Why is Poland probably the best place to do business in the EU right now?

The changes and turmoils of recent years related to, i.e., Brexit or the COVID pandemic, have undoubtedly affected the willingness and ability of companies to pursue overseas investments. With this in mind, investors pay even more attention to the characteristics of countries considered as a potential investment locations. Why then, of all EU Member States, should a foreign investor choose Poland over other locations? Let us find out.

Freedom to do business across the EU

As a full member of the European Union, Poland benefits from the rights guaranteed by the EU treaties. A Polish entity is free to run its business activity throughout the EU (free movement of goods and services) and the right associated with the free movement of workers. E.g. any Polish company may employ a citizen of another EU Member State on the same rules as those applicable to Polish citizens, without any restrictions.

Therefore setting up a Polish company being a subsidiary of an entity registered outside the European Union makes it easy for the latter to operate without unnecessary hassle on entire European market. The same rule applies to the Polish branches of foreign entities, even if the mother company is entirely controlled by non-EU capital.

Resolving Brexit-related problems

Setting up a company or a branch in Poland can be in particular beneficial for UK companies. It will allow to solve Brexit-related problems such as loss of the abovementioned right of free movement of goods and services. Also, there will be no additional formalities related to employment of EU citizens if they will be employed by the subsidiary.

Okay, but how is all this different from any other EU Member State? Why should a company from, say USA or UK choose Poland over another country?

Well, the above advantages are not everything. Poland, compared to other countries, have some other, additional benefits of great value for investors.

Non-EU workers fast track procedures for Polish entities – employing foreigners made easy as never before.

In face of rapid growth of labour market needs, Polish regulations have facilitated the employment of citizens of certain non-EU countries, i.e. Armenia, Belarus, Georgia, Moldova and Ukraine.

Normally, employing a non-EU resident requires going through a quite complex procedure to obtain a work permit. First part of this procedure is a so-called “labour market test”, which is all about verification whether there are any unemployed persons living in the area close to the employer’s registered office who could perform the job as requested by the employer.

However, if  he Polish entity intends to employ a person who is a citizen of Armenia, Belarus, Georgia, Moldova or Ukraine, the procedure is considerably more straight forward. If the period of employment of such foreigner does not exceed 24 months, and the type of work assigned to him is not seasonal one (generally speaking, the term of seasonal work relates to work in sectors of economy like agriculture, horticulture or tourism) the foreigner can be employed on the sole basis of declaration of intention to employ foreigners. In other words the employment of such a foreigner takes place on the sole basis of the employer’s declaration submitted to the competent labour office. More importantly, ownership structure of the employer is irrelevant for the whole process.

In case of this procedure of simplified legalization of foreigner’s work his employment does not require obtaining a work permit nor conducting the “labour market test”. The employer’s declaration constitutes the basis for obtaining a visa to Poland by the foreigner. Employment may involve any type of employee (with the exception of the seasonal work mentioned above), including most importantly high-level specialists in, above all, the IT sector. Such facilitation of employment for EU non-residents is not provided by any other EU Member State.

Favourable tax solutions for Polish companies.

The Polish tax system provides for several solutions, particularly interesting for potential investors, such as:

1. Reduced income tax rate for capital companies (such as Polish Limited Liability Companies) – if the company does not exceed a turnover of 2,000,000 EUR annually. In that case, corporate income tax rate is only 9 %. This rule often encourages foreign investors to set up Polish Limited Liability Companies for start-up purposes.
2. “Estonian CIT” – or officially corporate income tax lump sum – is a type of corporate income taxation that allows the business to be ran income tax-free as long as their owners do not consume profits on private purposes nor transfer them to their personal accounts. This solution is based on regulations previously introduced in Estonia – that’s why it is commonly called an “Estonian corporate income tax”. When choosing this regime of taxation the Polish company does not pay any income tax unless dividends are distributed to the shareholders. In this way the company itself determines the time and amount of tax to be paid. Moreover, the rate of Estonian CIT is 10% for small taxpayers and for taxpayers starting a business, and 20% for others. The application of the Estonian CIT requires the fulfilment of several conditions, among others: employing at least 3 persons during the tax year, not generating income of up to 50% of the total income of the company from specific sources (e.g. income from credits and other passives) and submitting an appropriate statement to the tax office on the choice of taxation with Estonian CIT. What has to be remembered however, is that the Estonian CIT may be applied only by companies whose shareholders are natural persons.
3. Tax reliefs for the IT and R+D sectors – Poland has set its sights on developing IT and R&D sectors. This is reflected in tax reliefs aimed in particular at programmers or companies developing new technologies. Two of such reliefs are:
   a) Polish IP BOX – the IP BOX relief consists in preferential income tax rate of 5% on incomes from qualified intellectual property rights. Qualified IP rights are e.g. patent, utility model right, industrial design right or copyrights to computer programs.
   b) Polish research and development relief – the relief consists in deducting from the tax base the costs incurred for R&D activities (so-called “qualified costs”) which are classified as tax deductible costs. Qualified costs are e.g. salaries of employees in the part related to R&D activity and social insurance contributions for these employees, costs of purchasing specialised equipment and materials directly related to R&D activity, costs of expert opinions or advisory services purchased for the needs of R&D activity, costs of obtaining and maintaining a patent, utility model rights or industrial design rights. Within the relief, a maximum of 100%, 150% or (from 2022) even 200% of qualified costs can be deducted (depending on the type of cost and the type of taxpayer).

Summary

Given all of the above, you can tell that Poland combines the best solutions applied in countries considered attractive for doing business and at the same time provides wide and easy access to employees and workforce. It is not without reason that the number of foreign investments in Poland continues to grow.

Do you have any further questions? Do you need support in planning your investment in Poland? Contact with CGO Legal specialists!