Taxation of a foreign company’s branch in Poland – active and passive branch

A foreign company’s branch is one of the possible forms of conducting business in Poland. It can start its operations after registration in the National Court Register. A foreign company that operates an “active” branch in Poland is subject to CIT and VAT taxation.

What are the rules for establishing and conducting business as a foreign company’s branch in Poland? How is a branch of a foreign company taxed? We present answers to these questions in the article below.

Table of Contents

• A foreign company’s branch in Poland – rules for forming and running a business in Poland
• Taxation of a foreign company’s branch in Poland – Corporate Income Tax (CIT)
• Taxation of a foreign company’s branch in Poland – Value Added Tax (VAT)
• Summary

A foreign company’s branch in Poland – rules for forming and running a business in Poland

The Act on the rules of participation of foreign entrepreneurs and other foreign persons in economic transactions on the territory of the Republic of Poland regulates the operations of a foreign company’s branch in Poland.

According to the Act, the following entities can form a branch to conduct business in Poland:

• foreign entrepreneurs from Member States,
• other foreign entrepreneurs, based on reciprocity rules, unless international agreements state otherwise.

A foreign company’s branch in Poland may only conduct business within the same area as the parent-company abroad. Consequently, the scope of activities conducted by the branch may not go beyond activities of the foreign company.

Forming a branch requires appointing a person authorized to represent the foreign company. Any chosen natural person can hold this function. The representative may be both a Polish citizen and a foreigner.

The foreign company that establishes a branch in Poland is obliged to:

• use the original name of the foreign entrepreneur, along with a  translated version of its legal form and the phrase “branch in Poland” [Polish: oddział w Polsce].
• keep separate accounting for the branch. It must be in the Polish language and in accordance with accounting regulations.
• notify the Minister of Economic Development and Technology of any changes in the factual and legal status within 14 days.

A foreign company’s branch in Poland doesn’t have its own legal personality. Moreover, it doesn’t have its own bodies, statutes or share capital.

A branch may start its activity after registration in the National Court Register. Along with the application for registration, the foreign company must submit the following documents:

• if it operates on the basis of the founding act, agreement, or statute – a copy of these documents,
• if it operates on the basis of an entry in the register – an extract from this register. A certified translation into Polish will be also necessary.

Taxation of a foreign company’s branch in Poland – Corporate Income Tax (CIT)

A foreign company’s branch is “active” when it actually operates in Poland. In such cases, the foreign company must pay CIT on the income generated in Poland.

To determine whether a foreign company must pay CIT, it is necessary to verify whether it qualifies as a foreign establishment.

According to the CIT Act, the “foreign establishment” means:

1. a permanent agency used by an entity whose registered office or management is located in the territory of one state to perform all or part of its activities in the territory of another state, in particular a branch, representation, office, factory, workshop, or a natural resource extraction site.
2. a construction site, construction, assembly, or system operated in the territory of one state by an entity that has its registered office or management in the territory of another state
3. a person who acts in the territory of one state for and on behalf of an entity that has its management in the territory of another state, if he is authorized to conclude agreements on behalf of that entity and actually exercises that authority

– unless otherwise provided for in a double taxation agreement to which the Republic of Poland is a party.

According to case-law, the foreign company’s branch is not a taxable entity. It is the foreign company itself that is subject to taxation. Thus, the branch of a foreign company in Poland is not a separate CIT taxpayer. However, it is subject to the same obligations as independent Polish taxpayers. For example, it must make monthly advance tax payments and submit an annual tax return. Furthermore, the Accounting Act obliges the foreign company’s branch to maintain accounting books.

The law doesn’t specify the registration procedure for a CIT taxpayer in Poland. Therefore, it is sufficient to submit a written notification to the appropriate tax office about the establishment of a foreign company’s branch in Poland. Along with it, a confirmation of previous registration for NIP purposes with the tax office competent for the VAT should be submitted. The abbreviation NIP stands for the Polish tax identification number.

Taxation of a foreign company’s branch in Poland – Value Added Tax (VAT)

According to the VAT Act, entities running VAT-taxable business in Poland must be registered.

Entities referred to in Art. 15 of the Act, must submit a registration application before performing for the first time an activity specified in Art. 5 of the Act. Namely:

1. Paid delivery of goods and paid provision of services within the territory of the country,
2. Exporting goods,
3. Importing goods into the country,
4. Intra-Community acquisition of goods for payment in the territory of the country,
5. Intra-Community supply of goods.

The statutory definition of a VAT taxpayer includes entities residing or having a registered office both inside and outside the country. The legislator didn’t use the criterion of residence or registered office when defining the term “taxpayer.” This means that a foreign company conducting activities in Poland through its branch must apply for VAT registration.

There are exceptions to the above rule. The regulation of the Minister of Finance on the identification of taxpayers who are not obliged to apply for registration specifies them.

According to the regulation, taxpayers who do not have:

• a registered office in Poland (in the case of legal entities or organizational units not having legal personality),
• permanent residence or usual place of residence in Poland- in the case of natural persons,
• a permanent place of conducting business activity in Poland,

are exempt from the obligation to submit a VAT registration application.

EU regulations define a permanent place of business as any place other than the seat of the taxpayer’s company. It must be characterized by stability and appropriate structure.  Therefore, most branches of foreign companies in Poland should register as VAT taxpayers. Even a minimal range of services they provide can create a permanent place of business for them. 

Summary

Running a business in Poland by a foreign company can take various forms. One of them is a branch of a foreign company that deals with business activity and distribution. The “active” branches of a foreign company in Poland are subject to CIT and VAT tax obligations.

Are you a foreign entrepreneur? Do you want to run a business in Poland? Contact us. Our experts will answer your questions and clarify any doubts you may have.