Investment Climate in Poland

A Hot Tip about Banking and Finance in Poland

Posted on: 7 Apr 2010

Openness to Foreign Investment

General Attitude: Foreign capital has played an important role in the transformation and development of the modern Polish market economy. Since 1990, Poland has attracted more than $160 billion in foreign direct investment (FDI), principally from Western Europe and the United States. Poland recorded sound levels of FDI inflows over recent years. Investors are attracted by the country’s economic potential along with its young and well-educated work force, and its proximity to major markets. Poland grew by an average of 5.3% for 2005-2008 and around 1.5% in 2009. Poland did not escape the consequences of the global downturn but avoided recession and its growth projections continue to be well above EU averages. Poland’s accession to the EU is perceived by many firms to have reduced Poland's country and investment risks. EU membership also resulted in an influx of billions of Euros in new financial resources such as structural funds and the Cohesion Fund, which can be used to support investments in transport infrastructure, environmental protection, and introduction of new production technologies.

 

Poland’s plan to join the Euro area common currency will take longer than expected before the outbreak of the financial crisis. Currently, 2015 is being mentioned as the first possible date. Foreign companies generally enjoy unrestricted access to the Polish market. However, Polish law limits foreign ownership of companies in selected strategic sectors, and limits foreign acquisition of real estate, especially agricultural land.

 

Public attitudes towards foreign investment are favorable and in recent years, Poland has introduced reforms to improve the climate for foreign and domestic investment. In 2006-2009, telecommunication regulations were relaxed, the foreign exchange law was simplified, the overall tax burden was reduced and new acts shaping public - private partnership came into force. Work to improve the bankruptcy law and the administration of real estate registers continues. Simplification of VAT collection and reporting regulations progressed in 2009 and as of January 1, 2010, VAT on services will be collected in the country of the customer (no longer in the EU member state where the service originates). Foreign firms located in the EU can now file an electronic application with a Polish tax office when applying for a VAT refund from an EU member state. Changes concerning the place of VAT taxation on services related to culture, art, sports and science along with education and entertainment will become law in 2011. Other amendments have been made to conform to European Union standards. Starting January 2009, two new personal income tax (PIT) rates apply in Poland: 18% and 32%, these replaced the old rates of; 19%, 30% and 40% which were in force until the end of 2008. Moreover, the government has managed to pass through the parliament pension reform which, as of January 1, 2009 dramatically reduces the number of people entitled to early retirement.

 

Major Laws and Regulations: The basic legal framework for establishing and operating companies in Poland, and in particular companies with foreign investors, is found in the Commercial Companies Code which entered into force in January 2001, and the Law on Freedom of Economic Activity, which entered into force on July 2, 2004. Also relevant is the Act on European Economic Interest Grouping and the European Company of March 4, 2005 which allows a "European Company" to move its registered office from one EU state to another without losing legal personality.

 

With few exceptions, foreign investors are guaranteed national treatment. Companies that did not have any subsidiary established in an EU country before May 1, 2004, but that conduct, or plan to commence business operations in Poland must observe all EU regulations, and may not be able to benefit from all privileges to which EU companies are entitled.

 

Under the amended 2000 Commercial Companies Code companies can be established as joint-stock companies, limited liability companies, limited joint-stock partnerships, professional partnerships, registered partnerships, and limited partnerships. These corporate forms are available to a foreign investor, provided they come from a member state of the EU or the European Free Trade Area (EFTA), or have the right of permanent residence in Poland and are based in a country offering reciprocity for Polish enterprises. The United States offers such reciprocity. If the above conditions are not met, the investor may only establish one of the following; a limited partnership, a limited joint-stock partnership, a limited liability company, a joint-stock company or they may purchase shares of such entities.

 

According to the Law on the National Court Register of October 1997, all companies, commercial partnerships, and sole proprietorships must be registered in the Register of Entrepreneurs, a part of the National Court Register managed by district courts. The Register of Entrepreneurs is open to the public. Post is unaware of any laws or regulations specifically authorizing private firms to adopt articles of incorporation or association which limit or prohibit foreign investment, participation or control.

 

Under the Law on Freedom of Economic Activity, branch offices are registered in the National Court Register under the name of the foreign investor, with the notation "branch in Poland." A branch office can perform any activity within the scope of business of the parent foreign investor that established the branch. In contrast, representative offices must limit their activities to promotion and advertising for the parent foreign investor. Representative offices are registered in a special log kept by the Minister of Economy. The law specifies certain situations in which registration may be refused (e.g., if required documents are not submitted on time or on national security grounds).

 

Screening and Licensing: Poland does not have any general screening mechanism for entry and establishment of businesses by foreign firms. Authorization requirements and foreign equity limits do exist for a limited number of sectors, such as broadcasting and air transport. The Law on Freedom of Economic Activity requires a permit from the Treasury Ministry for certain major capital transactions (i.e., to establish a company when an enterprise owned wholly or partially by a legal resident is contributed in-kind to a company with foreign ownership.) A permit from the Treasury Ministry is also required to lease assets to or from a state-owned enterprise. Licenses and concessions for defense production and management of seaports are granted on the basis of national treatment for investors from OECD countries.

 

Polish law limits non-Polish ownership to 49% of a company’s capital shares in the air transport and the radio and television broadcasting sectors. This requirement does not apply to EU investors. Waivers of these requirements are not available. Furthermore, in the insurance sector at least two members of management boards must speak Polish. In the broadcasting sector, the number of Polish citizens on supervisory and management boards must be higher than the number of foreigners.

 

All investors must obtain governmental concessions, licenses or permits to engage in certain activities. Sectors in which concessions are required include broadcasting, aviation, energy, weapons, mining, and private security services. Some examples are;

-- the Polish Financial Supervision Authority (KNF) grants authorization to operate insurance companies and investment funds, and grants licenses for brokerage and banking activities;

-- the National Broadcasting Council issues radio and television broadcasting licenses;

-- the Economy Ministry issues permits for wholesale trade in alcohol, and wholesale and processing of precious stones and metals;

-- the Health Ministry authorizes permits for the pharmaceutical and medical materials sectors;

-- the Transport Ministry provides licenses for air, road and rail transport, and for mail services. Recent legislation removed the requirement for a concession to construct highways or express roads in an effort to facilitate development of this sector;

-- the Interior Ministry licenses the defense industry and security services;

-- local governments provide permits for buses and taxis, waste disposal, pharmacies, and extraction of minerals.

 

The June 2004 Law on Freedom of Economic Activity introduced “regulated activity,” which allows for engagement in certain activities on the basis of an entry into the regulated activity register. For example:

-- telecom, postal and courier services

-- manufacturing of tobacco products, manufacturing and bottling of alcohol and wine.

 

Other regulated activities can be found in the Law. In an effort to remove barriers to doing business, the government announced its intention to amend the Law on Freedom of Economic Activity, removing requirements for permits and concessions and replacing them with entries in the regulated activity register. On March 31, 2009 a "one window" option for business registration became available. Also an e-platform with records of all economic activity entities (Centralna Ewidencja i Informacja o Dzialalnosci Gospodarczej) is scheduled to launch in July, 2011.

 

As part of the continuing efforts to harmonize Polish law with European Union requirements, a new Polish Classification of Economic Activities ("2007 PKD") came into effect on January 1, 2008. Businesses established before that date had until December 31, 2009 to update all filings in which their business activities were specified through the use of PKD numbers. The system automatically changed the old classification codes to new ones for those who neglected to do it themselves.

 

Sale of agricultural land to foreigners has long been a sensitive issue. Since EU accession, citizens of the EU-27, as well as Iceland, Liechtenstein and Norway, generally do not need permission to purchase real estate, or to acquire or receive shares in a company owning real estate in Poland. One exception is in the acquisition of agricultural real estate. Poland was granted consent to introduce a transition period, lasting until 2016, with respect to unrestricted acquisition of agricultural real estate by foreigners (with certain exceptions). Citizens from countries other than the EU-27, Iceland, Liechtenstein and Norway are allowed to own an apartment, 0.4 hectares (4,000 square meters) of urban land, or up to one hectare of agricultural land without a permit. Better classes of agricultural land require approval even by the Minister of Agriculture for legal transfer. Such land is not available to foreign ownership. Citizens from countries other than the EU-27, Iceland, Liechtenstein and Norway must still obtain a permit from the Ministry of Internal Affairs and Administration (with the consent of the Defense and Agriculture Ministries), pursuant to the Act on Acquisition of Real Estate by Foreigners. A foreign business intending to buy real estate in Poland may apply for a provisional permit from the Ministry of Interior and Administration, which is valid for one year from the date of issue, during which time the company is expected to assemble documents demonstrating it is a viable business. Permits may be refused for reasons of social policy or public security.

 

A second form of land title is the perpetual lease, under which the lease holder generally controls the property for 40 to 99 years, and which can be extended for up to 99 additional years. Such a perpetual tenant has the right to dispose of its interest in the land by sale, gift, or bequest. Companies report that procedures to acquire real estate are transparent and that the process is not burdensome.

 

Privatization Program: The pace of privatization which had slowed in the last few years accelerated again in 2009. In 2010, the government hopes to supply the troubled public finance sector with PLN 25 billion ($ 8.5 billion) earned from privatization revenues compared with PLN 6.9 billion ($ 2.2 billion) gathered in 2009. Privatization revenues are the government’s “remedy” for the growing public finance sector deficit. Many of the more attractive government-owned companies have already been sold, while those remaining are frequently in financial difficulty or are otherwise politically sensitive. These include state-owned companies in shipyards, coal, electric power, gas, chemical, and defense industries. Employees and trade unions in the remaining state-owned companies, observing growing competition from the private sector, are increasingly skeptical about the government's ability to ensure a safe future. In general, employees and trade unions are less distrustful of private investors, whose involvement in a company is often seen as a change for the better.

 

With relatively few exceptions, in major privatizations the Polish government has invited foreign investors to compete for a strategic interest. In general, bidding criteria have been clear and the process has been transparent. Some commentators have expressed concern about the level of foreign ownership of the Polish economy, especially in the banking sector, where foreign-controlled banks hold around 80% of assets. The government has announced its ambition to privatize the Warsaw Stock Exchange, insurance company PZU, and energy sector companies.

 

Discrimination against Foreign Investors: Generally, foreign investors receive similar treatment as domestic investors, both at the time of initial investment and after an investment has been made. In the past there were complaints about discrimination in public procurement contracts resulting from provisions in legislation favoring domestic firms. Since May 2004, all public authorities must apply the Public Procurement Law of January 2004, as amended by the November 2007 consolidated Act on Public Procurement, when selecting suppliers and service providers in public contracts. Under this law, a joint venture between foreign and domestic firms qualifies as "domestic" for procurement considerations. On joining the EU, Poland acceded to the WTO Government Procurement Agreement.

 

Innovative pharmaceuticals are a sector in which companies consistently complain of discrimination. Meaningful access to the Polish pharmaceuticals market often hinges on whether a drug appears on the government’s reimbursement list, since doctors most often prescribe drugs from the list. Purchases from it are subsidized by the Polish National Health Fund, making them more affordable for patients. Despite legislative reforms in 2007, the process by which the Ministry of Health adds new products to the reimbursement list remains nontransparent and slow. Moreover, in 2008 the Ministry of Health adopted a practice of requesting recommendations on reimbursement applications from the Health Technology Assessment Agency. Pharmaceuticals companies contend that this has decreased transparency and increased the delay in acting on reimbursement applications. Inability to add new products to the reimbursement list has seriously undermined U.S. and international innovative drug producers’ market position in favor of the Polish generics industry. The EU is currently investigating whether the Polish reimbursement process is in compliance with the EU's Transparency Directive. Notwithstanding the ongoing EU investigation, or perhaps because of it, Poland released a draft update of their drug reimbursement list which added two new proprietary drugs and 110 new generics. The list became effective in October 2009. U.S. pharmaceuticals active in Poland, express disappointment that the anticipated boom in the number of proprietary drugs on Poland’s drug reimbursement list has been stalled by the economic downturn and Poland’s Ministry of Health’s conservative approach to adding innovative pharmaceuticals.

 

Furthermore, the Polish government has also taken other steps that according to the U.S. innovative pharmaceutical industry have had disproportionate impact on foreign companies. First, in July 2006, the Polish government instituted a 13% across-the-board price cut on all imported pharmaceutical products. In response to complaints that this measure was discriminatory, in November 2007 the Polish government cut the prices paid to domestic producers to reflect a 13% reduction in the value of imported inputs. The European Commission continues to investigate the consistency of the price reductions with EU rules. Second, in late 2008, the Ministry of Health promulgated regulations restricting advertising of pharmaceutical products and the time and place for sales calls on medical professionals. The impact of these new marketing restrictions remains unclear. However, they could serve to further erode U.S. market share. 2009 saw further emphasis by the Polish government on budgetary savings. By nearly excluding all new proprietary drugs from reimbursement, the Polish Ministry of health’s focus on savings is likely to continue into 2010.

 

2010 opened a new era in the Polish judicial system. In early January, 2010, the first e-court will start its operation and will process economic cases, such as summons for unpaid bills from throughout Poland. Cases will be filed through a special Internet application and the court’s verdicts will be sent back the same way. This new tool should help businesses navigate the judicial bureaucracy.

 

Conversion and Transfer Policies

Foreign exchange is widely available through commercial banks as well as exchange offices. Payments and remittances in convertible currency may be made and received through a bank authorized to engage in foreign exchange transactions, and most banks have such authorization. Foreign investors have not complained of any significant difficulties or delays in remitting investment returns such as dividends, return of capital, interest and principal on private foreign debt, lease payments, royalties, or management fees. Amendments to the Civil Code and the Foreign Exchange Law from October 2008 lift the requirement for most payments between residents in Poland to be made in Polish zloty. Foreign currencies can freely be used for settling accounts.

 

Poland provides full IMF Article VIII convertibility for current transactions. The October 1, 2002 Polish Foreign Exchange Law, as amended, fully conforms to the OECD Codes of Liberalization of Capital Movements and Current Invisible Operations.

 

The Foreign Exchange Law distinguishes between residents and non-residents. It defines residents as natural persons whose center of vital (economic or personal) interests is in Poland or individuals who spend more than 183 days in a tax (calendar) year in the country; companies having their registered office in Poland; and branches, representative offices and enterprises created by non-residents within the territory of Poland. Poland's ability to tax this income, however, may be limited by the provisions of an applicable tax treaty. Under the Law, non-residents include: natural persons with foreign residence; companies seated outside Poland; and branches, representative offices and enterprises created by residents outside the territory of Poland.

 

Countries that are members of the European Economic Area (EEA) and OECD are accorded the same treatment as countries that are members of the EU. In general, foreign exchange transactions with the EU, OECD and EEA countries are not restricted.

 

The Foreign Exchange Law also distinguishes between; (i) countries that are members of the EU, EEA or OECD, and (ii) other "third" countries. A number of transactions/payments -- particularly those with third countries -- require individual foreign exchange permits issued by the president of the National Bank of Poland (NBP). Such permits are issued upon request unless doing so would be contrary to the public interest or Poland's international obligations. Also, a general foreign exchange permit regulation specifies some exceptions to the permit requirement, particularly for business relations with countries with whom Poland has signed a bilateral investment treaty (BIT).

 

Except in cases where a permit is required (which are limited), a foreigner may convert or transfer currency to make payments abroad for goods or services and also may transfer abroad his share of after-tax profit due from operations in Poland. Capital brought into Poland by foreign investors may be freely withdrawn from Poland in instances of liquidation, expropriation, or decrease in capital share. Full repatriation of profits and dividend payments is allowed without obtaining a permit. However, a Polish company (including a Polish subsidiary of a foreign company) must file and pay withholding taxes with the Polish tax authorities on any distributable dividends unless a double taxation treaty is in effect. A double taxation treaty is in place between Poland and the United States. An exporter may open foreign exchange accounts in the currency it chooses.

 

Foreign exchange regulations require some information to be reported to the NBP. As of January 1, 2010, new reporting requirements apply. These can be found in the Journal of Laws no 184 of November 3, 2009, item 1437 (Dziennik Ustaw 184 z 3.11.2009, pozycja 1437).

 

Poland does not prohibit remittance through a legal parallel market; including one utilizing convertible negotiable instruments (such as dollar-denominated Polish bonds in lieu of immediate payment in dollars). As a practical matter, however, such payment methods are rarely, if ever, used.

 

Expropriation and Compensation

Article 21 of the Polish Constitution states; "expropriation is admissible only for public purposes and upon equitable compensation". The Law on Land Management and Expropriation of Real Estate provides that property may be expropriated only in accordance with statutory provisions such as those concerning construction of public works, national security considerations or other specified cases of public interest. Full compensation at market value must be paid for the expropriated property. Building new major highways in Poland involves some expropriation of land.

 

Dispute Settlement

Some investment disputes have arisen in the last few years. Often they have involved state-owned enterprises, difficulties obtaining required permits, or government actions in sectors subject to heavy regulation.

 

Among the disputes:

-- Dutch insurer Eureko and the Polish government on October 2, 2009, settled a decade-long dispute over Eureko’s purchase of a controlling stake in Polish Insurance giant PZU. The end of the dispute opens the door for PZU’s privatization, planned for 2010.

-- A power plant, in which a U.S. company invested EUR 30 million, has been closed since 2006 due to failure by the Polish government to enforce tariffs set by the Polish regulator. The U.S. investor has been unable to divest itself from this now-bankrupt enterprise.

 

The sale of state-owned enterprises, the government's move towards full adoption of EU regulations, and the passage of legislation more clearly defining the role of the state in economic activity should all lead to a reduction in investment disputes.

 

Like the "civil" French and German legal systems, the Polish legal system is code-based and prosecutorial. The judiciary acts independently. The Polish judicial system generally upholds the sanctity of contracts. Monetary judgments are usually made in local currency. Generally, foreign firms are wary of the slow and over-burdened Polish court system, preferring to rely on other means to defend their rights. Contracts involving foreign parties frequently include a clause specifying disputes will be resolved in a third-country court or through offshore arbitration.

 

A permanent arbitration tribunal to settle disputes arising from international commercial activities operates through the Polish Chamber of Commerce. There is a number of arbitration bodies associated with chambers representing various sectors of the economy, employers’ confederations or local chambers of commerce. It is also possible to appoint ad hoc conciliatory tribunals to settle a particular dispute.

 

Decisions by an arbitration body are not automatically enforceable in Poland. They must be confirmed by a Polish court. Under the Polish Civil Code, judgments of foreign courts are accepted and enforced by local courts. Poland is party to four international agreements on dispute resolution, with the Ministry of Finance acting as the government's representative:

1. The 1923 Geneva Protocol on Arbitration Clauses

2. The 1958 New York Convention on the Recognition and Enforcement of International Arbitration Awards

3. The 1961 Geneva European Convention on International Trade Arbitration

4. The 1972 Moscow Convention on Arbitration Resolution of Civil Law Disputes in Economic and Scientific Cooperation

 

Poland is not a member of the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States.

 

The Bankruptcy Law of February 28, 2003 was amended in 2009. The amendments, eliminating defective or imprecise provisions and encouraging broader use of rehabilitation proceedings entered into effect in May 2009. Declarations of bankruptcy may be filed either by a company’s creditors or its governing bodies (i.e., its Board of Directors or another body, depending on the corporate form of the debtor). Creditors of an insolvent company must file a claim in writing. The Creditors Preliminary Assembly has the right to decide, at the initial stage of the bankruptcy process, whether a work-out agreement is possible, or whether assets of a bankrupt company should be liquidated. Liabilities are repaid in the following order: cost of legal proceedings; employee remuneration; liabilities to the State and Social Security Fund (ZUS) secured by a mortgage or pledge; other liabilities secured by mortgages or pledges; other taxes and other public liabilities; other liabilities. The Mortgage Banking Act of 1997 and the Law on Registered Pledges and Pledge Registry of 1997 protect qualified mortgagors and secured creditors against subsequent tax liens and other secured and unsecured claims.

 

A new institution in Polish law, consumer bankruptcy, appeared in the first months of 2009. The Consumer Bankruptcy Act of December 2008 allows for debtors who have fallen into a state of insolvency through no fault of their own to exit the debt spiral. The new regulation benefits not only the general public, but also entrepreneurs who are the creditors of insolvent debtors. An individual’s ability to invoke this bankruptcy is limited to once every ten years.

 

Performance Requirements and Incentives

Poland has not notified the WTO of any measures it maintains that are inconsistent with its obligations under the TRIMS Agreement.

 

Performance Requirements: Poland generally does not impose performance requirements for establishing or maintaining an investment. However, in previous privatizations of certain large companies the government and the purchasers negotiated terms that included performance requirements.

 

Investment Incentives: In April 2002, the Polish Parliament passed a law addressing financial support for investments. In line with this law a company investing in Poland, whether foreign or Polish, may receive assistance from the Polish government. In June 2005, the Council of Ministers adopted a document outlining the system of financial support for major investment projects of special importance to the Polish economy. These incentives are subject to relevant EU requirements and have on occasion been found non-compliant by EU authorities.

 

A number of incentives are potentially available to foreign investors in Poland:

- income tax and real estate tax exemption in Special Economic Zones (SEZ);

- investment grants of up to 50% (70% for small- or medium-sized enterprises) of investment costs;

- grants for research and development;

- grants for other activities, such as environmental protection, training, logistics or creating renewable energy sources;

- potential partial forgiveness of commercial debt owed to a state-owned bank incurred for the acquisition of technology; and

- varying incentives related to acquiring or developing new technology.

 

Regulations on special economic zones (SEZ) and on public assistance to entrepreneurs provide the basis for exemptions from income tax or other incentives. These were reviewed as Poland negotiated its entry into the EU, and EU norms on the allowable level of public assistance to private companies apply. Since April 2005, shared services centers providing accounting, auditing, and bookkeeping services, as well as call centers, may be located in SEZs.

 

In 2007, changes to tax exemption limits were introduced as a result of changes in the classification of Polish regions for public aid purposes.

 

For small and medium size enterprises the maximum aid amount can be increased by an additional 20 and 10 percentage points respectively. Also, there is a special formula applied for calculating the admissible amount of aid for investment projects where qualifying expenditures exceed EUR 50 million.

 

Large investments considered crucial for the Polish economy may qualify for the Multi-Annual Support Program. This program usually combines different types of aid, e.g. employment grants, exemptions from corporate income tax in SEZs and the possibility of a preferential purchase price for land owned by the government.

 

The level of tax or other investment incentives is based on the relative prosperity of the region where the investment is made, the size of the investment, the number of jobs created, and the sector of the economy involved. Strategic investors may obtain an exemption from or reduction in real estate tax, as well as additional local incentives. All such exemptions must be negotiated with local authorities.

 

Foreign Participation in Government Financed Research: Foreign companies have not participated in government-funded research and development projects, managed by the Committee for Scientific Research. Nonetheless, there is no proscription against such participation with the exception of biotechnology. At present, there are over 100 R&D institutions backed by a majority of foreign capital (including American). Of these, fifty six belong to foreign investors and are carrying out research across various sectors of the economy. According to current law, private companies cannot conduct research with public institutions in the area of agricultural biotechnology.

 

Visa and Work Permit Requirements: Foreign investors can and do bring personnel to Poland. Shortages of labor in some sectors of the Polish economy intensify inflows of foreign workers to Poland.

 

All EU citizens, including workers from newly admitted Romania and Bulgaria, are free to work in Poland without first obtaining a work permit. In addition Poland has opened its labor market to workers from member countries of EFTA.

 

On February 1, 2009 amended regulations on employment of foreigners entered into force. They simplify the procedure and reduce the amount of required documents. This is a pilot system which will be assessed in 2010 and modified depending on the situation in the labor market and the needs of the economy.

 

Citizens from neighbor countries with Poland, i.e. Ukraine, Belarus and Russia, and countries with which Poland cooperates with regard to work migration can undertake temporary work (up to six months per year) without a permit. It does not mean they do not need a visa which allows them take up employment in Poland.

 

U.S. citizens continue to be subject to Poland's work and residency permit regulations, unless they have otherwise established permanent residency in Poland or elsewhere in the EU. Poland's visa and work permit regulations offer the possibility for non-EU/EFTA citizens to live and work in Poland under certain conditions. However, in practice, foreign firms and persons have experienced difficulty in obtaining both visas and work permits. Poland requires an applicant to receive his or her visa in his or her home country, rather than in Poland or in neighboring countries. This procedure is often burdensome. Work permits are issued by local authorities, which vary greatly in the speed and willingness with which they issue permits.

 

As of January 1, 2010, processing of applications for work permits for non-EU/EFTA citizens was transferred from provincial employment offices to provincial voivodship offices (the same offices that are responsible for issuance of residency permits). This is a result of the Polish government’s declared effort to simplify the procedures for foreigners who want to work and establish residence in Poland, and to contain these procedures within one branch of the government.

 

Temporary employment agencies often encounter problems when employing non-EU or EFTA citizens in Poland, because of varying interpretations of ambiguous legislation and regulations. The Act on the Promotion of Employment and Labor Market Institutions allows employment agencies to obtain work permits for foreigners seeking work on a temporary basis in Poland. In practice, a number of provincial employment offices are reluctant to issue work permits for such persons. In order to employ such a person, permission must be granted by the appropriate provincial authority overseeing the official address of that company. According to some officials in provincial employment offices, foreigners cannot be temporary employees and employment agencies can not employ foreigners as the place of work must correspond to the address of the company. Other officials have different interpretations of the same regulations. For this reason, employers using employment agencies should stipulate the address of both the agency and the precise location of an applicant’s place of work.

 

Discriminatory or Preferential Export/Import Policies: The government supports exporters through export credit guarantees from a state-owned insurance entity (KUKE). KUKE provides credit guarantees for all firms registered in Poland (including foreign firms and firms with foreign capital). State-owned Bank Gospodarstwa Krajowego (BGK), on the basis of an agreement signed in 2002 with the Ministry of Finance, on subsidies of interest and export credits makes it easier for exporters to obtain cheaper credit to finance exports.

 

Right to Private Ownership and Establishment

Domestic and foreign private entities have a general right freely to establish, acquire or dispose of a business, and to engage in almost all forms of lawful economic activities. Participation of foreigners is restricted in the broadcasting and air transportation sectors, while foreign ownership of other than a small amount of real estate property requires a government permit.

 

The Civil Code, as amended, regulates property rights among individuals or legal entities. Civil Code regulations are based on the principles of equality of all parties regardless of their ownership status, equivalency of obligations, discretion, protection of private ownership, and freedom of contracts.

 

Protection of Property Rights

Poland has a non-discriminatory legal system accessible to foreign investors that protects and facilitates acquisition and disposition of all property rights, including land, buildings and mortgages. Many investors -- foreign and domestic -- complain that the judicial system is extremely slow. Foreign investors often voice concern about frequent or unexpected changes in laws and regulations. The Polish government continues to work on Civil Code amendments.

 

As regards real property, the 1997 Mortgage Banking Act provided that a recorded mortgage by a licensed mortgage bank takes priority over subsequent tax liens and other secured and unsecured claims. Outstanding residential mortgage debt grew rapidly from 2005 - 2008. However, In comparison to most Western countries the mortgage market in Poland is still relatively small; over 15% of GDP.

 

As regards chattels and personal property, the 1997 Law on Registered Pledges and Pledge Registry (with later amendments) provided protections for secured creditors, and established a new registry system. Creditors may place liens on assets and rights, both in the present and future.

 

Poland ratified the WIPO Performance and Phonograms Treaty on October 21, 2003, and the WIPO Copyright Treaty on March 23, 2004. Piracy of intellectual property still remains a problem in Poland. To comply with its obligations to the EU and under the WTO TRIPS Agreement, in 2000 Poland adopted comprehensive legislation governing intellectual property rights. Upon EU accession, the Minister of Culture issued a regulation mandating creation of a register of information concerning optical disk production and identification codes. In May 2007, the Parliament updated regulations governing patents, trademarks, and other industrial property. After these changes, the length of protection afforded to proprietary research test data submitted by pharmaceutical companies now matches EU standards. In May 2007, the Parliament closed a loophole that had blocked prosecution of downstream sellers of pirated goods. The Ministry of Culture heads the Team for Counteracting Infringements of Copyright and Related rights that produces an annual strategy for improving respect for intellectual property rights in Poland. Within the framework of the above group a team to combat counterfeit medicines has also been formed. Nevertheless, Internet piracy remains a problem. Other challenges are a lack of competition among entities responsible for collecting and distributing royalties for use of intellectual property.

 

Transparency of Regulatory System

Regulatory unpredictability and high levels of administrative red tape are recurring complaints of investors. Foreign and domestic investors must comply with a variety of laws concerning taxation, labor practices, health and safety, and the environment. Complaints about these laws, especially the tax system, center on the lack of clarity and often-draconian penalties for minor errors. Under the Law on Freedom of Economic Activity, inspections are fewer and shorter. Establishment of the Central Anti-Corruption Office (CBA) in 2006 increased the number of institutions authorized to perform inspections in companies. However, the CBA is entitled to perform inspections of companies only in cases where the Treasury's interest is linked with a business interest (e.g. cases where a government official carries out economic activity, or government officials make decisions in such areas as privatization, public tenders, licensing, exemptions, quotas, or guarantees favoring certain firms or persons).

 

The government is working on a complex reform package aimed at streamlining bureaucratic hurdles, such as procuring the licenses and permits required to open a business. Although similar reform efforts in the past have failed to win parliamentary approval, the Tusk government managed to introduce amendments to a number of business related regulations in such areas as foreign exchange, taxes, public procurement and consumer bankruptcy creating a friendlier environment for entrepreneurs. It has also prepared, and the Parliament passed in July, the Act to Ease the Effects of the Economic Crisis on Workers and Companies. This introduces more flexibility in working hours and will remain in force until the end of 2011.

 

Revisions to the corporate tax code, which started in 1999 improved transparency and lowered rates. Since 2004, the corporate income tax (CIT) rate has been 19%. Amendments to the Act on Corporate Tax passed since 2006 include changes to definitions of a small tax payer and a foreign company and extend the catalogue of tax deductible costs. Amendments to the PIT and CIT Laws came into force in May 2009. These changes increase the income limit of a small tax payer to EUR 1.2 million ($ 1.6 million) from EUR 800,000 (around one million dollars) previously; unify PIT and CIT regulations with VAT regulations and comply with the limit applied in the Law on Accountancy. The definition of a foreign company was modified using the OECD model. The list of tax deductible costs was expanded to include e.g., the costs of canceled (discontinued) investments.

 

Proposed laws and regulations are published in draft form for public comment, but in practice the period allotted for public consultations tends to be limited.

 

Standards-setting Organizations: Government agencies set industry standards. These agencies are not required to consult with domestic or foreign firms when establishing standards, but usually do so. Domestic firms tend to have more influence than foreign firms in the consultation process.

 

Read the full market research report


Posted: 07 April 2010

See more from Banking and Finance in Poland

Hot Tips    
Investment Climate in Poland   By U.S. Commercial Service Poland
Trade and Project Financing in Poland   By U.S. Commercial Service Poland