounting books and is obliged to file the annual accounts with the commercial court. The branch may also be subject to Polish income tax (if the activity of the
branch brings profit).

Limited liability company

The main benefit of a company limited by shares is that the liability of the shareholders is limited to the amount paid on their shares in the company. It follows that if the shares are fully paid up, the shareholders will not normally be liable to contribute further amounts in the event of the company becoming insolvent. A company is a separate legal entity, distinct from its shareholders and directors. This makes it an attractive proposition for a foreign investor looking to establish a business in Poland. Separate legal entity status enables the company to enter into contracts directly and offers the parent company protection from the subsidiary’s liabilities.

Establishing a limited liability company is a straightforward process which can usually be completed
within 3 weeks.

Joint stock company

A company has a personality that is separate from its shareholders and directors (exactly as in the case of a limited liability company). Separate legal entity status enables the company to enter into contracts directly and offers the parent company protection from the subsidiary’s liabilities. A joint stock company is intended for large businesses.

Establishing a joint stock company can usually be completed within 4-5 weeks.

Below, we present some basic information about the most common business structures which are available in Poland:

Entity	Description	Summary legal features	Summary tax features
Sole trader or the so called ‘’economic activity’’ (does not apply in the case of non-EU or non-EFTA nationals)	This is the most basic form of business. In essence you and the business are the same in everything but name.	The main legal concern is around liability. Running your business as partnership/’’economic activity’’ means you personally are liable for any claims against your business. This means that a creditor could call upon your own personal assets in the event of a claim.	You are taxed on business profits according to the personal income tax. In addition you have to pay national insurance.
Limited liability company (or a branch)	A company has a personality that is separate from the individual who owns the company.The company is the entity that is a party to contracts and the one that makes profits. Extracting money from the company is possible through the payment of dividends.	The individual owners of the company are liable up to their capital contribution to the company (i.e. the money which they paid in). They are not liable for the company’s debts. However, there are rules in place that directors are liable for the company’s debts in case the company does not pay. From the admin point of view, accounts and annual returns need to be filed with the commercial register on an annual basis. The financial information in the accounts i salso publicly accessible.	The company is subject to tax on its profits, it files a Corporation tax return and pays tax (19%). Upon payment of dividends, there is additional layer of tax. The amount of tax depends on the double taxation treaty.
Joint stock company	A company has a personality that is separate from the individual who owns the company. The company is the entity that is a party to contracts and the one that makes profits. A joint stock company is intended for large businesses.	The individual owners of the company are liable up to their capital contribution to the company (i.e. the money which they paid in). They are not liable for the company’s debts.	The company is subject to tax on its profits, it files a corporation tax return and pays tax (19%). Upon payment of dividends, there is additional layer of tax. The amount of tax depends on the double taxation treaty.

It is clear from the table (which is very high level and just covers the tip of the iceberg of issues) that there is no right or wrong answer. Before you invest your money, you need to ask yourself questions like:

- How will I finance my company?
- How will customer’s perception be altered by the type of business entity I choose?
- How will my financial projections be taxed?
- Who will I employ?