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].
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].
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:
|Foreign company’s branch||Limited liability company (subsidiary)|
|Registration by notary required||NO||YES|
|The scope of activity||Identical with the scope of the parent company’s activity||Any activity allowed by law (resulting from the company’s agreement)|
|Share capital (minimum)||NON-APPLICABLE||5000 PLN|
|Entity’s assets||Part of the parent company’s assets||Separate from the parent company|
|Name||The original name of a foreign company with the legal form translated into Polish and with a designation of “oddzial w Polsce” [“branch in Poland”].||Any name with a designation: „spółka z ograniczoną odpowiedzialnością” [limited liability company]|
Meeting of shareholders
(optionally) Supervisory board
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 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.
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.
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.
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.
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:
- traditionally – by concluding a company agreement (articles of association) in front of the notary public;
- 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:
|Advantages||· possibility to create articles of association of your company more freely.
|· you can set up a company without leaving your home;
· it takes only 2-3 days to register a company in KRS;
|Drawbacks||· higher costs of incorporation (notary costs);
· longer time of a company registration in KRS.
|· necessity to use a template of the company agreement which consists only basic provisions;
· requirement of having qualified electronic signature or ePUAP profile in order to incorporate a company.
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 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.
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’
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.
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.
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.
Recruitment agencies that provide assistance to companies in the selection of job candidates or help employees to find a convenient workplace, operate all over the world. Companies of this type in Poland are called employment agencies.
Simple joint-stock company (pol. “Prosta Spółka Akcyjna” or simply: “PSA”) is a new type of company in the Polish legal system. It was originally intended to be in force since 1 March 2020, but due to the coronavirus pandemic, the effective date of its regulations was postponed until 1 July 2021.
The Polish legislator intended the PSA to be a convenient form of doing business intended for start-ups, by combining the importance of the persons establishing the company with simplified ways of obtaining funds from external investors and at the same time introducing more flexible forms of decision-making within the company.
How to set up simple joint-stock company?
Setting up a PSA is much easier than its ‘big sister’ (traditional public joint-stock company).
Firstly, a PSA can be established either online or in a traditional form (signing the articles of association at a notary’s office). The incorporation of a simple joint-stock company via the Internet requires the company’s founders to have a secure electronic signature or a trusted profile (ePUAP –e-signature provided by Polish public authorities). The most important difference when establishing a company via the Internet and in traditional form is the time for registration in the business register – the registration of an ‘Internet’ company takes place approximately within 2-3 working days, whereas in the case of a ‘traditional’ form, the registration takes place after about 2-3 weeks.
Regardless of the form of establishing a PSA, its establishment is also facilitated by the fact that the minimum share capital is only 1 PLN, whereas in case of ordinary joint-stock companies the minimum share capital amounts to 100,000 PLN, and in order to register a company, it is necessary to cover at least 1/4 of the capital, which must also be confirmed by a document issued by a bank or an investment company.
As mentioned above, the minimum amount of the share capital in PSA is symbolic – it amounts to 1 PLN. The amount of the share capital is not indicated in the company’s articles of association, and the provisions on amending the articles of association do not apply to its changes. Moreover, shares issued by a simple joint-stock company do not constitute a part of the share capital nor do they have a nominal value.
It is also worth emphasising that a contribution to a simple joint-stock company may also be a provision of work or services for the benefit of the company (this does not apply only to contributions to cover the share capital). This solution is a novelty in the Polish legal system. Before the entry infto force of the provisions on the PSA, contributions to capital companies (limited liability or joint-stock companies) could only be in cash or in kind (e.g. property rights, real estates, receivables, etc.).
The above solution is therefore aimed at greater freedom in raising funds for the development of the company, while at the same time ensuring that the founder may retain control over the company. It is therefore possible to imagine a situation where a shareholder (who is the founder of the company) makes a contribution of 1 PLN to the share capital and an additional contribution (unrelated to the share capital) in the form of work for the benefit of the company in exchange for a significant number of shares. At the same time, if the company wishes to obtain funds from external investors it may quite freely issue new shares to obtain the relevant funds.
An additional solution to ensure that control of the company is maintained by certain people is the possibility of establishing ‘founder shares’ in the PSA. Founder’s shares are shares conferring a special right, according to which each subsequent issue of new shares may not infringe a specified minimum ratio of the number of votes attached to such shares to the total number of votes attached to all the company’s shares. In the event of an issue of new shares that could violate this ratio, the number of votes from the founding shares is increased accordingly.
The introduction of founders’ shares thus enables the founders of a simple joint-stock company to retain control over the company despite obtaining external investors, whose contributions to the company will significantly exceed the value of the founders’ contributions. It is worth noting that it is not possible to establish founders’ shares in traditional joint stock companies in Poland.
Also, it can be mentioned that in simple joint-stock company it is also possible to have “silent shares” (known also in traditional joint-stock companies), i.e. shares which do not carry voting rights, but these shares are privileged with regard to dividends.
Boards of Directors
In the case of a simple joint-stock company, the law allows for the appointment of the above bodies or, alternatively, a board of directors, which combines the competences of the management board and the supervisory board. In the case of a simple joint stock company, it is also possible to differentiate between the competences of the directors, by appointing “executive” directors (responsible for managing the company’s affairs) and “non-executive” directors (who will exercise supervision over the running of that company).
Moreover, the Commercial Companies Code provides the possibility of appointing committees of corporate bodies, which will only be able to include persons with an advisory vote.
It must be emphasised that each director (both executive and non-executive) has the right to represent the company, which may not be excluded or limited with effect for third parties under the provisions of the articles of association. However, it is possible to set up rules under which the company is represented by the directors (e.g. requirement of signature of one executive director or two non-executive directors acting jointly to effectively represent the company).
Issue of new shares in a simple join-stock company
However, compliance with the above requirements is not necessary if the shares are issued by a resolution of the shareholders adopted on the basis of the existing provisions of the articles of association, providing for a maximum number of shares and a time limit for their issue. In such a simplified procedure, a resolution adopted by an absolute majority of votes and registration the new shares with company register is sufficient. The participation of a notary is also not required when adopting such a resolution, which obviously reduces the costs of the entire operation.
Moreover, the articles of association of a simple joint-stock company may authorise its management board to issue shares on its own. However, the authorisation may only be granted for a period of 5 years, and the number of shares issued may not exceed one quarter of the total number of shares issued by the company on the date the authorisation is granted.
The Management Board may exercise the authorization granted by making one or more subsequent issues of shares within the above limits. The Board may issue shares only in exchange for cash contributions, unless the authorisation to issue provides the possibility to issue shares for non-cash contributions also. However, the Management Board may not issue preference shares or grant individual rights to the shareholders – the issue of such shares requires a resolution of the shareholders.
The above powers of the Management Board are vested in the Board of Directors (if the Board of Directors has been appointed in the company instead of the management board).
It is therefore easy to see that greater flexibility in raising new funds by a simple joint-stock company requires the correct construction of its articles of association.
Liquidation of a simple joint-stock company
In the case of simple joint-stock companies, however, an additional, simplified method has been introduced for their liquidation. The entire assets of a simple joint-stock company may be taken over by a single shareholder, with the obligation to pay off the company’s creditors and the remaining shareholders, however such an acquisition must be approved by the registry court.
The condition for obtaining the court’s consent to a takeover is that the company’s creditors and other shareholders will not be harmed by the takeover of its assets by a single shareholder.
This type of solution is not allowed in the case of “traditional” capital companies (limited liability companies and joint stock companies).