One of main questions of investors willing to start doing business in Poland is whether they should set up a company or a branch of foreign entity in Poland. Nonetheless we usually recommend a subsidiary over a branch in Poland, the choice is not always that obvious. In this article we make a comparison of company in Poland vs. branch in Poland. Let’s see which one should you choose.
Table of Contents
- Branch of a company in Poland – legal status
- Advantages of a branch in Poland
- Disadvantages of a branch in Poland
- Company in Poland (subsidiary) – main distinctive features and advantages
- Subsidiary in Poland – disadvantages in comparison to the branch in Poland
- Branch in Poland vs. company in Poland summary
Branch of a company in Poland – legal status
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 as for its own actions. The branch also does not have the capacity to be a party in court proceedings. Lastly, it is the foreign entrepreneur who will constitute a party (either plaintiff or defendant) in the event of a possible court trial. This not apply, however, to cases concerning employees’ issues.
Advantages of a branch in Poland
In my opinion, there is only one, however significant, advantage of opening a branch over opening a company in Poland. This refers to the flexibility of transfering the funds between the mother company and the branch. It does not have to be justified at all – it is a situation similar to transfering the funds of the same company between different bank accounts. The only thing is that the bank account of the branch is opened in a bank located in different country.
Disadvantages of a branch in Poland
From a point of view of a person professionally involved in setting up businessess in Poland there are several major disadvantages of a branch:
- longer registration period – in practice registration court analyses the documentation more thoroughly;
- issues with establishing a tax residency of a mother company (probability of assigning “permanent establishment”);
- issues with tax registrations (you have to prove that here will be a permanent establishment of a foreign company in Poland);
- tax complications related to documenting the allocation of the profit between the branch and a mother company;
- scope of activity has to be the same as in case of mother company;
- necessity of informing the Polish commercial court about the changes in representation of the mother company.
Company in Poland (subsidiary) – main distinctive features and advantages
For nine on ten clients I recommend a subsidiary over a branch in Poland. Why so? Here are the main reasons:
- easy and fast incorporation with possibility of fiduciary set-up accelerating the registration process significantly;
- no issues with tax registrations – the company becomes a tax payer in PL by virtue of registration in Poland;
- no limitations as per the choice of the scope of activity;
- full discretion in choosing the name of the company;
- possibility of selling the shares in the company (as part of the international business).
Subsidiary in Poland – disadvantages in comparison to the branch in Poland
However, there are reasons for which it may be less convenient to st up a company in Poland than a branch in Poland. The main area in which the branch is better than a subsidiary is the one related to the transfer of funds between the mother company and the branch/subsidiary. I will try to summarize:
- there has to be a real reason behind the transfer of funds (e.g. invoice for goods or services, loan);
- when planning the transfer between the mother and the subsidiary you have to remember about transfer pricing regulations;
- the transfer of funds always requires a legal paperwork which comes at additional costs;
Branch in Poland vs. company in Poland summary
To summarize, for majority of situations a company in Poland (subsidiary) will be a better solution than a branch. If, however, you are planning to move big amounts of money between the mother and the branch/subsidiary, then the branch is a solution for you.
If this article was interesting for you and you want to know more on the topic it concerned we encourage you to contact us. Specialists from our law firm in Poland, Warsaw, will be happy to help. If you are interested in company registration in Poland visit our dedicated landing page.