WHY POLAND ?
- Location
- People
- Poland for investors
- Polish Law
- Purchase of real estate by foreigners
- Construction process
- Special Economic Zones
LOCATION
The British historian Norman Davies entitled his history about Poland The Heart of Europe . This perfectly describes Poland 's location; it is a bridge between the west and the east, the north and south of the continent. After 1 May 2004, Poland 's eastern borders have become a part of the EU's external border and now the country is a launch pad to the Eastern markets.
Investments in Poland give companies the opportunity of direct access both to the markets of the European Union, as well as the remaining markets of the CEE. Thanks to locating capital in Poland investors gain easy access to 500 million population in Western Europe and 250 million in Eastern Europe . Undertaking business activity in Poland gives the opportunity of using Polish experience in commercial relations with the former Eastern block, as well as Russian Federation states.
PEOPLE
The structure of Polish society is one of the key factors that make Poland an attractive place for FDI. In 2003 PAIiIZ (Polish Information and Foreign Investment Agency) commissioned a survey among foreign investors who between them employ over one million Polish workers.
Foreign investors rate highly the skills and commitment of Polish employees. In many cases the Polish subsidiaries of foreign companies were judged to be the most effective units worldwide according to their management.
Market size is one of the most important reasons why foreign investors decide to locate in Poland . With its population of almost 40 million Poland is the largest market in Central Europe and the eighth largest in the continent , as well as 30th in the world . Its population makes Poland a market larger than the combined markets of all the other nine accession countries that entered the EU together with Poland in May 2004.
Source: Eurostat
The majority of Poles live in town and cities and 42% of them in the 42 largest agglomerations of more than 100,000 inhabitants.
POLAND FOR INVESTORS
In 1989 Poland initiated wide-ranging political and economic transformation which culminated in its entry into the European Union on 1 May 2004. As a part of the Single European Market, Poland is still undergoing economic and social changes. With year-on-year economic growth at 6.9% (Q1 2004), a young, well-educated and ambitious labor force, location at the very heart of the continent, low corporate income tax (19%), Poland has become an exciting place for investors from around the world. Indeed, the latest AT Kearney's Foreign Direct Investment Confidence Index ranks Poland fourth in the world and first in Europe as a destination for FDI.
Poland 's economic growth, at 6.9% in the first quarter of 2004, is much stronger than in the Euro zone (1.3%) and higher than an average of 25 EU members (1.6%). Poland 's growth has been driven to a significant extent by export growth, industrial production and investment. Employment is slowly rising. Set out below is more detailed information on particular indicators.
Gross Domestic Product
Poland 's economy was also one of the fastest growing in Q1 2004 in comparison to other European countries.
Poland 's GDP at current market prices was estimated at $207 billion in 2003, (or $5,400 per capita). In terms of Purchasing Power Parity, this equates to $10,900 per capita, having grown from $4,400 in 1990.
Consumer Price Index
Consumer price inflation has been dropping since the beginning of transformation. Average annual inflation in 2003 was 0.8% (1.9% in 2002). According to the Economist Intelligence Unit forecast, CPI in 2004 will reach the level of 2.0%.
POLISH LAW
The principal legal act governing business activity n Poland is the Act of 2 July 2004 - Economic Freedom Act . It regulates undertaking, running and closing business on the territory of Poland , as well as tasks of the public administration within this regard.
Foreign persons 1 from the European Union and European Free Trade Agreement zones belonging to the European Economic Area may undertake and run business on the basis of the same rules applicable to Polish entrepreneurs.
The same rules also apply to foreigners living outside the EEA who:
- received a permit to settle on the Polish territory,
- a consent for tolerated stay or a status of refugee granted in the Republic of Poland
- enjoy temporary protection within this territory.
Other foreign persons have the right, unless international agreements state otherwise, to undertake and run business activity only in the following forms:
- limited partnership,
- limited joint-stock partnership,
- limited liability company,
- joint-stock company.
They have also the right to enter these kind of partnerships or companies and purchase their shares.
Furthermore foreign entrepreneurs 2 may run business activity in the form of branch office , and also set up representative offices on the territory of Poland .
1 Within the meaning of the law, a foreign person is:
a natural person residing abroad, without Polish citizenship,
a legal person with a seat (registered office) abroad, an organizational unit
with a seat abroad, which is not a legal entity, but has a legal capacity.
2 According to the law a foreign entrepreneur is a foreign person running a
business activity abroad.
PURCHASE OF REAL ESTATE BY FOREIGNERS
Purchasing property by foreigners is governed by the provisions of the Act of 24 March 1920 on Purchase of Real Estate by Foreigners with further amendments.
'Foreigner' within the meaning of the Act is:
- an individual who is not a Polish national,
- a corporate entity having a registered place of business abroad,
- a partnership of persons referred to above, which does not have a legal personality, has a registered place of business abroad and is incorporated under laws of foreign countries,
- a corporate entity which has a registered place of business in the Republic of Poland and is controlled directly or indirectly by persons or partnerships referred to above.
The general rule is that foreigners require a permit from the Minister of Internal Affairs and Administration to buy real estate.
Cases where a permit is required
A permit is required in each case of real estate purchase, i.e. acquisition of ownership title or perpetual usufruct right to real estate on the basis of a legal transaction.
The following require a permit:
- purchase of real estate;
- purchase or taking up of shares in a commercial company which has a registered place of business in the Republic of Poland and is the legal owner or perpetual usufruct of the real estate.
A permit is required if, by purchasing shares in a company which is the legal owner or perpetual usufruct of real estate, a foreigner will take control of that company, or if shares in an already-controlled company are acquired or taken up by a foreigner who is not the company's shareholder. A controlled company is a company in which a foreigner or foreigners holds or hold, directly or indirectly, more than 50% of votes at the meeting of partners or the general meeting of shareholders or has or have a dominating position within the meaning of the Code of Commercial Partnerships and Companies.
The Minister of Internal Affairs and Administration may grant the foreigner a permit to purchase real estate or shares in a company owning real estate if there is no probability of threat to national security, public safety or public order and if the foreigner can demonstrate the existence of circumstances confirming his ties with Poland.
The provisions of the Act do not apply to company transformations or transfer of ownership of real estate by intestate succession.
No legal acts or entries of ownership titles or perpetual usufruct rights may be made without a permit from the Minister of Internal Affairs and Administration. If special conditions are specified in the permit, evidence must be produced, in the form of official documents, that those conditions have been complied with.
If effected in breach of the provisions of the Act, the purchase of real estate or shares by a foreigner is null and void.
Issuance of permits to entrepreneurs from the European Economic Area (EU plus Iceland, Norway and Lichtenstein)
On 1 May 2004, the general rule whereby a permit is required for purchase by foreigners of real estate or shares in companies which are legal owners or perpetual usufructs of real estate ceased to apply to nationals and entrepreneurs residing or established in the territory of the European Economic Area (EEA).
However, the Act provides for a number of derogations in this respect. EEA nationals and entrepreneurs must obtain a permit in the following cases:
- to purchase agricultural and forest land - for 12 years after Poland became a member of the EU (i.e. until 2 May 2016),
- to purchase a second home (i.e. the real estate which is intended to be developed for residential or recreational purposes and which will not be used by a foreigner as the habitual residence) - for five years after Poland became a member of the EU (i.e. until 1 May 2009).
However, EEA foreigners will not be required to obtain a permit during those transitory periods in the following cases:
- to purchase agricultural land situated in:
- the following eight western and northern voivodships: Dolnoslaskie, Kujawsko-Pomorskie, Lubuskie, Opolskie, Pomorskie, Warminsko-Mazurskie, Wielkopolskie, Zachodniopomorskie – after the end of the seven year period since the execution of a lease contract (date of execution must be certified), if during that period they have pursued farming in person on the land concerned and have legally resided in Poland,
- the following eight central are eastern voivodships: Lubelskie, Lódzkie, Malopolskie, Mazowieckie, Podkarpackie, Podlaskie, Slaskie, Swietokrzyskie – after the end of the three year period since the execution of a lease contract (date of execution must be certified), if during that period they have pursued farming in person on the land concerned and have legally resided in Poland,
- to purchase a second home:
- if the purchaser has legally and continuously resided in Poland for at least four years, or
- for the purpose of pursuing business activities in the form of tourist services.
Obtaining a permit
Permits are issued by the Director of the Department of Permits and Licences of the Ministry of Internal Affairs and Administration on authorisation from the Minister of Internal Affairs and Administration. Permits are issued in the form of an administrative decision on the basis of a foreigner's application. The provisions of the Administrative Procedure Code apply to proceedings connected with the purchase of real estate.
A permit application for a permit should identify the applicant and his legal status; the real estate to be purchased; the seller; the legal form of real estate purchase, and should state the purpose of the property purchase.
A foreigner seeking to obtain a permit must enclose, along with the application, the documents supporting the circumstances indicated in the application and his/her ties with Poland as well as other documents demonstrating that the real estate will be purchased in a proper manner.
The application must be in Polish and all annexes in foreign languages must be translated into Polish by a certified translator.
The Minister of Internal Affairs and Administration should examine the application within two months. The permit is only a prerequisite for purchase and is not binding for the seller. The purchase of real estate must be executed in a notarised form.
The permit is valid for two years from the date of issue. A binding purchase agreement should be made and executed within that time limit.
A foreigner who intends to purchase real estate may seek a promise of permit issuance. An application for the permit promise, including its annexes, must comply with all the requirements applicable to a permit application.
The promise is valid for a year from the date of issue. The permit cannot be refused while the promise is valid, unless there have been changes in factual circumstances that are significant for the determination of the case.
Exceptions from the obligation to obtain a permit
- purchase by a controlled corporate entity, for its statutory purposes, of undeveloped real estate in urban areas if their total area in the entire country does not exceed 4,000 m2
- purchase of independent residential premises
- purchase of real estate by a foreigner who has been residing in Poland for at least five years from the issuance of a permanent residence permit;
- purchase by a foreigner whose spouse is a Polish national and who has resided in Poland for at least two years from the issuance of a permanent residence permit, of real estate that will become the joint property of both spouses;
- purchase of real estate by a foreigner if, on the day of purchase, the foreigner is entitled to statutory succession after the assignor of the real estate, provided that the assignor was its legal owner or perpetual usufruct for at least five years;
- purchase of real estate by a foreign bank, which is a mortgagee, after an ineffective auction under enforcement proceedings;
- acquisition or taking up by an indirectly or directly controlled bank of shares in a company which has a registered place of business in the Republic of Poland and is the legal owner or perpetual usufruct of real estate in connection with enforcement of the bank's claims for banking services rendered.
Exemption from the obligation to obtain a permit does not apply to real estate situated in the vicinity of state borders and agricultural land of more than 1 hectare.
CONSTRUCTION PROCESS
We would like to provide you with crucial, from the investors' perspective, information regarding the construction process in Poland . These issues are mainly regulated by the Act of 27 March 2003 on Master Planning (Journal of Laws No. 80, Item 717, as amended), hereinafter referred to as the Master Planning Law and the Act dated 7 July 1994 Construction Law (Journal of Laws No. 89, Item 414, as amended), hereinafter referred to as the Construction Law . To make the whole thing easier and more useful, we would also like to draw your attention to some practical issues related to the construction process in Poland .
Prior to the purchase of real property for the purpose of development, certain essential information must be checked , including :
• whether the real property is included in the local master plan ;
• whether the function of the property to be developed is agricultural, industrial or construction; and
• whether the seller of the real property holds an appropriate legal title to it and whether other entities, in particular state or local authorities, hold first refusal or other rights regarding the real property to be purchased.
All the information regarding the real property to be purchased, including the above listed, stem from the following documents :
• land-survey plans , on the basis of which it may be checked whether the property has access to public road, electrical and gas installations, central heating, water supply and sewage disposal systems;
• plans specifying the division of the land into plots, with an indication of the numbers and area of plots of which the real estate to be purchased is comprised;
• a current excerpt from the land and mortgage register of the real estate to be purchased, after its number is found and the competent department of land and mortgage registers determined; it is also essential to read the information contained in the land and mortgage register at the moment of purchase transaction,
• notarial deeds confirming the seller's legal title to the real property to be purchased.
If we assume that the property's legal situation is clear and that the real property may be used in the intended manner, the construction process can be started. The construction process includes, among other things, obtaining of a final building permit issued on the basis of Construction Law and administrative procedure regulations. The permit may be issued:
• directly on the basis of the local master plan ; or
• if there is no such plan, on the basis of the decision on planning conditions (planning decision) during its validity period.
The construction process should end with obtaining of an occupancy certificate , in the cases required by law. Sometimes, if the investment is of a specific nature, atypically located or has other specific features, certain additional decisions may be required before the investment may be properly started or completed.
Unfortunately, at the beginning of 2004 , the majority of master plans in Poland expired . Therefore, until the competent authorities adopt new studies and master plans, the investors must follow the procedure described in Section 2 below. Therefore, the investor must obtain the Planning Decision , without which the building permit may not be issued.
SPECIAL ECONOMIC ZONES
A special economic zone (SEZ) is a designated area within the territory of Poland in which business activities (manufacturing or distribution) can be conducted on special, preferential terms. Currently, there are 14 SEZs in Poland , their aim being to support regional development.
Since 2001, new regulations on SEZs and public aid have been in force. After January 1, 2001, entrepreneurs who have obtained a permit to conduct activities in SEZs have been eligible for income tax exemption, which is regarded as a form of public aid.
Tax and Non-tax Reliefs (Incentives) in the SEZs
The following forms of tax relief and other incentives to encourage investment are available in the SEZs:
- Income tax exemption related to income from activities conducted in Special Economic Zones under the permit
- Relief in real estate tax (depending on a decision of the local authorities)
- Relief in tax on means of transport (depending on a decision of the local authorities)
- Customs duty reliefs
- Non-tax incentives relating to employment of new employees
- Non-tax incentives related to investment procedures in the SEZs.
Income Taxes in Poland
Corporate Income Tax
All legal entities and other organizations without legal personality (except partnerships) that conduct business activities in Poland are liable to corporate income tax (CIT); in 2004 – at a flat rate of 19%.
Personal Income Tax
Polish personal income tax has three thresholds. The rates on taxable personal income for 2004 are: 19%, 30% and 40%.
Poland has signed double taxation agreements with most countries. Thus, nationals of those countries, coming to work in Poland , may choose which tax system is the more advantageous under the circumstances.
Obligations of Entrepreneurs Operating in the SEZs
In order to benefit from tax incentives, which are a form of regional aid, entrepreneurs have to fulfill obligations resulting from general provisions of the Polish law as well as the obligations set out in the permit.
General Conditions for Receipt of Regional Aid
Respective regulations specify the following conditions for SEZ entrepreneurs to be entitled to benefit from regional aid:
- Investment of a minimum of EUR 100,000;
- Business activities related to that investment conducted for at least 5 years from the date on which the aid was granted;
- The newly created jobs maintained for at least 5 years (regional aid for employment).
If the entrepreneur is a foreign entity, as defined by the Polish law, in order to purchase land in a SEZ he must obtain a permit from the Minister of Interior and Administration.
