March 30, 2016

Planning to Invest in Poland?

The recent forecast of GDP growth for 2016 is promising, especially for Poland. According to the recent prognosis, Polish economy will grow 3.6% which is the highest rate in Europe.

Why the prospects for Poland are so good? The first positive feature is the big fall in the oil price, which has helped to bring down inflation to around zero. The continental European economies are large beneficiaries of this shift as none of them is a large oil producer. Zero inflation means that real incomes are rising, with wage-earners seeing modest pay. A second positive feature is the European Central Bank’s quantitative easing programme which has supported confidence in financial markets and the economy more generally. On its own, quantitative easing is not a magic bullet to restore growth. But as in the case of the UK and the US in 2009, it can turn round financial sentiment and boost confidence when other factors are becoming more positive.

Many companies and entrepreneurs around the world will be considering this year an investment in Poland. If this sounds like you, then congratulations! You are on the right track. You need to take a final decision and go ahead. One of the first question is what should be your business structure on your Polish investment?

There is no “one size fits all” answer, and deciding whether to run your business in Poland as a partnership, limited liability company, branch or joint-stock company can change on various circumstances.

If your business is going to operate not only in Poland but in other European countries too, you need to plan in advance how can you fit your business in the complex world of international tax and legal agreements. You need expert advice in all the countries you are going to operate.

I will not give you exact answer what it the right business structure for you. Below, I present some basic information about the most common business structures which are available in Poland, and some of the questions you need to ask before making your mind up, or seeking out the professional help.
 
Entity Description Summary legal features Summary tax features
Partnership 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 is also 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 enterprises.		 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.

A joint stock company is more formalized and costly to run than the limited liability company.		 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.

The most common choice for investors in Poland is a limited liability company which is similar to a German GmbH or Italian societa a responsabilita limitata. What is the right business structure for you and whether a limited liability company will be the most appropriate choice – this should be established by your advisors. Getting things right from the start will increase your chances for a successful investment.

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