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Poland

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Why Poland?

Poland is located at a geographic crossroads that links the forested lands of northwestern Europe to the sea lanes of the Atlantic Ocean and the fertile plains of the Eurasian frontier. Bounded by seven nations, Poland has waxed and waned over the centuries, buffeted by the forces of regional history. By the turn of the 21st century, Poland was a market-based democracy, abundant in products of all kinds, and a member of both NATO (North Atlantic Treaty Organization) and the European Union (EU), allied more strongly with Western Europe than with eastern Europe but, as always, squarely between them. Machinery, metals, textiles and clothing, coal, and food account for the bulk of exports, and machinery, chemicals, and fuels are the major imports. Germany is the largest market for almost all categories of exports, while Russia remains by far the most important source of energy imports, and Germany and Italy serve as the chief sources of foreign machinery and chemicals. Poland has been a member of WTO since 1 July 1995 and a member of GATT since 18 October 1967. It is a member State of the European Unionstar. All EU member States are WTO members, as is the EU (until 30 November 2009 known officially in the WTO as the European Communities for legal reasons) in its own right.

Advantages

Poland is strategically located in the heart of Europe, which makes it a perfect investment location for companies wishing to export their products both to the East and to the West. It is also considered to be one of the most economically stable and fastest-developing countries in the world.

Poland is in the heart of Europe

Poland is located in the heart of Europe, which makes it a perfect location for companies doing business and wishing to export their products both to the East and to the West. Investors in Poland can benefit from strong economic position as members of the European Union – the location is also highly desirable from a logistical perspective. In Poland, the East meets the West, thanks to the Belt and Road connections that run across our country.

Fast growing economy

Poland has pursued a policy of economic liberalization since 1990 and today stands out as a success story among transition economies. Poland is the 6th largest economy in the European Union, the 23rd economy in the world, and one of the fastest-growing economies in Central Europe. At the end of 2021, Poland’s GDP reached approximately $660 billion.

Fifth most populous EU member

The total area of Poland is 312,696 square kilometers, which makes it the ninth-largest country in Europe and 69th in the world. With a population of over 38 million people, Poland is the fifth most populous member of the European Union and the 38th most populous country in the world.

Government

Poland is a democratic state under the rule of law, with a tripartite division of power and the president as the head of state. The president is elected by popular vote every five years. The government structure and executive powers center on the Council of Ministers, led by the President of the Council of Ministers, i.e. prime minister.

Financial and capital markets

Poland has well-developed financial markets and a banking system. Giełda Papierów Wartościowych w Warszawie (The Warsaw Stock Exchange) is the official capital market and there are a few alternative smaller markets as well. The most important stock indices of the main market are WIG, WIG20, MWIG40, and SWIG80. The WSE lists shares of more than 400 companies (including about 50 foreign ones).

Simple Tax Regime

Individual – Taxes on personal income

Polish tax residents pay PIT on their worldwide income. Non-residents are subject to Polish PIT on their Polish-sourced income only.

Personal income tax rates

General PIT rules provide for the rates shown in the following table:

  1. Income from 0 to 120,000 is liable to be taxed at a rate of 12% of the baseless amount decreasing tax (PLN 3,600)*
  2. The tax-free amount is set at PLN 30,000 and was introduced as of 1 January 2022. This means that taxpayers earning less than PLN 30,000 per year will be exempt from paying taxes.
  3. In the case of income exceeding PLN 120,000, the tax is PLN 10,800 + 32% of the excess over PLN 120,000. The decreasing tax amount is already included in the above sum of PLN 10,800.

Taxation of capital gains

Capital gains (including dividend and interest income) are taxed at a flat rate of 19%. The tax-free amount does not apply to this income.

Taxation of rental income

Currently, taxpayers can choose the method of taxation of rental income, i.e. taxation with a tax scale or a lump-sum tax on recorded revenues. As of 2023, the rental income will be taxed only as a lump-sum tax on recorded revenues (8.5% rate for revenues below PLN 100,000 per year and 12.5% on the surplus over PLN 100,000). This means that the total rental income will be taxed without the right to deduct costs of earning income (e.g. maintenance costs, utilities).

Special rules for non-residents

Specified types of income, if gained by non-residents, are subject to special treatment. Namely, they are taxed at a flat rate of 20% calculated on revenue (cost deductions are not allowed) unless a double tax treaty (DTT) between Poland and the individual’s country of residence provides otherwise.

Corporate – Taxes on corporate income

The CIT is the tax levied on corporate income. The standard CIT rate is 19%.

The reduced CIT rate of 9% can be applied for income, other than capital gains, if the taxpayer:

  1. is a small taxpayer (i.e. taxpayer whose value of sales revenue, including the amount of VAT due, did not exceed the amount corresponding to the PLN equivalent of EUR 2 million, in the previous fiscal year) or
  2. 1,5 started its business activity, provided the establishment of the company was not a result of transformation or merger (in the first tax year).

The lower rate does not apply to tax capital groups nor companies created as a result of certain restructuring operations (mergers, the contribution of a going concern, etc.).

Polish tax residents are subject to tax on their worldwide income unless there is an applicable double tax treaty in place between Poland and the relevant country that provides that the foreign income shall be exempt from taxation in Poland. Non-residents are taxed only on their Polish-sourced income. Double tax treaties concluded by Poland may result in specific income not taxable in Poland irrespective of its source.

Minimum income tax

Income Tax is a new tax obligation that applies to taxpayers declaring tax losses or negligible income (=<2% of the revenue).

The regulations are postponed until the end of 2023. As a result, the minimum tax will be applicable from 1 January 2024, and the first payment will occur in 2025.

The minimum income tax rate is 10%.

The tax base is to be the sum of the following:

  1. 5% of operational revenues (other than from capital gains), plus
  2. “excessive” debt financing costs paid to related entities (generally debt financing costs exceeding 30% of the so-called tax EBITDA), plus
  3. costs of intangible services or royalties paid to related entities – exceeding PLN 3 million plus 5% of the so-called tax EBITDA.

It is possible to choose an alternative method of determining the tax base amounting to 3% of the value of revenues other than from capital gains in the tax year.

Local income taxes

There are no provincial or local income taxes in Poland.

Poland Companies

Poland is a country that welcomes foreign investors and generally grants them the same investment right as it does for national investors. Several types of companies can be incorporated in Poland and investors can choose the most suitable form for their desired business activity.

The Polish Limited Liability Company

The Polish limited liability company is the most common type of commercial company in Poland. After all the incorporation documents are in order, the company is registered at the National Court Register (KRS).  The Polish limited liability company has a management board formed of one or more members.

The Polish Joint-Stock Company

The Polish joint-stock company is mainly destined for large businesses and can be founded by one or more entities (natural or legal persons). This company also has a management board, and an additional supervisory board and is a VAT and corporate taxpayer.

The Polish Limited Partnership

The limited partnership is suitable for a business of any scale. It is a commercial partnership with no legal personality but with legal and judicial capacities. There are no minimum share capital requirements for this business form but it must have at least two founders, legal or natural persons. The limited partnership has two types of partners: a general one with unlimited liability and a limited partner that is liable only for a specific amount, as detailed in the Articles of Association.

The Polish Civil Partnership

The civil partnership is suited for small-scale businesses conducted by at least two entities, natural or legal. The civil partnership does not have a separate legal entity, only its partners have one, and it must not be registered at the National Court Register. There is no minimum capital and its assets can be contributed by the partners (movable, immovable assets).

The Polish Registered Partnership

The registered partnership (or general partnership) is also suitable for smaller businesses in Poland conducted by at least two entities, natural or legal entities. It does not have a legal personality but has the legal and judicial capacity and must be registered at the National Court Register.

The Polish Sole Proprietorship

The sole proprietorship, or individual business activity, is the simplest form of business and is destined for individual small-scale businesses. It is conducted by a natural person with legal capacity, the capacity to take legal actions, and judicial capacity. There is no minimum share capital and the person conducting this type of activity is subject to personal income tax. The founder bears full liability for all personal assets.

Foreign companies

Apart from the types of Polish companies mentioned above, foreign companies can also set up branch offices and representative offices in Poland. These two types of business vehicles, however, offer limited possibilities. In the case of a branch office, its activity will be the same as the parent companies. The representative or the liaison office will only be allowed to carry out research and marketing activities in Poland. The main advantage of these types of companies is that the liability will remain on the parent company.

Poland is located at a geographic crossroads that links the forested lands of north western Europe to the sea lanes of the Atlantic Ocean and the fertile plains of the Eurasian frontier. Bounded by seven nations, Poland has waxed and waned over the centuries, buffeted by the forces of regional history. By the turn of the 21st century, Poland was a market-based democracy

Author: Chandrawat & Partners

Topic: Doing Business in Poland

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