Legal forms of conducting economic activity in Poland

The Act on Freedom of Economic Activity sets out general rules applicable to all individuals and entities carrying out business activities in Poland. There are specific regulations set out in the Act that are addressed to foreign investors willing to conduct their activities in Poland. According to that Act, any foreign person (either natural or legal) can establish and run economic activity only through the following legal forms: (i) a limited liability partnership; (ii) a partnership limited by shares; (iii) a limited liability company; and (iv) a joint stock company and they can also join such companies or purchase their shares, unless international treaties stipulate otherwise.

Different rules apply in respect of entrepreneurs from The European Economic Area (EEA). Foreign persons from countries that are members of the European Union or the European Free Trade Association are allowed to establish and run economic activity under the same rules as Polish nationals. The same applies to foreigners from Switzerland. Foreign investors can also establish their branches in Poland. There is no limitation of this with reference to foreign persons from the EEA. Other foreign persons are allowed to do this on condition that Polish entrepreneurs are able to do the same in their country of residence (the principle of reciprocity).


Special Economic Zones

          1. Special Economic Zone (SEZ) is a legal term for a separated area in which there are special (more favourable) rules for conducting economic activity. SEZs are often created in order to attract foreign investors. The legal basis for the SEZ is the Act on Special Economic Zones. The SEZ can be established by ordinance issued by the Council of Ministers at the request of the Minister of Economy. The main benefit for an entrepreneur conducting his economic activity within the SEZ is tax exemption. The same rules apply to both natural persons and legal entities. It arises from the Act on Personal Income Tax and, in terms of legal entities, from the Act on Corporate Income Tax.

            There are two strongly important limitations of that privilege:

That exemption is only available for persons that obtained a special permit issued by the Minister of the Economy. The number of available permits is limited and privileged entrepreneurs are chosen in a tender procedure. During the procedure, the Minister takes into consideration a few factors, but the most important is coherence between the applicant’s economic plan and the SEZ development plan.

The scope of exemption cannot exceed the scope of total allowable public aid which could be given in the region where the SEZ is located (for example, aid in Lublin Voivodship cannot exceed 50% of investment costs but, in the Lower Silesian Voivodeship, that limit is significantly lower – 25%). In addition, some municipalities offer exemption from real estate tax for investors that begin their economic activity in the SEZ located in that municipality. Moreover, the government could award an investment grant to certain entrepreneurs.

          1. Currently, there are 14 Special Economic Zones in Poland. Almost each SEZ is located in more than one voivodeship. Special Economic Zones are divided into subzones. The total space of SEZ cannot exceed 25 000 ha. The Special Economic Zones programme shall be closed by the end of 2026.

Bilateral Investment Treaties

          1. Poland currently has around 60 Bilateral Investment Treaties (BITs), signed between 1987 and 1998. Poland concluded BITs with almost every EU Member State (so-called “intra-EU BITs”). According to these Treaties, investors are allowed to bring cases against Poland to Arbitration Courts in order to protect their investments. Over the past years, there have been more than 20 known investment arbitration cases against Poland. 11 cases are currently pending. The actual amount of disputes may be even higher because the majority of cases against Poland remain confidential. The majority of BITs contain so-called “sunset clauses” which guarantee investment protection for several years after termination. For example, under both the UK’s and France’s BITs with Poland, investments continue to be protected for 15 years after termination, whereas under Germany’s BIT with Poland, investments continue to be protected for up to 20 years after termination. In 80s mentioned type of agreement was concluded between Poland and China and it is still in force.

Double taxation avoidance agreements

          1. The system of avoidance of double taxation constitutes significant facilitation for foreigners. The system aims to eliminate a situation when income is taxed twice – in Poland and in the investor’s country of residence. Poland concluded around 90 agreements concerning avoidance of double taxation. It has signed such an agreement with China as well. There are two methods that can be used to ensure the main goal of these agreements is reached:

Exemption with progression – the taxpayer shall calculate his total income including income derived in Poland and in its residence state. After that, the taxpayer determines the average tax rate on the (taxable and exempt) income, before applying that average tax rate on the taxable (derived in its residence state) income only.

Tax credit method – all income is liable to tax, but the tax payer is entitled to a tax credit for the tax paid in Poland. That means he can deduct the tax paid in Poland from the tax due at home. However, the tax credit is limited to the domestic tax rate. If he has paid 19% tax in Poland while the domestic tax rate is only 10%, his deduction will be limited to 10%.

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