Knowledge base

A foreign company’s branch in Poland. How to establish it?

Foreign entrepreneurs who want to establish a business activity in Poland very often consider which form of business activity they should adopt. They can choose between establishing a branch of their company or starting a separate entity (e.g. a new limited liability company). In this article, we will focus on the first of the abovementioned solutions and explain how to establish a foreign company’s branch in Poland.

A foreign company’s branch in Poland – legal status

First of all, it should be emphasized that a foreign company’s branch does not have a legal personality. It does constitute a separate organizational unit but it is still only a part of the foreign entrepreneurship. This means that foreign entrepreneur is responsible for the undertakings of the branch company. Essentially, the branch also does not have the capacity to be a party in court proceedings. Consequently, it is the foreign entrepreneur who will constitute a party (either plaintiff or defendant) in the event of a possible court trial. It does not apply, however, to cases concerning employees’ issues. In the event of litigation between a foreign company’s branch and its employee (either former or present one), the branch company will always constitute a representative party to the proceedings.

How to establish a branch of a foreign company in Poland?

In Poland, those entrepreneurs who originate from the European Union may establish a branch of their business practically without restrictions. Entrepreneurs originating from countries not belonging to the EU may establish a branch in Poland on the basis of reciprocity. This means that the possibility to establish a branch company depends on whether the international agreements ensure Polish entrepreneurs similar rights. For example, establishing a branch of an American company on the territory of the Republic of Poland is possible based on the ratified international agreement – the Treaty between the United States of America and the Republic of Poland Concerning Business and Economic Relations, signed on the 21st of March 1990.

Moreover, establishing a company’s branch in Poland also requires:

• making an appropriate decision by a foreign entrepreneur (e.g. the resolution of an appropriate body of a company, such as management or board of directors);
• the application for the branch’s entry into the Polish National Court Register [Polish: KRS];
• if a foreign entrepreneur operates on the basis of the partnership agreement, deed of foundation, contract, statute and/or entry into the National Commercial Register, a certified copy of such documents together with their certified translation into Polish should be submitted along with the application for entry of the branch into the Polish register.

Obviously, a foreign company’s branch should also have a legal title for its registered office in Poland (e.g. rent agreement). There are no legal obstacles to use a virtual office.

It should be noted that a foreign entrepreneur may start his business activity within the company’s branch in Poland only after obtaining an entry into the Polish National Court Register [Polish: KRS].

Branch representative

An entrepreneur who establishes a foreign company’s branch in Poland is obliged to assign a person who will be authorized to represent the foreign entrepreneur (a branch representative). The branch representative shall act on behalf of and for the entrepreneur in relation to the branch company’s activities.

There are no particular requirements regarding the person indicated as a branch representative. What is important, such a person does not need to be a Polish citizen or an employee of the company’s branch. There is no requirement for a branch representative to speak Polish. More than one branch representative may be assigned.

The representative may be dismissed by a foreign entrepreneur at any time. Both assigning and dismissing a branch representative shall be confirmed in writing.

A foreign company’s branch in Poland after registering in National Court Register

After the branch’s registration in the Polish Commercial Register one should fulfil a few more formalities. The most important ones constitute:

• reporting the foreign entrepreneur to the Internal Revenue Service – as a consequence, the Internal Revenue Service shall issue a unique Tax Identification Number [Polish: NIP] for a foreign entrepreneur;
• reporting a foreign company’s branch to the Internal Revenue Service – if the branch company is going to hire employees, it must apply for a separate Tax Identification Number [Polish NIP] in order to comply with the responsibilities to cover Social Insurance contributions and advance personal income tax payments;
• registering as VAT payer– if the branch company will conduct business activities covered by this type of taxation (it is worth noting that the foreign entrepreneur is subject to registration, not the branch company itself).

All of the abovementioned applications shall be submitted on the official government forms, provided by Polish National Revenue Administration.

Activities of the branch – basic aspects

The business activity of the branch may cover only such scope of activities that is conducted by a foreign entrepreneur in his or her original country of registration. It constitutes quite a significant restriction in comparison to establishing a new limited liability company, which range of operations is unrestricted as long as it is legally permissible.

The branch company is obliged to pay corporate income tax (CIT) on the income generated on the territory of Poland. The branch company is also a VAT payer. Moreover, if the branch company hires employees, it also becomes a payer of Social Insurance contributions and advance personal income tax payments for its employees.

The foreign company’s branch in Poland is also obliged to keep and maintain accounting in the Polish language and in accordance with Polish accounting rules.

The branch company should have the original name of the foreign entrepreneur together with its legal form translated into Polish and an additional designation: ‘oddział w Polsce’ [branch in Poland].

Summary

Apparently, the activity of a foreign company’s branch in Poland has its own specifics. For your convenience, below we present several crucial differences between conducting business activity in the form of a branch company and limited liability company:

Do you plan to open a branch of your company on the territory of Poland and need assistance during the whole process? Our specialists have many years of experience in cooperation with foreign entrepreneurs, including establishing branches of foreign companies. Feel free to contact us.

Taxation of companies in Poland

Taxation of companies in Poland constitutes a very broad concept. Combined with dynamic changes in tax law, it may constitute a source of many problems for entrepreneurs. In this article, we are going to explain in a plain way the basic rules for the taxation of income generated by commercial companies.

A tax that directly imposed on the income generated by companies in Poland is referred to as corporate income tax (CIT). It operates under the rules specified in the Corporate Income Tax Act of 15th February 1992 (‘CIT Act‘). What is the taxation of companies in Poland? Who exactly is subject to taxation? What are the tax rates and when can one benefit from the preferential conditions?  We answer these questions below.

Taxation of companies in Poland- who exactly is subject to corporate income tax?

According to Article 1 of the CIT Act, taxpayers of corporate income tax constitute legal entities, share-holding companies in organization, legal entities without legal personality, limited partnerships and limited joint-stock partnerships having their registered office or management board in Poland, general partnerships having their registered office or management board in Poland if its members are not exclusively natural persons, as well as companies without legal personality having their registered office or management board in another state, if pursuant to the tax laws of another country are treated as legal entities and are subject to taxation in that state on their total income regardless of where it is earned.

What are the possible CIT rates?

According to Article 19 of the CIT Act, the tax rates of companies in Poland are subject to corporate income tax and constitute 19% or 9% of the tax base.

Who can benefit from the preferential 9 % CIT tax rate?

After fulfilling certain conditions, CIT taxpayers may benefit from preferential tax rates for companies in Poland. Due to many factors that determine its implementation, the reduced 9 % tax rate does not apply to all taxpayers.

The CIT Act identifies that the preferential tax rate may be available for those who have small taxpayer status. Additionally, it may also cover new taxpayers who are just starting their business and, under certain conditions, may benefit from the tax relief in the first fiscal year of their activity.

A small taxpayer is defined as an entity whose value of sales revenue did not exceed in the previous fiscal year the amount of 2 million EUR, converted based on the average rate announced by the National Bank of Poland as of the first business day of October of the previous year, rounded to 1.000,00 PLN.

In the case of small taxpayers, the Corporate Income Taxation model assumes a 9% rate to revenues other than the ones coming from capital gains.

Are you wondering if you meet the requirements to obtain the status of a small taxpayer? You would like to use the preferential tax rate for your company but you do not know what changes should be implemented in your business in order to fulfil the required conditions? Feel free to contact one of our specialists, who will inform you during the initial conversation about the first necessary steps that should be taken.

Objects of corporate income taxation for companies in Poland

According to general principles, an income representing the sum of income earned from capital gains and the income derived from other sources of revenues constitutes the object of CIT taxation.

As it results from Article 7(2) of the CIT Act, the income is a surplus of the total revenues over the tax-deductible expenses obtained within a fiscal year. If tax-deductible expenses exceed revenue, the resulting balance constitutes a tax loss.

Some income of taxpayers may be exempt from CIT. A catalogue of tax-free income types for companies registered in Poland is included in Article 17 of the CIT Act. Such tax exemptions cover, for example, income from the sale of the property or one’s share of the property comprising an agricultural holding, income from running schools or income earned by public benefit organizations.

Corporate income tax and revenues

As indicated above, income earned by taxpayers, defined as revenue reduced by deductible costs, constitutes an object of taxation according to the CIT Act. It may also happen that revenue itself becomes subject to taxation. In such cases, a taxpayer cannot include tax-deductible expenses in a tax return.

The CIT Act does not define the concept of revenues. However, it does include a catalogue of financial benefits that constitute revenue. It incorporates, among others, received money, cash value (including exchange rate differences), the value of received goods or rights, value of other benefits in kind, including the value of goods and rights received gratuitously or partly gratuitously as well as the value of remitted or expired debts.

One should also note that the catalogue of revenues provided in the CIT Act is not exhaustive. Therefore, any financial benefit will constitute revenue.

Taxation of companies in Poland and CIT fiscal year

As a rule, the tax year for corporate income tax corresponds to a calendar year. However, there is a possibility to determine a different tax year in the company’s agreement, statute or other document regulating the structural rules of the economic entity. For a company registered in National Court Register, a tax year may correspond to the next 12 months following the date of registration. Thus, the beginning of the fiscal year does not have to start on the 1st of January each year.

Estonian CIT – an alternative method for tax settlements

As a specific form of taxation available from the 1st of January 2021, one should consider the lump-sum tax on the income of limited companies, also known as ‘Estonian CIT‘. It constitutes a modern, simple and economical form of taxation in Poland that allows to minimize settlements with the tax office as well as maintaining accounting records.

There are two taxation alternatives available on the basis of the Estonian CIT. The first one is a lump sum on the income of limited companies. In this case, taxpayers do not pay monthly or quarterly advance payments for income tax. During the period of lump-sum taxation, the tax will not occur as long as the profit is used for the company’s purposes and the tax obligation arises, as a rule, only upon profit distribution by partners or after changing the form of taxation. The second option is the special investment fund that enables faster settlement of depreciation of the fixed assets in tax costs.

What conditions must be met to use the Estonian CIT form of taxation for a company in Poland? First of all, the company must hire a minimum of 3 employees in full-time equivalent. What is important, the employees cannot simultaneously be stockholders or shareholders in this company. Secondly, the company must obtain at least 50% of its revenues from operating activities. Thirdly, the conducted business activity must constitute a limited liability company, a joint-stock company or a limited joint-stock partnership in which shareholders or partners are exclusively natural persons. Additionally, the company itself cannot own stocks and shares in other economic entities.

We encourage those who are interested in benefiting from the presented solution to contact us. We will verify if your company meets the requirements to benefit from the Estonian CIT. We will also make relevant calculations and guide your company through the process of changing the form of taxation.

Summary

Taxation of companies in Poland constitutes a significant and complex subject. The legislator has provided preferential conditions and specific forms of taxation that are, however, restricted by many requirements. Therefore, there can be no doubt that entities operating as companies need to thoroughly analyze all aspects of their functioning with a particular focus being put on tax issues.

Would you like to benefit from preferential conditions of taxation? Do you own a company and want to settle your taxes in the form of a lump-sum income tax? Our specialists have many years of experience in advising entrepreneurs in the field of tax optimization. Feel free to contact us.

Cryptocurrencies in Poland

Cryptocurrencies still constitute a young but dynamically developing market in Poland. Due to the increased interest in virtual currencies the number of crypto frauds is also on the rise. Therefore, the cryptocurrency market gradually becomes the subject of new legal regulations at the national, EU and international levels. Their primary goal is to ensure financial security. Below we discuss the most current requirements related to business activities in the field of cryptocurrencies in Poland.

Polish legislature has decided to implement a chapter in the Act on Counteracting Money Laundering and Terrorist Financing (‘the AML Act’) including regulations concerning business activities in the field of virtual currencies. We explain the introduced changes and resulting responsibilities for entities conducting business activities with regard to cryptocurrencies in Poland.

Amendments to the AML Act

The amendment to the AML Act entered into force on the 15th of May 2021. It aimed at implementing into the Polish legal system the solutions included in the Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018, amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU. The introduced changes mainly concern the cryptocurrency market in Poland.

Register of Virtual Currencies – what is it and what do you need to know?

Since 31st October 2021, business activity in the field of virtual currencies constitutes a regulated activity as defined in regulations of the Act of 6th March 2018 Entrepreneurs’ Law. This means that it can be performed only after obtaining an entry in the virtual currency business register. The register is maintained by the Director of the Chamber of Tax Administration in Katowice. Its establishment aims to contribute to the increase of the transparency of the cryptocurrency market in Poland.

The creation of the virtual currency business register does not stem from the initiative of the Polish legislature. It results from the necessity to implement the recommendation of the Financial Action Task Force („FATF”) in the field of virtual assets. FATF has concluded that the activities of the entities providing services related to virtual assets should be licensed or, at least, registered. Hence, the Polish legislature has adopted a less formalized type of regulation.

Cryptocurrencies in Poland – which entities are obliged to obtain an entry into the cryptocurrency business register?

New regulations do not apply to every entrepreneur whose business activity operates within the field of cryptocurrencies. They mainly relate to entities specified in point 12 of Article 2 of the AML Act. The regulations identify entrepreneurs who conduct business activities in the field of virtual currencies that are related to:

• exchange between virtual currencies and means of payment,
• exchange between virtual currencies,
• intermediation in the aforementioned exchange,
• operating and maintaining virtual currency accounts.

This means that under the AML Act, ‘activity in the scope of virtual currencies’ constitutes a more narrow concept than in a common understanding.

Reputation, knowledge, experience – new requirements for entrepreneurs

Currently, economic activity in the scope of cryptocurrencies in Poland may be conducted exclusively by entities who have a rightful reputation as well as knowledge or experience specified in regulations. The aim of this solution is to provide a sufficient level of protection against using this kind of activity for criminal purposes.

The proper reputation of the entity may be considered in cases when the entrepreneur was not convicted for crimes indicated in 129 Article of the AML Act. This provision includes, among others, intentional crimes against the activity of state institutions and local government, against the administration of justice, and against the credibility of documents or money trading. The discussed requirement – depending on the legal form of business activity – concerns natural persons, management board members of corporations and shareholders in partnerships who are authorised to represent or conduct business operations. What is important, the requirement of no criminal record also applies to those who hold managerial positions connected with business activity in the scope of cryptocurrencies as well as actual beneficiaries of the entities conducting such activity.

When can it be concluded that an entrepreneur has the relevant knowledge or experience? After fulfilling at least one of the premises specified in 129 Article of the AML Act. These include:

• completing training or course that covers legal or practical issues related to virtual currency activities or
• performing for a period of at least one year activities related to virtual currencies.

Fulfilment of the abovementioned conditions has to be proved with appropriate supporting documents.

When one should submit a request for entry into the virtual currency business register?

Economic entities that are about to start conducting cryptocurrency activities are required to obtain the relevant registration before the actual beginning. Those entrepreneurs who conducted such activities before 31st October 2021 should take care of the relevant entry no later than 30th April 2022.

How to apply for entry into Cryptocurrency Business Register?

The application for entry into Cryptocurrency Business Register should be submitted to the Director of the Chamber of Tax Administration in Katowice. This can be done exclusively in electronic form via the ePUAP government services platform. The authority should proceed with entry into the register within 14 days from the moment of submitting the complete application together with all the required statements.

Submitting the application is associated with the necessity to pay fees. These include the amount of 616 PLN for entry into the Cryptocurrency Business Register and 17 PLN for issuing a certificate of the entry into Cryptocurrency Business Register.

Cryptocurrencies  in Poland – the consequences of not being registered into the virtual currency register

Entrepreneurs who will fail to comply with the registration obligation will have to face consequences in the form of penalty payment. In accordance with Article 153b of the AML Act, an economic entity operating within the scope of virtual currencies without obtaining the required entry into the register is subject to a fine of up to 100 000 PLN. However, one should remember that this is not the only possible penalty that threatens the entities that conduct business activity in the field of virtual currencies. All such economic entities constitute, in fact, obliged institutions in accordance with the AML Act. It means that the Act imposes on them not only numerous obligations but also sanctions for non-compliance.

Summary

The virtual currencies market is constantly growing. It’s not surprising as it creates many opportunities. On the other hand, it simultaneously carries some risks to financial security. Therefore, legislators of many countries, including Poland, pay more and more attention to it. The aim of creating a register of cryptocurrencies in Poland and identifying business activities in this field as regulated is to reduce the risk of money laundering and financing of terrorism. In order to avoid negative consequences, entrepreneurs should adapt to current regulations and closely monitor changes.

Do you consider starting a business activity in the field of cryptocurrencies in Poland? Do you already conduct such business and want to make sure that you fulfil all the obligations required by law? Please contact our specialists, who have many years of experience in counselling in the cryptocurrency market.

Estonian CIT – Imagine you can run your business in Europe tax free…

Yes, you read that right. It is possible to run your business in Europe and not pay income tax. We’re talking about Poland and the possibility of choosing the taxation of a Polish company with the so-called “Estonian CIT”.

Estonian CIT – how does it work?

“Estonian CIT” – or officially corporate income tax lump sum – is a type of corporate income taxation that allows the company to run business tax-free as long as their owners do not consume profits on private purposes nor transfer them to their personal accounts. This solution is based on regulations previously introduced in Estonia. That’s why it is commonly called an “Estonian corporate income tax” or simply “Estonian CIT”. The replacement of classical CIT with such a tax was adopted in Estonia in the year 2000, and has had astonishing economic effects there, including an almost doubling of the rate of economic growth and private investments.

The traditional taxation model of a company involves paying monthly advance payments of corporate income tax and at the end of the year the taxpayer is required to file an annual return. In case of a Estonian CIT, there are no advance payments or tax returns as long as the profit remains in the company. The Estonian CIT allows therefore the company not only to not pay any income tax but also the company responsibilities related to accounting records are severely limited!

Choosing Estonian CIT therefore means that the company will not have to pay income tax regularly (monthly/quarterly/yearly), but only when it decides to pay out the profit to shareholders. This provides the company with more funds for day-to-day operations, expansion of business activities or new investments! Can you imagine a better tax solution for an investor?

Who can apply the Estonian CIT in Poland?

The Estonian CIT may be (obviously) applied only by legal entities.

There are several type of Polish companies that may apply this form of taxation:

• Limited liability company (pol. Spółka z ograniczoną odpowiedzialnością)
• Joint Stock Company (pol. Spółka Akcyjna)
• Simple Joint Stock Company (pol. Prosta Spółka Akcyjna)
• Limited partnership (pol. Spółka komandytowa)
• Limited joint-stock partnership (pol. Spółka komandytowo-akcyjna)

Conditions of applying Estonian CIT by Polish Company

There are, however, some conditions that must be fulfilled in order to apply Estonian CIT:

• the company employs at least 3 persons;
• the shareholders or partners of the company are exclusively natural persons (however, there is no requirement for shareholders to have Polish citizenship);
• the company does not prepare financial statements in accordance with International Accounting Standards.

Restrictions

Apart from fulfilling the above conditions, there are also certain exemptions from the possibility to apply the Estonian CIT. These exemptions mostly relate to the type of company or type of business in which the company is involved in. If such a circumstance did not exist when opting for Estonian CIT, but appears later – the company loses the right to apply this form of taxation.

The Estonian CIT may not be applied by:

• companies whose 50% or more of revenues comes from so-called passive sources (e.g. receivables, interest),
• companies that own shares in another companies (or titles of participation in an investment funds);
• companies being the financial institutions (e.g. banks, lending companies);
• companies operating in a special economic zones;
• companies keeping accounting records in accordance with standards other than Polish;
• companies formed as a result of a merger or division;
• companies that are put into liquidation or bankruptcy.

Formalities

Estonian CIT is not the default form of company taxation. Switching to it is voluntary and depends on the will of the taxpayer. In order to do so, the company must submit a formal notice on the choice of this form of taxation to the relevant tax authority – either by the end of the 1^st month of the tax year in which the company intends to use Estonian CIT or during the tax year (in the latter case, however, classic CIT must be settled, the company accounting books must be closed and the financial statements must be prepared. This allows for the correct determination of the tax base for the period of application of Estonian CIT).

Estonian CIT tax rates

At some point, the company shareholders will probably decide to pay out the income – at this moment the Estonian CIT needs to be paid. So, the Estonian CIT is paid when profits are distributed and at a different rate than standard Corporate Income Tax. For small taxpayers and for taxpayers starting a business under these rules, Estonian CIT rate is 10% and for other taxpayers it’s 20%.

But wait, isn’t CIT rates in Poland are 9% (for small taxpayers) and 19% for other companies? So how is Estonian CIT profitable?

Well, we have to look at the big picture. It should be remembered that the shareholder of the company (company that is tax payer of Corporate income tax) pays separately personal income tax (PIT) from dividends in 19% rate. The effective tax rate (CIT + PIT) under the general rules is therefore higher than the Estonian CIT rate.

Moreover, a shareholder of a company that has opted for Estonian CIT has the right to reduce the PIT (resulting from the receipt of dividends) by the relevant part of the CIT paid by the company. The effective taxation will therefore be lower than in the case of CIT and PIT under the general rules. As a result, the shareholder may save on this solution, not only if dividends are not paid, but also when the profit is actually paid out to shareholders!

Let’s see how this looks on the example (with ‘small taxpayer’ i.e. a company that has not exceeded the threshold of 2 million EUR revenue annually):

It should be noted, however, that profit distribution is understood widely – it is not only the formal payment of dividends on the basis of a shareholders’ resolution, but also any other events that produce such an effect. This refers to situations when the profit is intentionally paid out in a manner other than in the form of a dividend, e.g. when the company grants a non-refundable loan to the shareholder.

Summary

So you can easily see that Estonian CIT is a great solution for investors. It is worth noting that many favourable changes in Estonian CIT have taken place since the beginning of year 2022 (previously there was, for example, a requirement for a company to incur sufficient capital expenditures in order to qualify for Estonian CIT, which was abolished at the beginning of this year). Tax advisors therefore estimate that the number of companies benefiting from Estonian CIT will increase significantly this year.

Did the topic of Estonian CIT interest you? Do you already have a company in Poland and you are wondering what needs to be done in order to apply this form of taxation? Or maybe you need help with your investment in Poland? If yes – contact us!

Advantages of conducting IT company in Poland

Due to the dynamic development of the IT industry, starting an IT company in Poland has become increasingly popular. Both corporations and small enterprises from the IT sector are experiencing better financial results. There is an abundance of job offers available for programmers, software testers and system administrators. Polish law provides for numerous tax reliefs as well as preferential tax rates that can be used by representatives of the IT industry. Below we present a few of those solutions, together with some tips on how to make use of them.

IT companies in Poland may count on many conveniences that are very often unavailable for industries other than the IT sector. One could mention at least special R&D relief, IP Box or Estonian CIT. We reveal the meaning of the terms and explain why these solutions make starting an IT company in Poland a highly attractive idea.

Tax relief for research and development (R&D) – what do you need to know?

One of the advantages of conducting an IT business in Poland is the possibility to benefit from tax relief for research and development (also known as ‘R&D tax relief’). This relief constitutes a special solution that aims at stimulating the development of innovation within the Polish economy. It relates to taxpayers who conduct business activities in Poland and are subject to income tax. The essence of the R&D relief is the possibility to deduct from the tax base the expenditure connected with conducting research and development activities.

What are research and development activities?

Research and development activities constitute creative activities that include scientific research or development works undertaken systematically to extend knowledge and find new ways of its practical implementation. Therefore, to conduct R&D activity, the entrepreneur does not need a specified infrastructure, highly specialized staff or many years of research.

What costs may be deducted based on research and development tax relief?

According to the Acts on income taxes, the eligible costs include, among others, employment costs of the value proportional to the time dedicated to R&D activities, or acquisition of goods and raw materials directly connected with the R&D activity.

For those interested in benefiting from R&D tax relief, our company offers professional assistance in verifying whether the conducted business activity may be classified as research and development as well as in the proper allocation of eligible costs.

IT company in Poland and the possibility to benefit from IP BOX tax relief

Another solution that is intended for income taxpayers conducting research and development activities is the IP Box tax relief. It enables applying a preferential 5% tax rate to the income resulting from qualified intellectual property rights created, developed or improved by a taxpayer as part of his R&D activities.

A catalogue of eligible intellectual property rights that may be covered by the IP Box is strictly specified and completed. It means that the tax relief may be applied only to those rights that are mentioned in the CIT Act.

In order to benefit from IP Box tax relief, one should first identify the owned intellectual property rights and verify whether they have been created by a taxpayer as a result of the conducted research and development activity. Secondly, one should calculate the so-called ‘qualified income from a qualified intellectual property right.’  The last step is to determine the tax base covered by the IP Box relief’s preferential rate, which constitutes a sum of all the qualified rights.

A small taxpayer in the IT industry – the advantages of conducting an IT business activity in Poland under the CIT Act

The CIT taxpayers are, as a rule, subject to a 19% tax rate. However, after fulfilling certain conditions, they may benefit from a preferential 9% tax rate. Due to many factors that determine its implementation, the reduced tax rate does not apply to all taxpayers.

The CIT Act identifies that the preferential tax rate may be available, for example, for those who have the status of small taxpayers. A small taxpayer is defined as an entity whose value of sales revenue did not exceed in the previous year the amount corresponding to the equivalent of 2 million EUR, expressed in PLN at the exchange rate being in force on the first business day of October of the previous year, rounded to 1.000,00 PLN.   Therefore, to benefit from the preferential tax rate one should verify if the revenue limits have not been exceeded as well as monitor on an ongoing basis the level of annual revenues.

‘Estonian CIT’ for IT companies in Poland

An indisputable advantage of running an IT company in Poland is the availability of the lump-sum tax on the income of companies, also known as ‘Estonian CIT’. It was introduced in the Act of 28th November 2020 on amendments to the Corporate Income Tax Act and Certain Other Acts. This form of taxation significantly differs from tax settlement methods applied so far.

There are two taxation alternatives available on the basis of the introduced legislation – a lump sum on the income of companies and a special investment fund that ensures faster settlement of depreciation of fixed assets in tax costs. In the case of the first method, taxpayers do not pay monthly or quarterly advance payments for income tax. Moreover, during the period of lump-sum taxation, the tax will not occur as long as the profit is used for the company’s purposes. A tax obligation arises, as a rule, only upon profit distribution by partners or after changing the form of taxation. The special investment fund, on the other hand, enables faster settlement of depreciation of the fixed assets in tax costs.

Lump sum for the IT sector

The change of the statutory definition of freelance professions provided representatives of many new occupations with a possibility to use the lump sum on registered income form of taxation. Currently, there are more than ten tax rates within a lump sum that depend on the business industry and, in some cases, on the generated revenues. This form of taxation constitutes an interesting solution, especially for IT specialists and programmers who run IT companies in Poland and, as a rule, do not generate high costs for conducting business activities.

Nowadays, the IT sector operates on two lump-sum rates – 8.5% or 12%. In accordance with the Act on lump-sum income tax on certain income earned by individuals, the 12% rate concerns, among others, income resulting from issuing packages of computer games, system software packages as well as providing services of consulting in the field of computer equipment or software. The 12% lump sum rate is also available for testers, programmers and other representatives of the IT sector, as specified in legislation.

If an entrepreneur provides services from the IT industry which do not fall within the scope of those covered by a 12% lump sum rate, it is possible to benefit from an 8.5% tax rate. In accordance with the Act on lump-sum income tax on certain income earned by individuals, the 8.5% rate concerns revenues from service activities that have not been mentioned in the classification of other lump-sum tax rates.

‘Poland. Business Harbour’- opening of the IT industry for the Eastern Europe markets

Although IT specialists constitute one of the best-paid professional groups in Poland and their earnings are constantly growing, Poland still struggles with their shortage. In order to solve this problem, ‘Poland. Business Harbour’ program was established. Its aim, along with tax reliefs and preferential tax rates, is to encourage representatives of the IT sector to conduct business activities in Poland.

The program is open not only for freelancers but also for start-ups and large companies. Its objective is to make it easier for the citizens of Eastern Europe (including Ukraine and Belarus) to enter Poland and start a new business activity in our country. ‘Poland. Business Harbour” also covers the support in the relocation of employees and their families, legal assistance as well as visa support in the form of „business concierge” service.

With the ‘Poland. Business Harbour” program, citizens of Ukraine and Belarus who are engineers or have experience in the IT sector and want to move to Poland to find a job relevant to their qualifications, have a possibility to benefit from the simplified visa procedure. Additionally, receiving a visa marked with a notation of ‘Poland. Business Harbour” exempts one from the obligation to obtain a work permit on the territory of Poland.

What is important, ‘Poland. Business Harbour’ program protects the interests of both parties. Beneficiaries of the program receive support regarding relocation and finding new jobs, and business owners benefit from hiring qualified specialists from the IT sector.

For more details, we recommend our article concerning Polish Business Harbour Visa – what it is and how it works? We also encourage you to contact our specialists, who offer assistance at every stage – from the recruitment process to relocation of the employees and legalization of their employment.

Summary

IT companies in Poland may count on many conveniences. The Polish tax system provides several favourable solutions and tax preferences that may be highly advantageous for the IT sector. After fulfilling certain conditions, IT companies in Poland may also count on the support regarding obtaining funds for innovative projects and further development.

Are you considering opening an IT company in Poland? Do you already conduct such business activity and would like to benefit from one of the described solutions? Feel free to contact our specialists. Not only will we register a company for you but will also help and advise on choosing the best possible tax solutions.

Special Economic Zones in Poland

In the past few years, Poland has become a leader among European countries when it comes to the best destinations for establishing businesses by foreign investors. It results from a long-term policy that aims at encouraging entrepreneurs to invest in Poland. One aspect of its manifestations concerns the issue of Special Economic Zones. What are the Special Economic Zones and what are the benefits connected with conducting business activities within their area?

Special Economic Zones – what are they?

Special Economic Zones have been operating in Poland since 1994. They constitute separate areas on the territory of the Republic of Poland where entrepreneurs can conduct business under special, more favorable conditions as compared to other parts of the country.

By supporting the development of investments, the Special Economic Zones contribute to the economic growth of a given area. On the other hand, they simultaneously offer a wide range of business conveniences for entrepreneurs, such as tax exemptions and remissions that make locating a business in this area highly profitable for an investor.

The list of Special Economic Zones is available on the official website of the Ministry of Economic Development and Technology.

What are the benefits of Special Economic Zones for the investors?

The primary advantage stemming from investing in Special Economic Zone is the possibility to use income tax exemptions (CIT or PIT, depending on the type of the conducted business activity). The limit of the exemption is calculated as the percentage of the incurred investment expenditure or, alternatively, based on the two years’ labor costs of new employees. The total value of the income tax exemption is also dependent on the investment location, the size of the enterprise, and the amount of investment expenditure. It is worth mentioning that in some regions of Poland one can retrieve up to 70% of the incurred costs.

Some of the Special Economic Zones also offer the possibility to obtain a real estate tax exemption. This kind of exemption is usually granted to new investors and it covers a period of time that is defined in advance.

The other benefits of investing in Special Economic Zones include funds and grants for:

– investments,

– creating new jobs,

– research and development activities (R&D),

– activities related to environmental protection, training, logistics, or renewable energy sources.

Investing within Special Economic Zones facilitates obtaining financial aid from District Labor Offices or from European Union funds.

Other advantages of investing within Polish Special Economic Zones

Apart from the obvious profits connected with tax exemptions or simplified procedures for obtaining grants and investment funds, the Special Economic Zones also provide other significant benefits – especially for foreign investors.

It is worth mentioning that the Zones are created on territories that are highly industrialized and attractive in terms of investments and business activities. Frequently, they use an infrastructure remaining after those branches of industry that are no longer developing. As a result, it is possible to rent or even buy properties that are already located in Special Economic Zone. The Zones offer not only warehouses and production facilities but also office buildings e.g. dedicated for shared services centers or call centers.

The location of Special Economic Zones also takes into account the high availability of qualified employees. The vicinity of academic centers that ensure a steady inflow of well-educated employees is frequently taken into consideration in the process of establishing the Zones. Many of them remain in constant cooperation with higher education institutions in order to take advantage of the educational and intellectual potential of the region.

The support offered by companies managing the Special Economic Zones should be also mentioned. They provide legal and organizational assistance in the process of communication with the local authorities or while negotiating with utility providers. The aforementioned solution constitutes a significant convenience, especially for foreign investors, who are not yet familiar with certain aspects of running a business in Poland.

The rules of conducting business activities within a Special Economic Zone

Until now, the entrepreneurs wishing to benefit from the advantages offered by Special Economic Zone had to first obtain special permission to conduct a business activity within its territory. Currently, the permits have been replaced by support decisions that are issued on the basis of the Act on Support for New Investments. The support decision is an administrative decision that enables entrepreneurs to obtain CIT or PIT income tax exemption, limited to a maximum value specified in that decision.

The support decision is issued at the request of the entrepreneur, by the management of Special Economic Zones on behalf of the minister in charge of economy. It is issued for a specified period of 10, 12, or 15 years.

What is Polish Investment Zone and will it replace Special Economic Zones?

In 2018, after 24 years of operating, it has been decided that the Special Economic Zones program should be updated and broadened. A new support instrument for entrepreneurs has been established under the name of the Polish Investment Zone. It constitutes an expansion and development of the existing Special Economic Zones and is intended to replace them eventually. Under current legislation, Special Economic Zones will be operating until the 31st of December 2026.

The aims of the Polish Investment Zone and Special Economic Zones are fairly similar. The main difference concerns the possibility to benefit from exemptions in a situation when business activities are also conducted outside the specified area of the Zone. The idea of the Polish Investment Zone is best described in words: “The entire Poland becoming a Special Economic Zone”. The slogan was used to promote the establishment of the Polish Investment Zone.

According to the data published on the official Government website, there were 1 521 support decisions issued within the scope of the Polish Investment Zone (from September 2018 till the end of 2021), of the total declared value worth 73,4 billion PLN and with a declaration to create 31 569 new job positions.

Summary

There is no doubt that conducting business activities and investing within Special Economic Zones in Poland has many advantages. However, in order to fully and properly use their potential, some requirements have to be fulfilled. The first one is to submit an application for issuing the support decision. Our law firm has many years of experience in assisting and advising entrepreneurs on starting businesses within the territory of Special Economic Zones. In the first place, we analyze the subject of the enterprise activities, as well as its business records, in terms of meeting the necessary requirements for obtaining a positive decision. Secondly, depending on the findings of the conducted analysis, we offer assistance in the preparation of the request as well as support during the whole process of obtaining the decision and its implementation. For more detailed information, we recommend contacting our specialists.

How to set up a limited liability company in Poland?

Polish limited liability company (pol. “spółka z ograniczoną odpowiedzialnością” or “sp. z o.o.”) is one of the often used form of running business activity in Poland. It is a simpler type of company, most commonly chosen by micro, small and medium entrepreneurs. This type of company allows to do any type of business activity, as long as it is permitted by law.

There are basically two ways of setting up a limited liability company in Poland:

1. traditionally – by concluding a company agreement (articles of association) in front of the notary public;
2. electronically – through the S24 Portal.

Each of these ways has its advantages and drawbacks – we describe them below. What is important is that there are no restrictions in Polish law regarding the nationality of persons establishing limited liability companies.

Traditional incorporation of a limited liability company in Poland

In order to set up a limited liability company in a traditional way, it is necessary to conclude a contract by one or more persons. It needs to be kept in the form of notarial deed, so the attendance of the notary is inevitable. The fundamental elements of the articles of association are:

• company name;
• and registered seat;
• subject of its activity and the amount of share capital (which cannot be lower than 5000 PLN).

At the moment of signing the company agreement in front of a notary, the company “in organization” is established. It is not a proper limited liability company yet (it has to be registered with business register), but it becomes a legal entity and can for example be an employer.

It should be emphasized that in order to register a limited liability company in Poland, the contributions for share capital should be paid in full by the shareholders before registration in the company register (National Court Register or simply – “KRS”).

The final stage of incorporating limiet liability company is its registration in KRS. It takes usually 2-3 weeks for the company incorporated in front of the notary to be registered in KRS.

Electronic incorporation of a limited liability company in Poland

Electronic way means that the company is incorporated through the online system provided by Polish authorities (“S24 Portal”). The articles of association may be concluded only on the simple template provided in the Portal. This kind of company agreement provides only basic solutions. It is not possible to include more complex provisions in the company agreement, which is often required by larger entities who set up a subsidiary in Poland.

The advantage is however timeframe for company registration in KRS. The company incorporated online is usually registered with the KRS within 2-3 days from filing the application.

The incorporation of a company through S24 Portal require to sign all necessary documents with qualified electronic signature or ePUAP profile. ePUAP profile is an e-identity platform provided Polish public authorities.

So to ease you deciding which way of incorporation you prefer, we show you the major pros and cons of each:

So, is there a third way?

Yes! At any time you may set up a limied liability company in Poland with the assistance of an attorney. This would require you to grant an attorney in Poland with notarized power of attorney (in the country of your residence, and then you must send this power of attorney in the original to your attorney in Poland). In that case, you don’t have to come to Poland to sign documents or apply for an electronic signature. The attorney in Poland can either set up a new company in Poland before the notary on your behalf or register a company through S24 Portal and sell you 100% shares of the company.

What is important is that the sale of the company’s shares is effective from the date of signing the sales agreement (not from the moment of registering the change in KRS). So, the new owner of the company can start his activity right away.

This third way of incorporation we call the remote procedure. At the end of this procedure, you will end up with fully functional company, ready to operate!

What you need to know about shareholders of a limited liability company in Poland?

A shareholder of a limited liability company in Poland can be, with some reservations, a natural or a legal person. Basically, a limited liability company cannot be established solely by another single-member limited liability company (a company in which there is only one shareholder). However, nothing stands in the way of such single-member company acquiring 100% of the shares in the company after its registration in the KRS.

Shareholders’ obligations

Shareholders’ obligations in a limited liability company in Poland are mainly financial. These are: the obligation to make a contribution (in cash or as a contribution in kind) and the obligation to make additional payments if it’s necessary to cover losses or finance expenses for which the company does not have sufficient funds. This is the only economic risk in which shareholders are involved. Nevertheless, of course, company articles of association may impose other obligations on the shareholders.

Shareholders’ rights

The rights of the shareholders of a limited liability company in Poland may be divided into financial and corporate rights.

Financial rights are among others:

• the right to dividends, i.e. participation in the company’s profit,;
• the right to share in the post liquidation surplus, i.e. the assets remained after satisfying the claims of the liquidated company;
• the right of priority to acquire shares in the increased share capital;
• the right to reimbursement of additional payments, if any were passed.

Corporate rights consist of for example:

• the right to dispose of the share (e.g. to sell or to pledge the share);
• the right to vote at the shareholders’ meeting;
• the shareholder’s right to individual inspection, which includes, in general, the ability to inspect the company’s books and records at any time;
• the right to participate in the shareholders’ meeting;
• the right to contest company shareholders resolutions;
• the right to request the convening of an extraordinary shareholders’

Company bodies

a) Management Board

Just like in other types of companies, a limited liability company in Poland has its bodies. One of them is management board and it primarily decides on matters which are not reserved for other bodies. To be a member of the management board it is necessary to fulfil three conditions:

• be a natural person (it is not possible in Poland to appoint other company as a director of limited liability company);
• be over 18 years old;
• have a non – criminal record.

What’s important – to become a board member it’s not necessary to be a shareholder in the company or to be Polish citizen.

The duties of the management board members include, above all, representing the company and managing its internal affairs. Obviously, those are the duties resulting from applicable laws. However, company  agreement or other contracts may impose other types of duties on the board members.

If there is more than one person on the board, the articles of association should specify how the company should be represented. If the articles of association do not contain any provisions on that subject, the company is represented by two members of the management board acting jointly or by one member of the management board acting jointly with the company commercial proxy.

Responsibility

The limited liability company in Poland is basically solely responsible for its debts and liabilities.  However, if it is not possible to enforce the debt from the company, the liability may be transferred to the members of the management board. Such liability should be confirmed by a court judgment, which awards the company’s claim in favour of its creditors and states that the execution against the company was ineffective. Nonetheless, a member of the management board may exempt himself from such liability if he proves that:

– a bankruptcy petition was filed in due time, or

– the formal restructure proceedings were initiated;

– the bankruptcy petition was not filed without the fault of given board member, or

– despite not filing a bankruptcy petition or not starting the restructure proceedings, the creditor has not suffered any damage.

b) Supervisory Board

As mentioned earlier, each shareholder is entitled to individual control. However, the shareholders may additionally establish in the company agreement another body – a supervisory board – which will hold constant supervision over the company’s activities in all areas of its operations. What should be noted is that in Polish limited liability company where the number of shareholders exceeds 25 and the share capital exceeds PLN 500,000, it is mandatory to establish a supervisory board in the company.

The supervisory board must consist of at least three members. As in management board, only natural persons may be members of the supervisory board. A member of a company’s management board, a commercial proxy or a company’s chief accountant may not at the same time be a member of its supervisory board.

c) Shareholders’ Meeting

The last one – Shareholders’ meeting is the legislative body of the company. It’s responsible for the most important decisions in the company. In practice –  the company would not be able to exist without it.

We mark out two types of shareholders’ meeting: ordinary and extraordinary. The first one should be convened by management board regularly – as a rule once a year within 6 months after the end of each financial year. During the meeting shareholders need to:

• examine and approve the management report on the company’s activities and the financial statements for the previous financial year
• grant a discharge to company board members for performing their duties;

Extraordinary shareholders’ meeting is convened when shareholders need to consider an issue concerning the company and make a decision in the form of a resolution.

Taxes

A limited liability company is obviously, like all legal persons, a payer of corporate income tax – CIT. The CIT tax rate is accordingly: 19% or 9% in case of a reduced CIT rate. Taxpayers, who in the given tax year did not exceed the amount of revenue of EUR 2.000.000 expressed in Polish currency, are entitled to apply the 9% CIT rate.

Moreover, shareholder of the company, who is a natural person and received dividends is also obliged to pay another tax – PIT – personal income tax. In this case the tax rate is one and amounts to 19%.

It is also worth mentioning about the “Estonian CIT” – or officially corporate income tax lump sum – which is available for Polish limited liability companies.

“Estionian CIT” for limited liability company in Poland

It is a type of corporate income taxation that allows the business to be ran income tax-free as long as their owners do not consume profits on private purposes nor transfer them to their personal accounts. This solution is based on regulations previously introduced in Estonia. That’s why it is commonly called an “Estonian corporate income tax”. When choosing this regime of taxation the Polish company does not pay any income tax unless dividends are distributed to the shareholders. In this way the company itself determines the time and amount of tax to be paid.

Moreover, the rate of Estonian CIT is 10% for small taxpayers and taxpayers starting a business, and 20% for others. The application of the Estonian CIT requires the fulfilment of several conditions, among others: employing at least 3 persons during the tax year, not generating income of up to 50% of the total income of the company from specific sources (e.g. income from credits and other passives) and submitting an appropriate statement to the tax office on the choice of taxation with Estonian CIT. What has to be remembered however, is that the Estonian CIT may be applied only by companies whose shareholders are natural persons.

Do you have any further questions or need support? Our team will be happy to help you setting up your limited liability company in Poland, and advise you on the most advantageous solutions for your business.  Should you be interested please feel free to contact us.

Special Act on Assistance to Ukrainian refugees – the main postulates

Polish Business Harbour Visa – what is it and how it works?

Unusual times call for unusual solutions. In most cases their introduction is time-consuming and requires considerable investment. It turns out, however, that there are options in Polish law that perfectly match today's extreme circumstances. We are talking about "Poland. Business Harbour", a special program dedicated to among others citizens of Ukraine and Belarus.

"Poland. Business Harbour " - what is it?

“Poland. Business Harbour” is a government program in force from 2020. Initially, it covered only citizens of Belarus, but from July 2021, it can also be used by residents of Ukraine, Georgia, Russia, Moldova and Armenia. The program is intended for specialists from the IT sector, start-ups and small, medium and large enterprises. It enables trouble-free relocation of the company to the territory of Poland.

 “Poland. Business Harbour” program also includes support in the relocation of employees and their families, including making it easier for them to study in Polish schools and helping them learn Polish.

How does "Poland. Business Harbour " works?

“Poland. Business Harbour ” is a package of solutions dedicated to specialists in the modern technology industry who are considering the possibility of transferring their business to Poland, establishing a start-up related to the IT industry in Poland or planning to take up employment in this industry in Poland.

One of the elements of the package is also support in the form of connecting entrepreneurs with investors and awarding grants for research and development activities.

To use it, one of the following conditions must be met:

• technical education in the field of IT confirmed by a document or documented minimum one-year work experience in the IT industry,
• possession of a document confirming the willingness to be employed by one of the partner companies listed on the website: https://www.gov.pl/web/poland-businessharbour/specjalista-it#.

 

Polish Business Horbour Visa - what is it and how it works?

One of the many benefits of “Poland. Busines Harbour ” program is the  possibility to apply for a Business Harbour Visa. This visa is subject to a special accelerated procedure. Within a few weeks, a foreigner should be able to legally take up employment in Poland or start a business on the same terms as Polish citizens.

The greatest benefits of the Polish Business Harbour Visa include:

• the possibility of setting up a business on the same terms as Polish citizens
• exemption from the obligation to have a work permit during the visa validity period
• the ability to freely change working and employment conditions
• issuing a visa also for members of the immediate family of a foreigner
• freedom to travel to other Schengen states.

How to apply for Polish Harbor Business Visa?

In order to obtain the Polish Business Harbour Visa, it is necessary to correctly fill in and submit the visa application.

Required documents:

– completed and signed application,

– current biometric photo,

– passport – issued within the last 10 years, valid for at least three months from the date of the planned return, with at least two blank pages for visas,

– medical insurance for the period of validity of the visa (minimum insurance amount of EUR 30,000),

– documentation confirming the purpose of the trip:

 

•  if you are an IT specialist – a document confirming your technical education in the field of IT or at least one year of experience in the IT industry and proof of interest in cooperation from of one of the partner companies in the program
•  if you are setting up a startup – a document confirming qualification for the Poland Prize program,
• if you run a small, medium or large enterprise – a document confirming your qualification to the program by the Polish Investment and Trade Agency.

Need a help?

Based on our many years of experience in cooperation with foreign companies, including companies from Ukraine and Belarus, we offer support in obtaining a Poland Business Harbour Visa. Our assistance will allow you to shorten the visa procedure as much as possible and start your business in Poland in the shortest possible time.

Thanks to us, you will not only learn how to quickly and efficiently start a business in Poland and get support in the relocation of employees and their families. We also offer help in the implementation of the functioning of a foreign enterprise in the Polish market realities, as well as assistance in obtaining numerous reliefs related to the program, such as tax relief for research and development activities or lower ZUS contributions (social insurance).

Bearing in mind the current situation, we offer a free initial consultation on the options that entrepreneurs and their employees from Ukraine and Belarus have in terms of relocation to Poland. Should you be interested please feel free to contact us.