Branch vs. representative office

Running a business in Poland by a foreign entrepreneur can have various legal forms. A branch of a foreign entrepreneur and a representative office are concepts that are often used interchangeably. Nevertheless, this is unjustified. What is the difference between a branch of a foreign entrepreneur and a representative office? You will find the answer to this question in the following article.

Branch vs representative office: key differences at a glance

Both forms allow a foreign company to establish a presence in Poland without incorporating a Polish company. The decisive question is what you intend to do here: promote your business, or actually conduct it. The table below summarises the main legal and practical differences.

Representative office in Poland: scope, registration and obligations

The institution of a representative office is regulated by the provisions of the Act on Rules for Participation by Foreign Entrepreneurs and other Foreign Persons in Trade on the territory of Poland. It provides that a foreign entrepreneur running a business in Poland may choose a form of a representative office. A representative office’s range of activity is limited to marketing and promotion.

Setting up and running a representative office requires an entry in the register of representative offices of foreign entrepreneurs. The register is kept by the minister responsible for the economy. The registration requirement doesn’t apply to the establishment and operation of a representative office by a foreign bank or credit institution. A filed application and its content are the basis for obtaining an entry in the register. The registration is valid for 2 years. You may extend it for another 2 years by submitting a relevant request. It should be filed within the last 90 days of the entry’s validity. The Act indicated above specifies formal requirements for the application for registration.

According to the provisions, it should be in Polish. Moreover, the following elements must be included:

• the name, registered office and legal form of the foreign entrepreneur,
• the main field of business activity of the foreign entrepreneur,
• the full name of the person authorized in the representative office to represent the foreign entrepreneur,
• the address of the representative office on the territory of the Republic of Poland.

You should enclose the following documents to the application:

1. an official copy of the document confirming the registration of the foreign entrepreneur. This document is a legal basis for conducting business activity.
2. an officially certified document specifying the registered office, representation rules and persons authorized to represent the foreign entity, if the registration document does not contain this information,
3. a document confirming the authorization of the person indicated in the application to represent the foreign entrepreneur in the representative office, together with that person’s acceptance of the authorization.

Documents in a foreign language must be submitted together with a Polish translation made or certified by a sworn translator. Apostille or legalization should be used to certify the foreign entrepreneur’s registration documents.

If the application has formal defects, the minister will call the applicant to correct them. You must correct the deficiencies within a period of no less than 7 days from the date of receiving the notice. If the formal defects are not fixed within that time, the application won’t be processed.

The foreign entrepreneur must have a legal title to the property indicated in the register as the registered office.

The register of representative offices is public. It contains the following information:

– data indicated in the application,

– the entry number,

– the date of registration,

– the last day of validity of the entry, and

– the date of removing the representative office from the register.

The minister issues a certificate to a foreign entrepreneur about making the entry and any further changes. For the duration of the entry’s validity, data on foreign entrepreneurs having businesses in Poland are available. Moreover, they are also accessible for 5 years after the entry’s removal from the register.

Next to formal deficiencies, there are other reasons for refusing entry to the register. A refusal means that the representative office cannot be opened. It does not prevent the foreign entrepreneur from choosing another form, such as a branch or a Polish company with a foreigner on its board. The Minister may deny entry to the register if:

• the creation of the representative office would threaten the security or defense of the state, or the security of classified information with a confidentiality clause of “confidential” statues or higher, or another higher public interest
• the application concerns operations that go beyond advertising or promotional activities.

A foreign entrepreneur with a representative office in Poland has many obligations. He must:

• use the original name of the foreign enterprise with the phrase ‘przedstawicielstwo w Polsce‘ [eng. representative office in Poland],
• keep separate books in Polish, in compliance with the accounting regulations,
• inform the minister within 14 days of any change to the data in the register, and of the opening of liquidation of the foreign entrepreneur or the loss of its right to conduct business
• appoint a person authorized to represent the foreign entrepreneur in the representative office

When a representative office is removed from the register

Apart from removal at the foreign entrepreneur’s own request, the minister removes a representative office from the register by decision where, in particular:

• the foreign entrepreneur grossly violates Polish law,
• it no longer has a legal title to the premises indicated as the office’s seat,
• liquidation of the foreign entrepreneur has been opened, or it has lost the right to conduct business,
• it has been removed from the register in its home country,
• it failed to report a material change to the data in the register.

What a representative office can and cannot do in practice

Advertising and promotion covers activities such as market research, presenting the company’s products and services, attending trade fairs, maintaining contact with prospective clients and passing enquiries on to the head office. A representative office cannot sell goods or services, issue invoices for its own sales or negotiate and conclude commercial contracts on behalf of the foreign company in its core business.

This limit matters for more than the register. If staff in Poland habitually negotiate or conclude contracts, the tax authorities may treat the activity as a permanent establishment of the foreign company, with Polish corporate income tax on the related profits. Where commercial activity is planned, a branch or a Polish company is usually the safer choice from day one. For the tax side, see our guide on the taxation of a foreign company’s representative office in Poland.

Branch of a foreign company in Poland: scope, registration and obligations

To run a business in Poland, a foreign entrepreneur can open a branch of a company with its seat in Poland.

A branch is defined in the Act on Rules for Participation by Foreign Entrepreneurs and other Foreign Persons in Trade on the territory of Poland. ‘Branch’ means a separate and independently organized part of business activity. It must be conducted outside the entrepreneur’s registered office or primary location. Thus, it is an entity established to conduct business in Poland by a foreign entrepreneur.

The business activity of the branch may cover only such scope of activities that is conducted by an entrepreneur abroad.

Starting a branch imposes a duty on the foreign entrepreneur to appoint a person to act as his representative.

To conduct a business in Poland in form of a branch, a foreign entrepreneur must first obtain an entry in the register of entrepreneurs of the National Court Register (KRS). The application is filed electronically through the court register portal.

A foreign entrepreneur who operates as a branch company must:

• use the original name of the foreign entity with its legal form translated into Polish and with the phrase ‘oddział w Polsce‘[i.e. branch in Poland].
• keep separate accounting records in Polish in accordance with the accounting regulations.
• notify the minister within 14 days of the opening of liquidation of the foreign entrepreneur or the loss of its right to conduct business.

In addition to its KRS obligations, the foreign entrepreneur must file in the branch’s registry files a copy of its articles of association or statutes, or an extract from the foreign register, in each case with a certified Polish translation. Any change to the data entered in the KRS must itself be reported to the registry court.

Who can open a branch in Poland

Foreign entrepreneurs from EU and EEA member states may open a branch in Poland. Entrepreneurs from other countries may do so on the basis of reciprocity, unless a ratified international agreement provides otherwise. For non-EU entrepreneurs, the minister may also prohibit the branch from operating, for example where the foreign entrepreneur grossly violates Polish law or goes into liquidation, and then orders the branch to be liquidated.

After registration: tax, VAT and employees

Once entered in the KRS, the branch receives its tax identification number (NIP) and statistical number (REGON). If it makes taxable supplies in Poland it will usually need to register for VAT, and as an employer it registers with the Social Insurance Institution (ZUS). A branch is generally treated as a permanent establishment of the foreign company, so the profits attributable to it are subject to Polish corporate income tax. Details are covered in our guide on the taxation of a foreign entrepreneur’s branch in Poland and in our step-by-step guide to opening a branch in Poland.

Tax and accounting: branch vs representative office

Both forms must keep separate accounting records in Polish in accordance with the Accounting Act, which in practice means appointing a Polish accounting provider from the start. The tax position is where the two differ most:

• Branch: taxed in Poland on the profits attributable to it, files CIT returns, and is usually a VAT taxpayer. Transfer pricing and the allocation of costs between the head office and the branch need to be documented.
• Representative office: as a rule generates no taxable income in Poland, but still has payroll obligations for any staff and must take care not to cross the line into a permanent establishment.

The applicable double tax treaty between Poland and the foreign company’s home state determines where profits are taxed and when a permanent establishment arises, so it should be reviewed before choosing the form.

Branch, representative office or Polish company?

Many foreign investors compare the two forms of presence with a third option: a Polish subsidiary, most often a limited liability company (sp. z o.o.). The main difference is liability. A subsidiary is a separate legal person, so its debts do not automatically become the parent’s debts, while a branch and a representative office are part of the foreign company itself.

• Choose a representative office to test the market, build brand awareness or support existing clients, with no sales in Poland.
• Choose a branch to trade in Poland under the foreign company’s own name, balance sheet and reputation, where ring-fencing liability is not a priority.
• Choose a Polish company where you want limited liability or a local contracting party that Polish clients and banks are familiar with. Our overview of types of company in Poland compares the available forms.

Common mistakes foreign companies make

• Using a representative office for sales, which risks removal from the register and a permanent establishment for tax purposes.
• Letting the 2-year entry of a representative office expire: the extension request must be filed within the last 90 days of the entry’s validity.
• Assuming a branch is ring-fenced: the foreign company is liable for all its obligations.
• Registering a branch for activities the company does not conduct abroad, which the law does not allow.
• Failing to report changes, such as a new address or a new authorized representative, within the statutory deadlines.

Summary

A representative office and a branch of a company are different forms of conducting business in Poland by a foreign entrepreneur. The first one relates to units engaged in advertising and promotion. The second one deals with economic activity and distribution.

If you are unsure which form fits your plans, the deciding factors are usually whether you will earn revenue in Poland, whether you need limited liability, and how your home country’s tax treaty with Poland treats the activity. We can review these with you before any filing is made.

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, will  be happy to help. If you are interested in company registration in Poland visit our dedicated landing page.

Frequently asked questions about branches and representative offices in Poland