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Legal aspects of doing business in Poland

Legal aspects of doing business in Poland. Krzysztof Wierzbowski , Managing Partner 18 marca 20 14. Table of contents. Introduction The rule of economic freedom Prospects for foreign investments in Poland Concessions in Poland Legal forms of doing business in Poland

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Legal aspects of doing business in Poland

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  1. Legal aspects of doing business in Poland Krzysztof Wierzbowski, Managing Partner 18 marca 2014

  2. Table of contents Introduction • The rule of economic freedom • Prospects for foreign investments in Poland • Concessions in Poland Legal forms of doing business in Poland • Forms of business activity permitted under Polish law • The most common legal forms of doing business in Poland among foreign investors • a representative office • a branch office • a limited liability company / a joint stock company • European Company (SocietasEuropea) Other issue of importance • Special Economic Zones (SEZ)

  3. Introduction • The rule of economic freedom Since Poland's accession to the European Union on 1 May 2004, all foreign persons (corporate and individual) from EU countries, as well as persons belonging to the European Economic Area (EEA), are allowed to establish and conducta business activity under the same rules as Polish entrepreneurs. Pursuant to Article 50of the TFEU, each entrepreneur within the European Community has the right to choose from among the various forms of business activity the one he finds most suitable for his business. With this regard, the Member States are obliged to realise the rule of economic freedom.

  4. Prospectsfor foreigninvestments in Poland According to the World Investment Report published by UN agencies on Trade and Development (UNCTAD) in 2013, in next two years Poland will be4thin Europe and 14th most attractive economy inthe world.

  5. Concessions in Poland • Currently there are only a few types of business activities that require concessions. Concessions are granted for an indefinite period of time by the competent Minister, in principle. • However, concessions granted for conducting certain business activities are for fixed term(3-50 years). There is a stamp duty imposed on obtaining a concession, value of which vary depending on type of concession.

  6. Concessions in Poland Types of businesses activities requiring a concession: • mining industry • production and trade in explosives, weapon, ammunition and products/technology for police and army • production, processing, storage, distribution and trade of fuel and energy • private security services • dissemination of radio and TV programmes • air transport • operation of gambling houses

  7. Forms of business activity permitted under Polish law • a sole proprietorship (subject to notification in the Central Registration and Information on Business) • a partnership • a registered partnership • a limited partnership • a limited joint-stock partnership • a professional partnership • a limited liability company • a joint-stock company • a branch office • a representative office

  8. Legal forms of doing business in Poland • The most important factors determining the choice of the legal form of business are: the scope and nature of business to be conducted in Poland, requirements for initial share capital and its further increase, scope of shareholders’ liability, legal formalities and costs related to establishing and conducting a business operation in Poland. • Poland still has rather formalised rules for establishing a business. The process of setting up a company may be long (up to 1 month), but things are improving in this respect. • In recent years the process of setting up a sole proprietorship has been simplified significantly. Currently, own business may be established via Internet.

  9. Legal forms of doing business in Poland • The most common legal forms of doing business in Poland among foreign investors • a representative office • a branch office • a limited liability company • a joint stock company

  10. Arepresentative office • The scope of the representative office’s activity is limited exclusively to marketing and promotional activities, no trading or manufacturing is allowed. • Representative offices are obliged to keep books and records according to Polish accounting and tax law requirements. • Representative office must be entered into the Register of Foreign Company Representative Offices maintained by the Minister of Economy. • The official cost of registering a representative office by the Minister of Economy is PLN 1,000(approx. EUR 240) • Timing: up to two weeks after submitting a complete applicationto the Minister of Economy

  11. Abranch office • A branch office is treated as a part of the parent company. It maybe engaged in almost any kind of business activity, provided that it is identical (or narrower) than the one conducted by its parent company. • A foreign entrepreneur is obliged to nominate his representative in the branch who deals with „internal affairs”, i.e. between an entrepreneur and his branch. Hence, in order to represent a foreign entrepreneur before third parties, separate power of attorney is required. • A branch office may commence its business activity after being registered in the National Court Register, obtaining a statistical number and registering for tax purposes.

  12. Abranch office • Official costs: approximately EUR 143, including the PLN 500 (approx. EUR 119) court fee for entering the branch office into the National Court Register and the cost of publishing an announcement in the official gazette – PLN 100 (approx. EUR 24). • Timing: the registration of a branch office in the National Court Register takes up to three weeks from the date on which the complete application is submitted.

  13. Alimited liability company / a joint stock company • The Companies Code attributes corporate identity to both of these types of companies. In principle, shareholders are not liable for the company’s obligations, and their risk is limited to the value of contributed shares. • One of the key requirements is a PLN 5,000 (approx. EUR 1,195) contribution as initial share capital for setting up a limited liability companyand a PLN 100,000 (approx. EUR 23,890) contribution as initial share capital for setting up a joint-stock company. • A limited liability company gives shareholders biggest influence on a management board (for example a right to an individual control). • Generally a joint-stock company is a form for a biggest business with numerous of shareholders.

  14. Alimited liability company / a joint stock company • A company is registered in the National Court Register upon a written application accompanied by documents such as a notarial deed on establishing a company in Poland and specimen signature of the Management Board members of the Polish company. A company shall submit an application to a relevant tax office for a NIP (tax identification number) and an application to statistical office for a REGON (Polish National Business Registry Number). All applications are submitted in the National Court Register. • A company must be registered within 6 months since the conclusion of articles of association.

  15. Alimited liability company / a joint stock company • Official costs: a notary’s fee (on the notarial deed establishing the company) – the exact amount depends on the value of the initial share capital, but must not be higher than PLN 10,000 (approx. EUR 2,390) – and a National Court Register fee of PLN 600 (approx. EUR 143) that includes: the register fee itself and a publication fee on the entry into the register in the official gazette. • Timing: registering a company in the National Court Register takes up on average to three weeks from the date on which the complete court application is submitted.

  16. Pan-European enterprises • In connection with Poland’s EU membership, it is also possible to operate as a European Economic Interest Grouping (EEIG), a European Company (SE) and a European Cooperative Society (SCE). • Poland has enacted a Law on the EEIG and SE as well as a Law on the SCE; incorporating a EEIG and a SE has been permitted since 19 May 2005, while a SCE – since 18 August 2006. Pan-European enterprises established in Poland (having its registered seat in Poland) are registered in the National Court Register (a SCE and a SE) and/or in Business Activity Register (a EEIG). • In setting up a Pan-European enterprise, rules set out in relevant EU laws must be observed. Among other requirements, these stipulate a minimum initial share capital value of EUR 120,000 (a SE) and EUR 30,000 (a SCE).

  17. Other issue of importance: Special Economic Zones (SEZ) • There are currently 14 SEZs in Poland. In principle they will be active until 31 December 2026 (the deadline imposed by the Regulation of the Council of Ministers of 23 July 2013). • A Special Economic Zone is a designated area in which manufacturing or distribution activities can be conducted on preferential terms. The purpose of SEZs is to support regional development.

  18. Special Economic Zones (SEZ) • The main incentive for investing in one of the SEZs is tax exemption (CIT or PIT) – up to 50% of the investment’s value, applicable for the entrepreneur that in one of the two consecutive years employed on average more than 250 employees and showed annual net sales of goods/services/higher than the zloty equivalent of EUR 50,000,000 or a balance sheet asset value that exceeded the zloty equivalent of EUR 43,000,000 at the end of either of the two most recent years.

  19. Special Economic Zones (SEZ) • For small and medium-sized entrepreneur, the tax exemption is increased by 20% and 10%, up to 70% and 60% of the investment’s value respectively • A ”small entrepreneur” is defined as an entrepreneur that in one of the two most recent financial years employed an average of fewer than 50 employees and showed annual net sales of goods/services no higher than the zloty equivalent of EUR 10,000,000, or a balance sheet asset value that did not exceed the zloty equivalent of EUR 10,000,000 at the end of either of two most recent years. • A ”medium entrepreneur” is defined as an entrepreneur that in at least one of the two most recent financial years employed an average of fewer than 250 employees and showed annual net sales of goods/services not greater than the zloty equivalent of EUR 50,000,000, or a balance sheet asset value that did not exceed the zloty equivalent of EUR 43,000,000 at the end of either of the two recent years.

  20. Special Economic Zones (SEZ) The tax exemption is calculated separately in case of ”large investment”. To be classified as ”large” the investment shall fulfil all following conditions: • the investment is undertaken within 3 years by one or several entrepreneurs, • the fixed assets are combined in an economically indivisible way, and • the costs eligible for the aid exceed the zloty equivalent of EUR 50,000,000.

  21. Special Economic Zones (SEZ) The following incentives are possible in a SEZ: • tax exemption (CIT or PIT) • competitively priced plots of lands • free assistance in handling formalities connected with the planned investment • exemption from real estate tax

  22. Warsaw Stock Exchange Dr Krzysztof Haładyj,Head of Banking & Finance 18March 2014

  23. Warsaw Stock Exchange • the largest stock trading market in CEE • different platforms of trading • Main Market • NewConnect • Catalyst • experience with foreign issuers (46 out of 451 listed) • capitalisation of 866 billion PLN as of 5 March 2014

  24. Benefits of IPO • raising funds • bringing liquidity to shares • receiving market valuation • marketing and promotion • providing alternative options for motivating key employees • bringing transparency to organisation

  25. Concernsrelated to IPO • listing costs • post-IPO costs related to a public company status • disclosure obligations • protection of minority shareholders • responsibility towards investors

  26. Legal Environment • Polish law • Act on Public Offering • Act on Trading in Financial Instruments • EU law • European Commission Regulation (EC) No. 809/2004 • Listing rules • WSE Rules • NDS Rules • Estonian law • Regulations on disclosure obligations

  27. IPO Process • selecting advisors • building up equity story • preparation of financial statements • legal, financial and business due dilligence • drafting up the prospectus • approval of prospectus in Estonia • passporting prospectus th Poland • role of Polish Commission, NDS and WSE • admission to trading • post-IPO

  28. Taxes in Poland Karolina Stawowska,Tax Advisor, Partner 18March 2014

  29. Taxes in Poland • Corporate Income Tax – 19% • Personal Income Tax – 19%, 18% - 32% • VAT – 23%, 8%, 0% • Civil Law Activities Tax – 1%, 2% • There are also other taxes: excise tax, gambling tax, real estate tax, stamp duty, donations and inheritance tax, etc. • In comparison with Estonia, taxes may not be a convincing reason to invest in Poland 

  30. Taxes in Poland • Poland is a country where certain tax structuring /tax optimisation schemes are possible • Wide treaty network • Implemented EU Tax Directives

  31. Taxes in Poland • Tax treatment of specific transaction can be at minimum cost secured (confirmed with tax authorities) in an individual binding tax interpretation • General Tax Rulings are issued by the Ministry of Finance • Advanced Pricing Agreements – contract, usually for multiple years, between the taxpayer and tax authority specifying the pricing method that the taxpayer will apply to its related company transactions (proactive way or resolving potential tax disputes over transfer pricing). Fee: approximately 1% of the transaction value but not more than approx. EUR 50,000

  32. Taxes in Poland • Thin capitalization rules: 3:1 debt to equity ratio but there are ways to help taxpayers on this issue… • Fees for management services – generally tax deductible • No CFC rules introduced so far

  33. Public procurement in Poland Tomasz Zalewski,Head of Public Procurement 18March 2014

  34. Public procurement volume in EU in 2013 13%! 26,64% 73,36% 100%

  35. 23 144 procurements in Poland in 2013

  36. Public procurement volume in Poland in 2012 • 188.478 tender noticespublished in 2012 within Poland (Tenderspublished in OJEU and the Public ProcurementBulletin) • Market value: over PLN 132,7 billion in 2012

  37. Public procurement volume • 86,87% of procurements in Poland proceeded in the open tender • Negotiations without publication (including single source procedure) – 9,22%, negotiated procedure – 0,99%, restricted tender – 2,53%, competitive dialogue – 0,10% • In 704 cases (2,93%) contracts were awarded to foreign contractors

  38. Legal regulations • Polish public procurement law Act dated 24.01.2004 (PPL Act) and secondary regulations, implementing EU Directives 2004/17/EC (classic procurements), 2004/18/EC (sector procurements), 2009/81/EC (Defence & security procurements) and 2007/66/EC (remedy directive) – in case of procurements which value exceeds EUR 14,000 • Polish PPL act coherent with EU law and case law of the Court of Justice of the European Union • PPL Act safeguards the principles of transparency, fair and open competition, equal treatment of bidders

  39. Where to look for tender notices • BZP – Public ProcurementBulletin in case of procurementswhichvalueislowerthan EU thresholds • OJEU- OfficialJournal of the European Union in case of procurementswhichvalueisequalorexceeds EU thresholds • EU thresholdsare: • financesector: EUR 134,000 for supplies and services and EUR 5,186,000 for constructionworks • non-governmentsector: EUR 207,000 for supplies and services and EUR 5,186,000 for constructionworks • sector and defence & securityawardingentities: 414,000 for supplies and services and EUR 5,186,000 for constructionworks

  40. How to compete for a public tender in Poland

  41. Mainawardprocedures • Technical dialogue – pre-tender consultations (not obligatory) • Open tender – one stage • Restricted tender – two stages • Negotiations with publication – three stages

  42. Tender conditions to participate in biddingprocess • Legal capability – entry in commercial register, concessions for performing activity in regulated markets • Knowledge and experience – connected and proportional conditions pertainig to the performance of similar to the tender object supplies, services or construction works • Technical capability – required for the performance of the contract • Financial standing – insurance, financial capability, sales

  43. Tender conditions to participate in biddingprocess • Awarding entities may demand documents provided in the Regulation of Prime Minister dated 19.02.2013 on the type od documents which the awarding entity may demand from contractors and forms in which such documents may be submitted • Contractors may rely on capability of their group or other contractors • Contractors may form consortia and compete together for the award of the contract • Rules of the Tender are provided in the tender notice and the Terms of Reference

  44. Subcontracting As a general rule subcontracting is allowed In some cases the awarding entity may reserve a part of the contract to be performed by the contractor himself, if it is appropriate to the nature of the contract Subcontractors may be changed during the performance of the contract, subject that if the contractor relied on the resources of the subcontractor during the tender procedure, the new subcontractor must meet the tender conditions as provided in ToR PPL and Civil Code regulations provide for provisions safeguarding the position of subcontractors

  45. Award criteria Lowestprice – 90% Otherawardcriteria: Example 1: Guarantee period Example 2: Period of performance Example 3: Technical parameters Example 4: Costefectivness

  46. Legal remedies Appeal to the National Appeals Chamber (limited in case of tenders which value is lower than EU thresholds) Limited time for filing appeals – i.e. 10 days from the award of the contract NAC reviews the appeal within 15 days from receiving it (public hearing before NAC) Small costs of cases before NAC (court fee EUR 4,000 in case of supplies and services or EUR 5,000 in case of construction works of value equal or exceeding EU thresholds) Judgments of NAC are subject to review by circuit courts – substantially bigger costs – court fee 5% of the contract value up to EUR 1,25 mln

  47. Feelfree to contactus Krzysztof Wierzbowski krzysztof.wierzbowski@eversheds.pl +48 22 50 50 722 Dr. Krzysztof Haładyj krzysztof.haladyj@eversheds.pl +48 22 50 50 731 Karolina Stawowska karolina.stawowska@eversheds.pl +48 22 50 50 746 Tomasz Zalewski tomasz.zalewski@eversheds.pl +48 22 50 50 796

  48. www.eversheds.pl

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