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International Company Relocation Opportunities: Poland
There was much progress seen across Poland’s economy and investment climate 27 years since its departure from communist rule. As of 1992, thirteen years after joining the EU, the country has become more favourable to American investments, sustaining an extended period of economic growth. However, Poland’s development stalled slightly in 2016, as inconsistencies in EU revenue spending truncated government investments.
More so, questionable financial policies further amplified pessimism in certain sectors, as it struggled to maintain an emerging economy dependent on its local industry as well as funding for EU’s six-year financial system. Despite the economic complications, Poland remains an attractive investment hub with more than thirty-eight million people, whose expansion may likely extend to the wider European market of almost half a billion.
Due to its strategic proximity to powerful markets, including its competitively priced, competent, and well-educated workforce, Poland is alluring to foreign investors, with US companies constituting a huge majority of international entrepreneurs in the country. Statistically, US Foreign Direct Investment stocks in Poland are officially at 11 billion USD, although profits from American auxiliary businesses operating in other nations may account for the additional stock volume of nearly forty billion USD. The Polish government has initiated the “Responsible Development” program, which streamlines administrative laws and processes in order to facilitate ease in doing business.
Poland recently enforced laws granting a reduced income tariff rate to medium and small businesses, as well as bigger tax breaks for business owners, as part of government attempts to drive continuous economic expansion. Financial assistance from the European Union, along with public funding, helps stimulate and encourage economic performance, scientific research, commerce, local business performance, and international trade.
Several sectors across Poland present potential growth of FDI, which is historically largest in food processing and automotive industries, trailed behind by machinery, petrochemicals, and other commodities. Poland’s most attractive, rapidly developing, sectors include outsourcing business processes related to legal, accounting, development, research, and IT services, followed by the Defence sector, spending thirty-five to forty billion USD through 2022 to modernize its military, as well as support opportunities for technology transfer and local production.
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As Poland continues to combat air pollution and expand its energy synthesis, export and investment opportunities remain available for natural gas and nuclear energy. In addition, infrastructure and IT services are becoming increasingly promising sectors, as the Polish government begins to prioritize building smart urban networks with digitally connected households by 2020. Poland plans to bolster its shipping industry as well, which may open up potential US investments in ship manufacturing and export of maritime technology and equipment.
The stability of Poland’s economic conditions were dampened by newly established regulations seeking new ways to stimulate public revenue, and in 2016, after a reorganization of the country’s tax system that impacted tariff implementation procedures and transfer pricing, many organizations lost confidence and trust in the tax framework which they believed has been hastily and unilaterally introduced. In relation to emigration issues and existing demographic shrinkage, some recently implemented measures, such as lowering the age of retirement, a proposed child benefit universal plan, and minimum wage increases may result in an increase of labour costs and lessen workforce cooperation. Investor concerns over Poland’s financial atmosphere have created regulatory, environmental, and legal uncertainties within healthcare, energy, and financial banking sectors.
The Control of Particular Investment Laws became effective on the 30th of September 2015, and has established a screening process to monitor acquisitions within energy generation, petroleum production, distribution, processing, telecommunications, weapons, ammunition, the explosives trade, and manufacturing.
Poland recently raised legitimate concerns among US investment and energy corporations. A law it signed includes specifics regarding the acceptable distance of wind turbine locations (10x the installations’ total height calculated from ground surface to the maximal point), which roughly measured, will have an average minimum stretch of only 2 kilometres from ecologically protected areas and private residences, potentially impeding land development in the country.
US investors operating in the healthcare sector and the pharmaceutical industry have been anxious about several proposed legislations and policy changes that might hinder competition and result in market inaccessibility.
- Poland is ranked the 29th least corrupt nation out of 175 countries in 2016’s Corruption Perceptions Index reported by Transparency International.
- Poland is ranked 107th among 190 economies in the ease of doing business in 2017, reported by the World Bank.
- Poland is ranked 39th among 128 countries and economies in 2016’s Global Innovation Index.
On Foreign Investment: Amenability and Limitations
Regulations on the FDI: Poland is amenable toward foreign investment and considers it a wellspring of growth, capital, and employment, as well as a tool for development and research, technology transfer, and assimilation into universal supply networks. The Responsible Development Strategy set up by the Polish government outlines key methods to entice investments, which include a general legislative and macroeconomic stability, an improved investment environment, and highly competent business and political leadership.
Despite largely liberal access to Poland’s marketplaces, foreign investors are generally restricted from owning enterprises in elected strategic districts, including limitations on real estate, particularly forest and agricultural areas. Poland’s leadership has proposed to strengthen and expand local proprietorship within the predominantly foreign-owned retail banking industry. Ergo, two recently implemented district tariffs on properties of specific retail and commercial companies.
The first tax was imposed on insurance firms and banking institutions whose assets exceed a specific threshold. The EC (European Commission) ordered the suspension of retail tax after it was deemed abusive of state aid policies. At the beginning of 2017, Poland struck a draft bill that, if implemented, would enforce a trade ban during Sundays, thereby disrupting operations of foreign-owned entities with extensive logistic headquarters. The government has declared its plans to create new legislations that are more open and progressive.
Numerous Polish agencies participate in promoting investment in the country:
- The Ministry of Foreign Affairs (MFA) – along with Poland’s Bureau of Commerce, promotes economic and foreign relations by organizing Polish companies overseas and hosting international trade missions across Poland.
- Bureau of Economic Development – has two districts assigned to support and facilitate the promotion of foreign investment: Department of International Relations and Department of Large Investment Support.
- PAIH (Poland’s Trade and Investment Agency) – has taken over Poland’s Foreign Investment and Information Agency effective 3rd February 2017 to serve as a key organization tasked to promote and encourage foreign investment. Its rebranding is associated with the expanded sphere of its bureaucratic functions, which include assisting Polish investors overseas apart from other services it renders locally. PAIH organizes all diplomatic missions, operational tools, and investment programs and fairs targeting specific sectors and markets, in order to encourage foreign investment in Poland’s economy. Proposals are underway to open corporate offices overseas, including a San Francisco office in California.
The PAIH is currently functioning as Poland’s official communicator to investors, while the Economic Development Bureau coordinates with both local and foreign investors in the discussion of general concerns and/or issues pertaining to specific areas of Polish economic life.
Based on data gathered by Poland’s National Bank and the International Monetary Fund (IMF) in 2015, Poland has accumulated over 180 billion USD worth of primarily Western European and US foreign direct investments. Apparently, the reduction of cumulative capital prior to 2015 echoes a legislative development that occurred within stages of reporting, which consequently drove businesses to modify their investment strategies in order to mitigate tax obligations, so their foreign investments appear locally controlled. This however, yields no actual reduction in cumulative foreign direct investments, as per several sources.
Restrictions on Private Ownership/Establishment Rights and Foreign Control
Local and Foreign entrepreneurs may start their businesses and take part in the economic agenda according to the Economic Activity Freedom Law. Business activities are classified into different forms and are part of the Commercial Company’s Code. Poland restricts ownership of foreign businesses and equity in a few sectors. Poland’s law has placed limitations on non EU individuals up to 49% ownership of shares of stock in companies from industries such as air transport, television, radio broadcasting, and operations in seaport sectors. Concessions and licenses in terms of seaport management and defence are approved as long as there is a national treatment basis from OECD members.
In terms of Laws on Broadcasting, a multimedia outfit may obtain a license only when the votes of foreign shareholders are not more than 49% of the company and if a majority of people occupying the supervisory and management boards are local citizens and have acquired permanent residency in the country. In 2017, a group of officers from the Department of National Heritage and Culture, the Broadcasting Council, and the Consumer Protection and Competition Office was formed to monitor and implement restrictions on foreign ownerships and large media. However, this group still hasn’t submitted any official proposals.
Regarding the Insurance industry, two Polish-speaking board members (which include the chairperson) are required. Companies are required to secure government licenses, permits or concessions to perform business operations in areas like: aviation, broadcasting, energy, military/weaponry, private security agencies, and the mining industry. These activities must follow the Law on Freedom of Economic Activity. This policy also requires the Treasure Ministry’s permit to conduct major investment transactions.
The law in Poland has certain restrictions in terms of real estates. Poland became a part of the European Union in 2004. People from Norway, Switzerland, Iceland, and Liechtenstein (including other EU states) who are foreign citizens need not to secure permission when they purchase real estates and even earn shares in companies that have real estate in the country. Industrial and technology parks, logistics and business areas, housing areas, farmlands in economic zone, and household plots can obtain a maximum of two hectares and still get an exemption from restrictions on purchases of agricultural land. Policies on restricting forestry and farming land took effect sometime in April 2016 which was documented in details on the Real Property report.
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Citizens other than coming from the EFTA and EU are permitted to acquire apartments up to 4,000 sq. meters in size of city land and a maximum of a half a hectare of land meant for agriculture which has restrictions on building and has limited qualifications for government programs. Foreign investors must secure a permit from the Interior’s Ministry (with the approval of Agriculture and Defence Ministries), which is in compliance with the Acquisition by Foreign Individuals Act.
Foreign companies which have the intent to purchase real estates in the country can secure a temporary permit from the Interior’s Ministry which has a validity of 2 years. Foreign companies are anticipated to complete the documents required to prove their capability to do business in the country. This is still subject to review and may be rejected if public security or social policies are at stake.
On September 2015, the Control of Investments Act took effect. It was approved to screen acquisitions pertaining to energy distribution and generation, production of petroleum, distribution and processing, the telecommunications industry, including but not limited to trade and production of weapons, ammunition and explosives.
US investment and energy corporations had concerns about the Wind Power Investment Law. This rule has specifications on site regarding wind turbines having 10 times the height requirement, must be at a distance of 2 kilometres from environmental areas and private residences upon installation.
US corporations placed investments on pharmacy. Some health care sectors felt that revising the provisions and having multiple regulations would mean limited access and competition in the market.
Other Business Policy Evaluations
The government in Poland has not made any assessments in terms of reviewing the policies for investments through the WTO, OECD, and the UN Conference on Development and Trade for the last 3 years.
Investment Facilitation: Poland continues to enforce developments for the benefit of enhancing investment sectors which mainly focus on innovations and SME areas. In January 2017, the Innovation Small Law took effect. Recovery and restructuring of debts came into place which gave debtors more opportunities.
During the last quarter of 2016, the Poland government formed some processes on simplifying the taxation process and social security contribution exemption which was intended for new investors. During the first year of employment, both taxpayers and working taxpayers have a reduction of income tax from 19% to 15%. These reforms are aimed to remove irregularities in terms of rule of taxation and resolve issues of foreign businesses. However, businesses still rant of inconsistencies, pressure from prosecutors and courts, and challenging bureaucratic policies.
Generally, Poland’s businesses are run either by sole proprietorship, partnerships, and lastly, commercial companies and partnerships. Both partnerships and sole proprietorships are part of the Central Information and Registration on Businesses.
Commercial corporations are considered partnerships (registered, and professional) and businesses (joint-stock and limited liability companies). A company is listed on the Court Register of Poland and is stored by a district office for the registration of established companies. Corporate legal counsels believe starting up a business is quite expensive; it requires continuous effort and financial resources.
Outward Direct Investment
Poland’s Ministry of Economic Development is supervising the newly established PFR, whose role is to promote investments from Poland abroad. For further information about PFR, visit their website.
The Ministry of Economic Development and the Ministry of Foreign Affairs are responsible for implementing Poland’s economic reform. By replacing the current Investment and Trade Promotion Sections of Polish embassies and offices of the consul all over the world with new offices and trade offices, a total of 69 offices are to be established.
On February 2017, The PalilZ was renamed to PAIH. Several Trade Offices were opened in Nairobi, Tehran, Shanghai, San Francisco, and Singapore. The PAIH has also established offices in Mexico, Dubai, Frankfurt, and Budapest in 2017. These Trade Offices are offering various services consisting of: looking for possible associates for Polish exporters and manufacturer, providing business opportunity information, organizing study tours and business trips, strategizing first contacts among serious local importers, wholesalers/distributors, and Polish service providers or manufacturers.
The PAIH has several investments and export oriented programs designed to advertise Polish businesses abroad, particularly the Go Africa, Go Arctic, and Go China. Poland strongly supports the One Belt One Road Strategy, aiming for Poland to be a logistic center for Chinese commodities in West Europe. Poland is one of the founding members of the AIIB. Iran and Vietnam are included in the government of Poland’s list of potential investment and trade partners.
Government-backed BGK offers financial support for Polish export goods. However, it depends on the amount which could be at least 30 to 40% of revenue on gross or net. There are several credit instruments for short term funds offered by the BGK (ex. Post financing documentary letter of credit). A direct credit is also offered by the BGK to importers, for them to purchase services and investment goods. Export credits issued by the BGK and other firms from nations with greater trade risk are KUKE insured.
Bilateral Investment and Taxation Agreements
Poland has settled bilateral investment treaties with other nations such as Vietnam (1994), Uzbekistan (1995), Uruguay (1994), the United States (1994), the United Kingdom (1988), United Arab Emirates (1994), Ukraine (1993), Turkey (1994), Tunisia (1993), Thailand (1993), Switzerland (1990), Sweden (1990), Spain (1993), South Korea (1990), Slovakia (1996), Slovenia (2000), Singapore (1993), Serbia and Montenegro (1997), Romania (1995), Portugal (1993), Norway (1990), the Netherlands (1994), Morocco (1995), Kuwait (1993), Mongolia (1996), Moldova (1995), Kazakhstan (1995), Malaysia (1994), Macedonia (1997), Lithuania (1993), Jordan, Israel (1992), Iran (2001) though Poland supports global sanctions regimes, Indonesia (1993), India (1997 – ended its treaty with Poland. The sunset clause was applied for 15 years), Hungary (1995), Greece (1995), Germany (1990), France (1990), Finland (1998), Estonia (1993), Egypt (1998), Denmark (1990), the Czech Republic (1994), Cyprus (1993), Croatia (1995), China (1989), Chile (2000), Canada (1990), Bulgaria (1995), Belarus (1993), Belgium and Luxembourg (1991), Bangladesh (1999), Azerbaijan (1999), Austria (1989), Latvia (1993), Australia (1992), an Argentina (1992).
In 1990, a treaty between Poland and the US was signed. It was enforced in 1994 and was ratified and amended after 10 years, in the latter part of 2004.
In the early 2016, the termination of treaties on intra-EU Bilateral investment was announced by the State Treasury of Poland as per request of the EU Commission. On March 2017, notifications to Romania, Denmark, and the Czech Republic were sent.
On December 2016, Poland signed treaties on Double Taxation with: Algeria, Albania, Australia, Armenia, Bangladesh, Azerbaijan, Belgium, Belarus, Herzegovina, Bosnia, Canada, Bulgaria, Chile, Croatia, China, the Czech Republic, Cyprus, Estonia, Denmark, Ethiopia, Egypt, France, Finland, Germany, Georgia, Hungary, Guernsey, India, Iceland, Iran, Indonesia, Ireland, Iran, Italy, Israel, Jersey, Japan, Kazakhstan, Kuwait, Korea, Latvia, Kyrgyzstan, Lithuania, Lebanon, Luxembourg, Lithuania, Malaysia, Macedonia, Isle of Man, Malta, Moldova, Mexico, Montenegro, Mongolia, Netherlands, Morocco, Norway, Nigeria, Philippines, Pakistan, Qatar Portugal, Russia, Romania, Singapore, Serbia, Slovenia, Slovakia, South Africa, Saudi Arabia, Sri Lanka, Spain, Switzerland, Sweden, Tajikistan, Syria, Tunisia, Thailand, Ukraine, Turkey, UAE, UK, USA, Uruguay, Zambia, Vietnam, Uzbekistan, Zimbabwe (treaty was signed, not in force).
There are treaties between Poland and the U.S, such as the double taxation and bilateral tax treaties signed in 2013. The Totalization Treaty is still pending and has not yet been ratified by the United States. It is a Social Security agreement between Poland and the U.S to ensure workers will not pay double social security taxes. It’s designed for the coordination of benefit payment for workers who have paid Social Security taxes during their employment in both countries, considering their beneficiaries and transferable benefits.
Significant corporate tax law amendments came into force as of January 2017 in coordination with European Union directives, including new transfer pricing rules. CBC reporting rules have already been in force since 2016. Requirements for transfer pricing are identified according to the size of the business. Additional tax code changes are the following:
Taxpayers are exempt from TP documentation obligations if their analyzed tax year or annual revenues in a previous fiscal year are less than 2 million euros.
Taxpayers with more than 2 million euros in annual revenues are obliged to prepare TP documentation and accomplish a simplified statement of transactions and other dealings within the deadline or cutoff date for filing an annual ITR.
For taxpayers whose annual revenue exceeds the statutory threshold or earned the equivalent of 10 million euros in the previous year must prepare statements. These must be prepared on special CIT-TP forms, including a summary report of transactions and dealings along with a tax return for the fiscal year.
Taxpayers with more than 20 million euros in revenue should hold a master file detailing TP documentation and should confirm with their parent company that such documentation is prepared within the group. The minimum value of transactions contingent to reporting differs from 50,000 euros to 500,000 euros depending on business size.
Associates in accountancy firms suggested collecting taxes and audit within existing laws. There are about 400 TP tax audits done since 2015, resulting in millions of U.S dollars in adjustments. In 2017, the Polish government targeted 13.3% rise in Value Added Tax (VAT). A 10% rise in collection of excise taxes was noticed. These are mostly strategies for improving collection.
The Legal System
Regulatory system transparency: The Constitution of Poland carries several provisions associated with procedures and administrative law. It says administrative groups have a responsibility to abide with Polish law. CAP numbers the principles and rules of citizen involvement and participation in processes that affects them, reasoning for decisions and other forms of appeals and reviews.
As part of the European Union, Poland adheres with European Union regulations by adjusting rules or by converting them into their own law. Regulatory authorities and rulemaking happens within municipal, regional and central levels. Different ministries are involved in the rulemaking process that affects offshore businesses, for instance, pharmaceutical compensation of the Health Ministry or the R&D incentives of the Economic Development Ministry. Municipal and regional government levels may impose taxes and influence international investors by way of zoning and permits.
Poland’s accounting standards are similar to foreign ones. Services from leading foreign accounting firms are offered in Poland. The appropriate foreign accounting standards are used in cases where no local standard is applicable. Both local and foreign investors must abide to a variation of taxation laws, labor, safety, and health practices, as well as environmental laws. However, investors still complain of the unpredictability of the regulations and of large scale red tape in the government. Most complains of these laws come from tax policies, such as lack of clearness, constant changes and severe consequences for minor mistakes.
Poland enhanced its regulatory policy processes considerably over the past years. The Polish government initiated a centralized online system that will give the common public access to RIA and additional documentation needed for a discussion with groups like businesses and trade unions.
Proposed regulations and laws are printed in a draft form so the public can comment and the ministries can organize a public consultation. Poland adheres to OECD accepted regulatory practices. However, some investors say there’s a problem in the absence of guiding rules for the part of the shareholders in the lawmaking process.
New recommendations for RIA, after fact evaluation and consultation were adopted within the 2015 Regulation Program, which provided more detailed guides and had a stronger public discussion. Like other countries, Poland also deals with difficulty in fully carrying out its regulatory policies. The RIA, along with the consultation commentaries are used for better decision making such as not valuing the minimum duration for discussions with stakeholders. The OECD suggested Poland should expand its public consultation online system and think about using tools like green paper for much more efficient early consultation stages to identify better options in addressing policy issues. Evaluating the steps used to institute ex post assessment of guidelines is encouraging.
If a bill’s author manages to gather 100,000 signature, the bill can be presented at the legislature for a discussion as a “citizen’s bill”. Private organizations and NGOs are usually the ones to use this as an opportunity. Parliamentarian groups can also submit legislative bills, a process that sidesteps public consultations, which is criticized by both foreign and local investors. Modifications of the rules introduced on June 2016 shortened the RIA requirements for preparing new laws.
Bureaucratic authorities encourage the supervision of a court and different bodies such as Ombudsman’s Office, special commissions like SAC-NIK, inspectorates, prosecutors, and parliamentary groups. Polish parliamentary groups use a specific system to review and order ministries and government agency leaders.
Committee’s supervision of administrative issues includes state budget execution and new budget preparation reports, citizen’s complaints, as well as independent audit agency reports (NIK). Also, some cases are brought to the attention of the parliament by the prosecutor’s office and courts.
The office of Ombudsman in Poland works very well. Polish citizens are entitled to raise their grievances and complaints to administrative entities. Proposed bills can be checked on the websites of the Prime Minister and the Parliament.
Foreign Regulatory Considerations
From the time Poland became part of the European Union in May 2004, the Polish government has been converting European legislations and rectifying its regulations to comply with the European Union’s regulatory process. Poland has problems with EU rules from time to time in relation to its renewable energy and discharge of its local coal industries.
Poland takes part in the European Norms process. There’s a strong support for NGOs, such as consumer and environmental groups, to follow European standards. In places where EU normalization is not covered, the PKN introduces standards identical with foreign norms, like PN-IEC and PN-ISO. PNK actively participates in the EU and foreign standards groups with other standard organizations from other nations. PKN is founder/member of ISO and part of the IEC group since 1923.
PKN collaborates with the WTO/TBT and with ASTM International. Poland is an affiliate of the WTO since July of 1995, has been part of the GATT since October 1967, and has been an EU member starting with May 1st of 2004. All European Union state members are part of the WTO. While state correlate their place in Geneva and Brussels, the European Commission represents the European Union and its member states at nearly all WTO affairs and meetings. PKN operates the National Information Point of the WTO/TBT to carry out the Technical Barriers Agreement’s provisions to trade in line with information exchange.
Judicial Independence and the Legal Process
Poland’s judicial system is prosecutorial and code-based. The 1997 Constitutions are the principal foundation of the nation’s law. The legal process is a combination of Napoleonic Law and the remains of communist regulations. Poland takes the compulsory authority of the ICJ with a few stipulations. In a commercial and civil matter, the court sits in a single-judge panel.
The Sad Rejonowy or District Courts handle most disputes on their first occurrence. First instance disputes are handled by the Sad Okregowy. Circuit Courts deal with appeals on verdicts from the District Court. Sad Apelacyjny (Court of Appeals) handles petitions from Circuit Court verdicts and look after the courts within their area.
The judicial system acts independently. Poland’s judiciary upholds the sacredness of contracts. According to the Civil Procedure Code as well as the regulations of the EC, foreign court verdicts are recognized. Still, there are some international court judgments the Polish court denies or only partly accepts.
Among the causes for the delay in recognizing foreign court’s verdicts is the lack of judges with specific expertise. Normally, international firms are cautious of the over-burdened and slow court system and opt to protect their rights in another way. Contracts that involve offshore parties frequently include a provision, pointing out solutions for disputes are going to be resolved by a third-country law court or offshore arbitration.
Foreign Direct Investments: Legislation and Policies
Poland is an EU member state with a constitutional form of the government. All legal matters are conducted in Polish, the country’s official language. Foreigners are provided fair and impartial treatment in legal proceedings and may request translation services.
The Commercial Companies Code outlines the standard legal guidelines in establishing and conducting businesses, both domestic and with international investors, in Poland, and includes policies for launching partnerships (professional or limited joint-stock), limited liability enterprises, and limited joint-stock companies. The U.S., EFTA, or EU member states, as well as any nation with a reciprocal financial relationship with Poland can take advantage of these corporate models.
Poland provides international investors a national treatment, with very few exceptions. Businesses that conducted an auxiliary enterprise in the EU after the 1st May 2004 and have resumed financial operations in the country are required to adhere to EU policies and are given limited access to the privileges typically accorded to EU enterprises.
Foreign entrepreneurs devoid of work permits or permanent residency in the country may be unable to participate in a company’s everyday operations. However, all parties are free to decide upon the terms of contracts subject to European contract laws, and must arrive at mutual agreements of important terms, such as subject matter and the cost of the contract.
Although not compulsory, it may prove beneficial to secure written agreements to prevent future disputes. Contracts are subject to applicable stipulations of the Civil Code, and there are currently no executive or any other types of legal interference that could potentially impact foreign investors.
Anti-trust regulations and Competition
Transaction concerns involving mergers, competitions, and investments are audited by Poland’s Office of Consumer and Competition Protection (UOKiK). It is the country’s anti-trust agency with extensive regulatory powers that could significantly affect Poland’s market. The Consumer and Competition Protection Act enables the UOKiK to inhibit acquisitions capable of capturing 40% of the market share or greater, although vertical mergers without monopoly of the system are not opposed.
The UOKiK implements reporting standards for mergers of existing businesses, and requires parties in planned negotiations to secure prior clearance if the year-end profits before application yield an excess of either fifty million euros in Poland or one billion euros globally. In certain cases, the law allows the UOKiK to be notified via obligation waiver if the yearly domestic turnover of business target is less than ten million euros within the last two years, or the acquisition’s participants are members of the same investment group. Otherwise, no application of merger is required. Foreign businesses must also inform the UOKiK of any acquisition proposals if its participants have auxiliaries and permanent profits or distribution networks in Poland.
Reparations and Property Takeovers
According to Poland’s Constitution Article 21, land takeovers are justifiable only if enforced for public use and upon fair compensation. The Expropriation of Real Estate and Land Management Act stipulates property seizures may be implemented only in compliance with statutory regulations (e.g. National security concerns, public works, or other specific instances related to public interest). Poland’s government is obliged to compensate for the entire market value of the property being expropriated.
Land takeovers related to investments on road constructions have become progressive and less complicated to expedite the acquisition of property, and the majority of road construction mergers are settled without complications. Few incidents of expropriation issues due to irreconcilable disagreements have culminated in disputes or reparations protests. The majority of investment shares on wind farm infrastructure are foreign-owned, and recent regulations have resulted in an intensely reduced value of wind energy investments, thereby inhibiting new capital from being allocated toward energy and wind construction.
Resolution of Dispute
New York and ICSID convention: Poland is a participant of the New York 1958 Convention on Enforcement and Recognition of International Arbitral Awards. It is not, however, a participant of the Washington Convention on Investment Settlement Disputes.
State-investor resolution of dispute: With the Finance Minister serving as state representative, international pacts on dispute settlement that Poland participates in include:
- The Geneva Arbitration Clauses Protocol of 1923,
- The European Convention in Geneva of 1961 on Foreign Trade Arbitration,
The past decade has seen eight petitioners on 7 US investment conflicts. Poland’s investment conflicts are mostly with other member-states of the EU, and based on UNCTAD’s database, the country had 14 disputes in the last decade with foreign investors other than the U.S.
International Foreign and Financial Arbitration Courts
Arbitration Laws do not exist in Poland, but regulations in the amended 1964 Civil Procedures Code, which is largely founded on the UNCITRAL Model, state that arbitration proceedings must be consummated in writing. Poland’s business contracts with international companies frequently include an arbitration provision. The Bureau of Commerce, along with sector-specific entities, oversee and facilitate Arbitration tribunals, and Warsaw’s Lewiatan Confederation has a permanent arbitration court.
Legally, Poland makes no distinction between foreign and local arbitration. However, it takes into account domestic and foreign arbitral awards solely for implementation and recognition purposes. Poland does not automatically enforce legal determinations of arbitrational entities without endorsement and confirmation from a local court, which in principle, is bound to accept and execute legal decisions of international courts under Poland’s Civil Code. However, this determination varies in practice.
Beginning with January of 2016, Poland’s Civil Procedures Law began enforcing arbitration guidelines recognized internationally, creating a legal environment conducive to arbitration. Arbitral proceedings conducted on 1st of January onwards are subject to the amendment. It installed single-instance arbitration award repeals instead of dual-instance proceedings, thereby facilitating easy arbitration and negotiation to resolve commercial conflicts and boost efficient legal dealings. Complaints were turned over from District Courts to Appeal Courts, which serve as the sole instance in foreign arbitral awards proceedings. Filing a extraordinary or cassation appeal is possible with Poland’s Supreme Court. Appeals for local arbitral awards may be filed to a different court of appeal’s panel.
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According to investors, prompt processing of energy regulations consolidation has created in the energy branch an uncertain investment, regulatory, and legal climate in relation to affairs of international investors with operational subsidiaries and government-owned companies, and with the ways in which Poland’s legal system handles disputes and inquiries around international investors’ energy investments.
Poland’s Regulations on Bankruptcy
In the past few years, there have been significant amendments in the bankruptcy procedure in Poland. The legal system is set out in the new restructuring law and the revised bankruptcy law.
Poland is in the 27th place in the ease of doing business in 2017, reported by the World Bank. Bankruptcy is illegal in Poland when a firm’s management ceases to liquidate or pay its debt, or if a firm’s management failed to declare a bankruptcy petition when they were unable to pay off their debts.
On the 1st of January 2016, the bankruptcy law came into force as well as the modified conditions to a declaration of bankruptcy. The changes concern insolvency statutory grounds (ex. Indebtedness and financial liquidity).
The law may be more auspicious to creditors when it comes to determining value assets. The new bankruptcy law introduced a new kind of bankruptcy procedure called “pre-packaged insolvency,” where creditors are categorized into 5 classes and in priority order to set off or satisfy a claim. If a debtor has considerable assets, but lacks cash on hand to fulfill debt obligations, then a negotiation with the creditor based on categories and claims may be considered.
The new Polish Restructuring Law was enforced on the 1st of January 2016. It introduces new procedures to avoid insolvency and replicates the second chance policy, same as with the U.S 11 chapter bankruptcy law. According to the law, financially distressed firms are allowed to an early institution of proceedings to limit additional debt and prevent the debtor’s disposal of assets and their sale for the benefit of creditors.
Business incentives: Poland is supportive of foreign businesses and focuses on sectors. It is divided into regions depending on the type of investment sector. Corporations which are interested in doing business in Poland, both domestic and foreign, may ask help from the government.
Foreign businesses have opportunities to get incentives like real estate and income tax exemptions located in dedicated economic zones. They offer a maximum of 50% of investment expenses (70% for medium-sized and small companies), assistance for development and research, financial assistance for environmental preservation, logistics, training, and consumption of energy sources.
Provisions for public assistance and economic zones to businesses are the basis of tax exemptions from either incentives or income taxes. Financial assistance offered to businesses outside the Special Economic Zones depends on the region’s developmental plans.
Poland’s government monitors these areas and identifies the possible maximum assistance a region can get, depending on the percentage of new projects or costs of employment in the area. Poland has no restrictions on public assistance or subsidies if it is related to development projects and research programs. US companies may take part in these projects as long as their business is officially recognized in the country.
Poland has formed Directives on Responsible Development which involves 8 sectors for incentives and development. These are: defence, aviation, manufacturing of vehicle parts, building of ships, IT, manufacturing of furniture, food processing, and chemicals. Poland motivates the energy sources sector towards improvement by promoting the energy policy. However, a new policy on energy is to take effect in 2017.
Large sector businesses may be eligible to be part of the government’s campaign for projects intended to boost Poland’s economy in the years 2011 up to 2022. These businesses may get assistance in creating jobs that involve electronics, automotive, biotechnology, aviation, Research and Development, food and agriculture, information, communications, finance, and business. US firms may submit an application to secure EU funds from Polish partners or subsidiaries.
EU financial assistance helps investments relating to: e-economy, e-administration, Research and Development support, waste and water management, renewable energy sources, transportation infrastructure, Eastern regional development, and the assistance for training and education as well as 16 Regions Operational Projects.
Research and Development Program
Poland is aiming to improve their competitiveness in the Economy through a transition to better economic approaches. The administration wants both private and public sector investments in terms of R&D to reach up to 2% of its GDP in 2020. About 88 billion USD funds in EU Cohesion and Structural budget were associated with Research and Development in the country from 2014 up to 2020. Among Poland’s government projects, we name the Responsible Development Project focused on the promotion of innovations and improvement of Research and Development assistance by providing funds and appropriate sources and tax exemptions. Companies may also use the EU’s research funding project as a form of assistance,
In 2016, the government enforced a law changing the policy on the Innovation support system. It was signed by the executive office in November 2016. It took effect on January 2017. The policy focused on Polish researchers and businesses to become more innovative by getting tax relief when investors venture in research relating to science. The policy includes the following details:
- Tax relief is doubled and subject to a yearly increase. This depends on the state’s budget;
- Intellectual Property income tax is no longer applicable. This is being used by corporations;
- The deduction of costs for small and medium-scale businesses when securing a patent;
- Period extensions relating to deduction of costs to Research and Development events changed from 3 to 6 years; lastly,
- A huge deduction for Research and Development costs like a percent of salary expenses of employees who are part of Research and development events. It ranged from 110% up to 130% of compensation in 2016. It is also expected to increase in 2017.
The policy aims to make current procedures efficient particularly those relating to IP. Other policies encourage the direct hiring of research analysts in businesses, as well as subsidies for research and university institutions in order to increase promotion on training analysts. It also includes a mandatory consumption of 0.5% subsidy assigned to universities whenever research is involved.
The law removed the present 5 year period when scientists enjoy financial incentives from commercial research programs. Even if the law had positive feedback, some shareholders forecast changes may result in limited opportunities for Research and Development’s new investors. They are anticipating an improvement when the Big Innovation Policy takes effect. Few stakeholders even consider the draft proposal for this incentive scheme will benefit the present production.
Foreign Trading Areas and Facilitating the Trade Industry
Foreign companies get similar business opportunities to Polish-owned companies in terms of foreign trade areas, economic zones, and free ports. In 2004, operations within trade areas were regulated following the Custom Law, which was ratified that same year.
It was both the Ministry of Economy and the Ministry of Finance that made efforts to put up duty free areas. Both Ministries agreed to designate an authority to each zone to manage operations and made them issue permits to businesses that show interest in investing within their jurisdiction. This task was given to governors for ease of business.
Foreign Trade Zones (FTZ) generally engage in repackaging, storage, and packaging. In 2015, 7 Foreign Trade Zones in Poland were: Terespol, Gliwice, Mszczonow, Szczecin, Gdansk, and Swinoujscie. Duty Free stores are open for tourists or non EU visiting countries.
Requirements on Data Safekeeping and Performance
Law in Poland restricts non EU individuals on up to 49% company acquisition and shares in radio, television, and air transportation industries, which also include seaport and airport operations. Foreign investors have legal restrictions on forest and farm ownerships. A television network may obtain a license to operate if foreign owners do not exceed the voting population of 49%, so long as they are permanent residents of Poland. With insurance companies, they require 2 officers who represent the board of management to speak their language (Polish).
In Poland, foreign businesses are not obliged to make use of the local contents of their technology or products. Investment opportunities are equally implemented by both domestic and foreign companies. About 40% of companies are owned by the Polish in Special Economic Zones.
In terms of data safekeeping requirements, Poland has few and does not have the requisites for foreign IT businesses to monitor or have access to software and hardware for security purposes. There are a few exceptions, particularly when it comes to the security of the country, like gambling and critical telecommunications concerns.
Poland still enforces the law on retaining data, though there is a ruling which invalidates the Data Safekeeping Provision. The maximum number of retaining data is up to 2 years. Poland used to require e-businesses to keep customer information in the country.
However, after the EU Commission’s argument, Poland immediately removed their policy to keep the records. Instead, an EU member state keeps and maintains the servers for security measures.
With regard to telecommunications industries, UKE monitors and makes sure these companies are liable for their actions. The regulatory body for television and radio is the National Broadcasting Council. One of the policies in Poland is to establish security relating to personal information after data is collected. In 2016, the EU and the US formed a Privacy Law agreement that permits businesses to transfer EU customer information to the US. The agreement took over the old safe-harbor agreement, which became invalid in 2015.
Security of Property Rights
Real properties: Poland implements secured property interests, both real and movable. The idea of Mortgage is adopted in the country, the same system they use to record interests. The two categories of land registry in Poland are mortgage and land registers.
The function of land registers is to officially document land titles and buildings. It also specifically works on physical attributes of the area, types of property and land use. Real estate properties are registered and titles may be located in the mortgage and land registry managed by local courts. Each real estate property is available for everyone’s access but there is a fee to request for information. It can be requested online.
Poland formed a fair legal system. Foreign businesses have ease of access as the country monitors and protects dispositions and acquisitions of its rights (including mortgages, land, and buildings). A lot of investors (both local and foreign) have reported issues in the speedy trials in cases relating to property rights.
After WWII, there were concerns regarding property rights, which include difficulty to secure clean titles in the country, particularly in big municipalities. The Polish government formed an office to review claims for compensation of properties previous property owners need to file to receive indemnity.
There are no restrictions when it comes to litigation or filing of private properties’ claims. A few exceptions are limited to special cases. An example of a special scenario is when a case cannot meet the deadline for its filing.
In February 2017, 48 real estate properties were published in Warsaw when a compensation claim was made, but no follow up actions were taken to continue the case. In 2016, a law was passed to act on claims.
Each city is obliged to report same property cases around 2017. Several property owners experienced difficulty in securing clear titles, including comprehensive estimates of land in the country.
Foreign investors may lease land for agricultural use. There were 2 laws on land use which took effect in 2016, restricting the land purchase agreement with foreign and Polish businesses. The Agricultural Law prohibits the sale of state-owned farms for 5 years. The 5-year ban is not that important, but at the moment, around 90% of agricultural properties are owned by private investors.
The new law focuses on long term leasing for farming investors who aim to expand their farmland up to 300 hectares (a combination of old and new land sizes). Agricultural companies in the market, including US investors, were concerned about the limitation. It gives more opportunities to established farming investors rather than new ones to expand their business.
The Agricultural Law focuses on restrictions on private farm land sale. This rule gives people the right to buy land if there is an opportunity. This restriction immediately lessens the access to businesses and other companies which may be interested in purchasing the property.
Some investors think it is intended to limit the expansion of certain corporations. Under the government’s policy, the market price offer should be aligned with the current value of the area. Logistics and business centers, transport businesses, housing terrains, industrial and technological areas, and household gardens are exempted from the ban and they can expand up to 2 hectares. Records pertaining to how prices affected the turnover of lands is not yet available.
The Forest Land Law prohibits foreign and Polish businesses from purchasing privately-owned forests, which gives the government agency on forestry and the authority to purchase this type of property.
Poland’s IPR rules are more meticulous than what the European Commission mandate requires. The implementation is better and developing across all Intellectual Property kinds. Poland has no problem with physical piracy such as optical discs. However, despite the improved enforcement, online piracy spreads continuously. Poland is unlisted in the Special 310 USTR report and has four well known online markets.
In Poland, the law asks for a rights owner before a prosecution process can start. Associations and organizations for creators and authors track infringements and declare motions to the prosecuting attorney. Rights holders are concerned digital IPR violation penalties are not sufficient to inhibit violators. In order to resolve these issues, Poland’s government initiated a nationwide IPR strategy in 2015 to 2017 to answer to penalties.
In April of 2015, changes in the process for trademark registration came into effect. The changes made the process clear and transparent, and it now involves accountability of the trademark agency to inform the filer with similar trademarks as well as a 3 month opposition process once trademark registration was announced in the POB. The Reuse of the Public Information bill (which carry out EU 2013/37/EU Decree) was certified at the Sejm (lower house) in January 2016 and the President countersigned it on March 2016. The law extends the utilization of public data at libraries, archives, and museums. All information collected at these institutions, which is not copyright law protected, (for example, digitized artwork, material reproduction archives, or e-publications) can be reused.
The EU Regulation No. 2105/2424 changed the European Union’s trademark rules and came into effect on March 23rd of 2016. It organized EU state members trademark laws. Member states of the EU, including Poland, were given 3 years to reinforce regulations until 6 years for the termination and annulment of trademarks (to see the details, check the EU Investment Climate Statements).
On that same day, the EUTM application through Poland’s Patent Office is impossible. The certification marking was introduced in October 2017. A trademark can be registered through EUIPO personally or with a representative by means of the EUIPO website. Polish customs pursue the confiscation of fake goods, but fell short in giving this information during the report.
Portfolio investments and capital markets: Poland’s regulatory process is very efficient in facilitating and encouraging portfolio investments. Both locals and foreign investors can add funds in time and current deposits, stocks, futures, bonds, and derivatives. Strong equity markets facilitate the continuous flow of financial resources.
The stock market in Poland is Central Europe’s biggest and most advanced. Its capitalization adds up to one-fourth of the country’s GDP. After its 2010 privatization, the WSE listed its shares within its own stock exchange. WSE became a center for international institutional investors that targets equity investments within the region.
Aside from the stock market, the country has a dedicated wholesale market for treasury bills as well as bonds (TBSPoland). The treasury market is a vital portion of the PDS that is included the bond policy of pan-Europeans and is organized under the Ministry of Finance. Wholesale treasury bills and bonds under PLN denomination and other Euro denomination securities are traded within TBSPoland while private bond exchanges are done through Catlyst, which is managed by a WSE platform.
Polish companies depend on capital as a vital funding resource. The government recognizes the market’s economic role for its development plans. Foreign investors may capitalize on the listed shares, but are subjected to restrictions on large scale purchases. The exchange remains strict in liquidity.
Poland supports the exchange rate for current activities. Banks may give loans to local and foreign companies. Establishments may give loans overseas and provide commercial paper, though not as healthy compared to the US or the Western European market. The AIF allows open ended, close-ended or hybrid investment funding and the improvement of securitization tools in the country. Generally, purchasing Polish securities doesn’t have significant restrictions applied to international investors.
Credit allotment is based on market conditions. The government continues with programs that offer loans at less than the market rate for some local groups, like homeowners and farmers. Both local and foreign investors have the same access to the country’s financial markets. Individual investors are normally financed through retained credits and earnings, while international investors make use of its offshore funds and maintained earnings. Polish corporations raise capital from both local and offshore investments. Inflation improved at the start of 2017. However, a stiff financial policy is unlikely for the same year.
Banking and the Financial System
Poland’s banking section is flowing, profitable, and with well capitalized major banks. Profitability declined in 2015, though it stabilized afterwards and maintained an acceptable level (in the middle of 2016, ROE was at 7.7%). Profits are more plausible to be pressured because of the record breaking low interest percentage, methods to support changes of Swiss Francs, loan agreement portfolios to PLN, as well as a feasible tax revision on the financial sections assets that was enforced in February 2016. The monetary section’s asset tax every month is 3.66% of loaners’ assets.
The financial area is largely dominated by privately owned enterprises. Generally, risk management and supervision bring excessive bravado. The Treasury Ministry urges the country’s government owned institution, like the PZU, to help increase local bank holdings by acquiring more banks.
The PZU purchased the mid-level loaner Alior Bank in 2015 and the shares for Italy’s UniCredit in Pekao S.A the following year. With these purchases, the government share of indirect and direct controlled banks hit 36% of the total financial sector’s assets. In the later part of 2016, combined assets of Poland’s 5 major banks summed up to $197.9 billion, depicting almost 50% of the financial sector’s total assets.
The NBP is the main bank in Poland. The recent NBP’s stress test as well as loss absorption ability simulation pointed out the banking field’s flexibility to shocks weakened, mainly because of profitability lapses and lessened capability to boost capital from gaining profits, partly because of imposing fiscal burdens on banks. In the later part of November 2016, nearly all banks met the regulatory capital ability rates.
The Polish banking section complies with the EBA’s regulatory prerequisites. Non-performing loan shares almost reached an EU’s average and have been dropping recently. From January until June 2016, NPLs were 5% of portfolios. Bank credits have a limited part in Poland’s financing business investments.
SKOK or credit unions also faced challenges in recent years. Officials heightened their efforts to find a solution to minor, but susceptible, credits union sectors with some institution formulating rehabilitation plans as well as mergers and acquisitions. The portion of credit union holds is less than 2% of the assets in the banking sector, and it doesn’t pose any system danger.
Changes in Poland’s coverage of bond laws became effective on the 1st of January 2016. The alteration improved the material flow in the country and lessened the disparity on asset-liability maturity, which resulted in banks’ dependence on client deposits to help loaners growth.
The changes also increased protection for investors by restricting time subordination (for example, some tranches are paid before the others) and lowering refinancing danger. A drafted bill for consolidating KNF and the NBP is awaiting approval.
Appropriations and Foreign Exchange
PLN, or The Zloty, is Poland’s official currency. Exchange agencies and commercial banking institutions provide foreign exchange services. Although the Eurozone does not include Poland, the state uses foreign currencies liberally to settle accounts. Banks often have authorizations to conduct foreign currency conversions, applicable to both incoming and outgoing convertible appropriations and payments.
There have been no reported complaints or relevant challenges involving investment remittances by foreign investors, nor any delays in transferring investment profits, such as royalties, lease payments, management fees, dividends, principal and finance fees on foreign private loans, debts, and capital returns.
Current financial transactions are convertible under Poland’s complete International Monetary Fund Article VIII. The amended Foreign Exchange Regulation adheres to the OECD’s Codes of Current Invisible Operations and Liberalization of Investment Movements. Generally, FOREX transactions conducted within the EEA, the OECD, and the European Union, are granted full privileges and equal treatment.
Foreign nationals are permitted to transfer or convert currency for payments of goods and services abroad, and can transfer their shares and net profits from businesses in Poland, except in limited situations when a permit is required. International investors can rescind their investments from Poland, and full compensation of dividend payments and profits can be obtained without a permit.
If a treaty of double taxation is not in effect, domestic businesses are subject to withholding taxes on distributable investments to local tax authorities, a requirement applicable to foreign companies with subsidiaries in Poland. The Polish government and the U.S have entered into a bilateral tariff treaty signed in February of 2013. It was later updated, although the U.S is yet to ratify the agreement as of 2017 March. In principle, corporate income levy is imposed on entities operating outside Poland, but with income derived primarily from Poland, which is also applicable to local companies operating in the country.
Non-banking companies involved in FOREX, or those which serve as the currency exchange agency, must comply with FOREX policies and electronically submit reports to the NBP (National Bank of Poland). Exporters are permitted to open FOREX accounts in any currency they prefer.
Poland’s Zloty is considered a floating medium of exchange, and within the last period of years, has extensively tracked the Euro at roughly 4.2 PLN to one EUR. The UK’s vote on Brexit and the global uncertainty it generated around local procurement concerns resulted in a downward turn of 4.3 PLM to 1 euro in September of 2016.
Regulations on Remittance: At present, Poland is actively pursuing membership in FATF (Financial Action Task Force). Polish law enforces no restrictions on remittances transferred via legal analogous markets that utilize convertible negotiable tools, as is the case with dollar-controlled Polish bonds paid as a substitute for instant dollar payments. Due to practical considerations, such methods of payment are rarely used.
Sovereign Wealth Capital: Despite Poland having no sovereign wealth capital, the PFR or Poland’s Development Fund acts as an umbrella institution tasked to gather diverse administrative, departmental, and EU resources to execute long-term programs aimed at promoting and facilitating investments among entrepreneurs. The Fund’s strategy took effect in September of 2016 and was later catalogued in February the following year, at the same time the Economic Development Bureau assumed control of the agency. Facilitating the execution of the Responsible Development Strategy is one of PFR’s objective, and a considerable number of its initiatives are designed to correspond with this goal.
Most enterprises owned by the state are in the financial and energy district. The government supported the legal abolition of the Department of Treasury in January of 2017, and state-owned businesses managed by the Treasury Department were distributed amongst other departments based on the appropriate portfolio.
The Polish state is determined to maintain majority ownership of strategically vital enterprises. Companies under this category are governed by the Committee of Ministers, which is yet to release a complete list as of 29th of March 2017.
According to data gathered as of 31st of December 2016, there are approximately 400 companies governed by the Treasury Department, including 230 businesses actively conducting operations. The rest comprise of liquidated companies under insolvency. The following is a 2017 list of relevant state-owned enterprises divided among other ministries:
- Department of Energy: there are forty-two agencies, including Lotos, KGHM, Energa, Enea, Orlen, Huta labedy, Tauron, Kompania Weglowa, PGNig, PGE, Siarkapol, and PAK.
- Department of Maritime Economy: eleven companies including Polska Zegluga, Dalmor, Baltycka, Stocznia Szczecinska Nowa, Szczecinska porta Holding, Stocznia Gdanska, and Stocznia Gdynia.
- Department of infrastructure and Construction: forty-seven companies including Polish Real Estate Holding, Polish Postal Service, and PKP (state train operator).
- Department of Culture: Poland’s Press Agency, Polskie Radio, and TVP (public TV)
- Department of Defense: twenty firms, including PGZ Polskie Grupe Zbrojeniowa, Polski Holding Obronny, and Mesko.
- Department of Finance and Economic Development: 240+ companies including PZU, PKO BP, GPW, PLL LOT, Grupa Azoty, Totalizator Sportowy, Polski Pundusz Rozqoju, and Agencja Rozwoju Przemyshu.
Poland’s state-owned enterprises are some of the largest businesses in their departments, with an estimated worth of over 60 billion USD. Occasionally, state officials would exert their authority discretely to assist state-owned companies, although generally speaking, SOE’s are presumed autonomous with respect to financing their own operations and further growth via their business profits.
Both public and private entities are subject to the same guidelines in relation to credit, business operational requirements, like supplies and licenses, and market access. Most SOE’s pay a yearly interest fee to the state. They are supervised by a board of directors, and disclose year-end reports. Since its accession to the European Union, Poland has been cautiously scrutinized by Brussels for its government’s systematic bias in favour of state-owned companies.
As a constituent of the European Union, Poland is a participating member of the GPA (Government Procurement Agreement) within the WTO. No comprehensive state data is available with respect to government funding for the research & development of SOEs, although Poland is working to improve corporate administrative policies to boost SOE productivity.
State-owned Enterprises: Corporate Management and OECD Regulations
Publicly listed entities and SOEs are subject to the same local laws unless otherwise noted by statutes. The recently established Department of Energy has begun to manage government-owned gas and oil, coal mining, and power utilities companies.
The government is able to exert its power through its shareholder rights (or shareholder proxies) proportional to its total voting shares, although in certain instances and as outlined in the entity’s articles congruent to EU and Polish laws, special rights are granted to an SOE, and the state may also invoke them over non-strategic businesses due to its majority control and not because of certain strategic relevance. Notwithstanding this right, the government’s objective is to construct an enduring value for its investors via adherence to SOE OECD Protocols. Public officials who serve as administrative directors are obliged to observe the Code for Commercial Companies and must behave according to the shareholders and company’s best interest.
Workers of government-owned businesses may elect a Board of Directors (about 2/5 of its composition). Additionally, the Law on Privatization states that for purely government-owned entities comprising of 500 or more employees, it is possible for the employees to designate a constituent on the Board of Supervisors.
The Company Law mandates SOEs must respect various other disclosure requirements in addition to those it has already set forth, while the managing official organizes policies on yearly financial reporting in order to clarify these prerequisites. Government-owned entities must present comprehensive supervisory and financial reports on the previous year’s activity, as well as reports on the review of financial analyses. Public officials serving as administrative boards must undergo an exam in order to qualify for a supervisory position. Warsaw’s Stock Exchange lists various leading SOEs.
The Law on Control of Certain Investments took effect on the 30th of September 2015, which aimed to establish systems to prevent violent takeovers of strategically important entities in the Polish economy (chemical, defense, power generation, petrochemical, and gas sectors). The Law requires the purchaser to notify the Department of Treasury of the purchase of strategic company’s shares (with the purchase of ownership interests of the company and/or its businesses) and obtain approval from the Minister.
The requirement to notify the Minister is applicable to business transactions that involve the purchase of a company’s “material stake” in strategic areas. In addition, the law enables the Minister to implement ordinances to help determine the list of protected enterprises based on the new policy. The law imposes a penalty of 100 million PLN maximum or roughly 25,570,000 USD for failure to inform the Minister, or incarceration between 6 months and 5 years for any organization or its representative that purchases a company’s material stake prior to obtaining approval.
In a span of twenty-six years, Poland has successfully privatized most non-strategically relevant SOEs. There are almost fifty government-owned companies, and those considered strategically important mostly operate within the financial, mining, and energy sectors. The Polish state is determined to maintain majority control of these companies, or sell bulks of investment shares in order to keep government control.
Poland invited international investors to collaborate on leading privatization programs with very few exceptions. Generally, the bidding criteria for privatization have been transparent and uncomplicated, and the state is currently focused on boosting productivity and consolidating remaining SOEs.
Competency in Business Management
Poland is a constituent of the OECD (Organization for Economic Cooperation and Development) and complies with OECD Regulations for International Enterprises. The NCP (National Contact Point) is part of the OECD and implements its regulations to businesses by establishing offices to help resolve disputes in matters that may arise within the guidelines’ context.
The national Contact Point agency supplies OECD regulations during workshops and seminars, and investors are educated about the policies and how they are implemented by the Assistance Centers for Regional Investors.
An advisory or consultancy group was initiated after October of 2015 by the MED (Ministry of Economic Development to assist the NCP, which comprises of local and federal government representatives, employer organizations, scientific and social institutions, and trade unions. In October the following year, the MED sponsored a multinational conference on responsible and good business conduct for the Polish entrepreneurs abroad.
The Ministry of Economic Development aims to boost social awareness and responsibility among financial institutions and promotes CSR programs, which include a draft Action Strategy designed to act as a National Action Strategy to respond to Human Rights and Business concerns by the United Nations’ Working Organization. The Foreign Affairs Department also collaborates with Poland’s drafting of the NAP on Human Rights and Business concerns.
Corporate Social Responsibility in Poland is supported by independent organizations as well as NGOs, employee and business associations. The RBF is the largest and the oldest Polish Non-Governmental Organization (NGO) established in 2000. It focuses on CSR. The RBF’s newest report is “2050 Vision for Sustainable Development for the Polish Business Sector” a joint venture of Deloitte and MED. The CSR Watch Coalition in Poland became a member of the OECD Watch in the latter part of 2015. Its aim is to advance human rights and business/UNGPs on Business and to sustain development principles in business contexts.
The Corporate Social Responsibility activity reports of companies are usually compiled based on international CSR reporting standards. At present, there are several CSR standards such as ISO 26000 and GRI guidelines. The Polish translation of the GRI G4 guideline is supported by MED.
Poland is not affiliated to EITI or VPSHR. The principal extractive industries in the country are copper mining, lignite and coal. Hydrocarbon extraction is available onshore, mainly the production of conventional gas, and with limited shale gas exploration.
The government of Poland is exercising legal authority and collects revenues from natural resource extraction as well as infrastructure connected to EI, such as gas and oil conduit through a concession agreement and most often through corporate the governance of SOE. The GOP (Grand Old Party) has two sales coming from natural resources: 1) from tax concessions and 2) from concession permits/licenses.
Tax revenues and licenses are equally applied to both private and state-owned companies. Private companies and SOEs brought natural resources to the market using market based policies.
Poland is ranked as the 29th least corrupt nation out of 176 countries in 2016’s Corruption Perceptions Index reported by Transparency International. In 2011, the Polish chapter was closed by TI because the problem of corruption in the country has descended.
Poland has regulations, laws, and punishments aimed to fight corruption in the local government and public officials as well as to counteract conflicts of interest. The laws against corruption are extended to family members or relatives of officials and government political party members.
Funds of all political parties are also regulated by laws against corruption. Several companies are implementing the “Code of Ethics and Business Conduct” according to local Non-Governmental Organizations.
The OECD Anti-Bribery Convention
The Polish national police and CBA are investigating corruption of public officials. The police force and the Justice Ministry are in charge of implementing anti-corruption laws in Poland. Administering tax collection and writing off tax deductibility are the responsibilities of the Finance Ministry.
Reports of suspected corruption are frequently connected with parliament contracting and certification that helps a particular business or company. Corruption claims by customs and border protection agents, officials of the local government and tax authorities show a downward trend. There is always punishment for any proven case of corruption.
Generally, companies from the United States believe regulatory compliance with the United States FCPA is important in corporate governance to maintain a cost-effective operation in Poland. In 2006, Poland approved the United Nations Convention against Corruption as well as the OECD Anti-Bribery Convention in 2000. In Polish law, facilitating a payment or bribe to foreign and Polish officials is a criminal offense.
Safety and political climate: Poland has neither aggressive neighbour states nor seditious groups, and is generally considered a politically resistant nation. The last legislative elections were held in October of 2015, while the presidential elections were held in May the same year. There has been a peaceful democratic transfer of political power, and observers noted a free and just election process.
National government elections are scheduled for 2019 and presidential elections are set for 2020. Presently, no acts of violence were confirmed to be politically motivated nor have they been directed at international investment programs in the last period of years.
Labour: Regulations and Performance
Poland’s workforce is competent and well educated, and despite the country’s substandard productivity compared to other Western nations, its economy is rapidly progressing and becoming more competitive. According to GUS, Poland’s Central Statistical Agency, the gross income in Poland during 2016’s last quarter is, on average, 4,210 PLN (roughly 1200 USD monthly). Approximately sixteen million people were employed by Poland’s economy during 2016’s third quarter.
The European Union has measured Poland’s total unemployment rate at 5.5% with a 15.1% youth unemployment rate as of December 2016. Unemployment Data Reports between GUS and the EU tend to be disparate, with EU figures likely to be lower than GUS figures.
Different regions have significant variations in unemployment rates, with Northeastern Poland (Mazury and Warmia) topping the list at 13.7%, and Wielkopolska in the west with the lowest rate of 5.1% as per September 2016. Major urban regions have the lowest unemployment rate recorded during the last quarter of 2016.
Poland’s workers are often enthusiastic in working for foreign businesses either domestically or overseas. More than 2 million Polish workers have sought employment in other European Union member countries since Poland became a member of the EU.
The population of migrant workers coming from Ukraine has increased in the past two years. Based on the report of the National Bank of Poland (released in 2016), around 800,000 Ukraine nationals participated in the labor community in Poland in 2015. The Labor Authority and Social Statistics prove about 1.3M Ukraine citizens got employment in the country.
Some companies in Poland declare there is a low number of a qualified workforce in their industries. The workers that have the highest demand are those in the IT industry, project managers, engineers, technical support, and sales staff. Manufacturing corporations search for bricklayers, machine operators, and welders.
Recruitment of employees has widened its services to manufacturing, information technology, administrative, and other support group services. The BPO industry made an impressive development. Government sectors have more than a half portion of the working group. On the other hand, coal and steel industries have continued to show a decline of employment.
The executive department signed a policy changing the retiring age both for men and women from 67 to 65 and from 67 to 60, respectively. This new policy took effect in 2017. Laws on labor define termination and layoffs differently. In cases employees get terminated, their employers are not obliged to give severance pay to their employees. However, in situations where employees are laid off (for the company’s benefit), the employers are due to offer compensation.
The majority of employees hired under employment contracts have the right to join and form trade unions to eventually have collective bargaining. Employees who are hired based on civil agreements and those who have declared themselves as self-employed cannot form or join a labor union.
In 2015, there was a restriction on the formation and signing up to a labor union. This was considered unconstitutional and has been revised and drafted afterwards. Labor group influence is no longer working effectively, but such groups are doing great in shipyards and coal industries.
Poland’s labor code shapes the employer and employee rights for both private and public sectors, and it’s constantly revised to comply with EU standards. The government also observes the core conventions of the ILO. Employers are more likely to hire temporary or provisional employees for work instead of long term.
Temporary contracts allow an employer to dismiss an employee with a 2 week notice and they do not need to consult trade unions with their conclusion. Employers are more likely to use the civil contract rather than a labor contract due to the ease of employing or terminating workers, even if the work rendered reached all the criteria of the common labor contract. As reported by the NLI, in one out of 5 cases, employers favor using civil contracts wherein regular labor agreements are necessary.
The law involved breaks even with pay for similar work and same treatment corresponding to the labor contract signing, employment conditions, accessibility to training and promotions. The law describes equal treatment to be nondiscriminatory in any means, intentional or unintentional, for any reason, such as age, gender, disability, race, nationality, religion, ethnic origin, political views, denomination, sexual preference or employment status, whether part time, full time, temporary or permanent.
The 1991 bill on conflict resolution describes the procedure on resolving labor dispute. It has four stages:
- The Company is obligated to have negotiations with her employees;
- A mediation process that includes an independent mediator;
- If there’s no agreement reached, a formal arbitration is filed at the regional court;
- The last stage would be a strike.
Generally, the government complies with international labor guidelines, though there are some gaps in the reinforcement of the law, which involves legal restrictions on workers right to join and form independent unions. Inconvenient procedures make it hard for employees to carry out all technical pre-requisites of a permissible strike.
The law also prevents collective bargaining to major civil servants, elected or appointed employees of municipal and state bodies, prosecutors and court judges. Some limitations are also set in identifying forced labor victims. The law prevents discrimination related to occupation or employment. However, discrimination still happens. Officials did not efficiently implement a minimum wage, work hours and work-related safety and health within the formal and informal part.
The NLI has the responsibility of identifying potential labor violations. They can issue fines or inform the prosecutor’s office of severe violation cases. However, as stated by labor unions, the NLI doesn’t have suitable equipments to hold the violators responsible and the minor fines set as punishment are not an effective restraint to employers.
The revised labor law of June 2015 came into effect on February 2016. This revised law afflicted above 2 million short term contract employees. Due to it, workers can be hired for temporary contracts for up to 33 months, whereupon contracts change automatically to absolute labor contracts. The president countersigned a bill on August 8 that initiated a PLN 12 ($3) minimum hourly rate, which covers both informal and formal labor contracts. The law came into effect on January 2017 and affected workers hired under civil contracts.
OPIC and alternative investment insurance plans: OPIC delivers political risk protection for US corporations capitalizing in Poland to adverse expropriation, political violence, and non-conversion of domestic currency. OPIC provides long term and medium term financing through guarantee programs and direct loans. DLs are set aside for US cooperatives and businesses while guarantee loans are provided to US loan institutions.
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