1. The Legal System of Poland

The legal system of Poland is based on the continental legal system (civil law tradition). The sources of generally binding law in Poland are: the Constitution, laws, ratified international agreements and regulations. The Constitution as currently in force since 1997 is considered the most important source of law in Poland. It includes, inter alia, information about the system of government of Poland and the separation of the legislative, executive and judicial powers. The legislative power is vested in the Parliament consisting of the Sejm (the lower house) and the Senate (the upper house), whereas the executive power is vested in the President of the Republic of Poland and the Council of Ministers. The judicial power in Poland is exercised by the Supreme Court, common courts, administrative courts and military courts.

The common courts in Poland are competent to hear civil law cases, commercial law cases, criminal law cases, labour law cases as well as social insurance cases. They are divided into:

1. the district courts which are courts of first instance and handle most cases;
2. the regional courts which are courts of both first and second instance and deal with serious cases and appeals;
3. the courts of appeal which are courts of second instance only and handle appeals against decisions of regional courts acting as first instance courts.

The Supreme Court exercises supervision over common and military courts regarding judgments as well as performs other activities specified in the Constitution and laws, in particular adopts resolutions concerning the interpretation of law.

When it comes to judicial control over the performance of the public administration, it falls under the voivodship administrative courts and the Supreme Administrative Court.

Finally, there is also the Constitutional Tribunal that is competent to, inter alia, decide on the conformity of statutes and international agreements to the Constitution, hear constitutional complaints filed by citizens as well as settle disputes over competence between central administration organs.

2. Foreign Investment in Poland

Poland is located in the center of Europe, has a stable economy and good workforce as well as offers a wide range of business incentives for investors. In the ranking of Doing Business 2020, that is prepared annually by the World Bank and measures the ease of doing business in 190 economies around the world, Poland was ranked 40th in the world.

When it comes to the requirements related to foreign investment in Poland, three categories of entrepreneurs can be distinguished. The first category covers mainly foreign entrepreneurs from member states of the European Union that can take up and pursue business activity in Poland on the same principles and conditions as Polish nationals. The same rules apply to the second category of entrepreneurs that includes citizens from non-EU countries holding a specific residence title in Poland (e.g. permanent residence permit, refugee status, etc.). All other foreign persons have the right to take up and pursue business activity only in the form of: a limited partnership, limited joint-stock partnership, limited liability company, simple joint-stock company and joint-stock company, as well as to join such companies and to subscribe for or acquire their shares. However, it must be noted that the acquisition or subscription of shares in a company that is the owner or perpetual usufructuary of real estate in Poland requires an appropriate permit.

In addition, on 24 July 2020 an amendment to the Act on Control of Certain Investments of 24 July 2015 entered into force and it extended the scope of government’s control in case a non-EU foreign investor that intends to acquire or achieve significant participation (i.e. at least 20% of shares) or dominance in particular Polish entities. It concerns mainly companies that carry out business activity in the specified strategic sectors (e.g. production of medicines and other pharmaceutical products, processing of meat, milk, cereals and fruit and vegetables, telecommunications) and their turnover exceeded the equivalent of EUR 10,000,000 in any of the two financial years preceding the notification. In such cases, foreign investors need to notify the intention of the acquisition to the President of the Office for Competition and Consumers Protection and obtain the relevant clearance. The above rules were adopted in relation to COVID-19 and they are to expire on 25 July 2022.

Moreover, there are certain activities that require registration in a specific legal form (e.g. financial services can be provided within a joint-stock company) or reserve this form for persons practicing certain professions (e.g. a professional partnership can only be formed by lawyers, architects, etc.). Some activities are also subject to prior license (e.g. sale of alcoholic beverages).

3. Direct Investment in Equity

 There are various legal forms of business activity in Poland:

1. sole proprietorship (sole trader) – the simplest form of business activity reserved to an individual person which involves full liability for the business;
2. partnership (a general partnership, a professional partnership, a limited partnership, a limited joint-stock partnership) – it involves full liability for the business on the part of one or both partners;
3. corporations (a limited liability company, a simple joint-stock company and a joint-stock company) – the investor’s liability for the business is limited;
4. branch or representative office – they are not separate entities from a foreign entrepreneur and they do not have the legal personality; therefore full liability remains with foreign entrepreneur.

The detailed data on the above legal forms of the business activity conducted in Poland is available in three different registers, all accessible online. In case of individual entrepreneurs, the information is disclosed in the Central Register and Information on Business Activity (in Polish: CEIDG). When it comes to the partnerships and corporations as well as the branch offices, the data can be reviewed at the National Court Register (in Polish: KRS). In turn, the information on representative offices of foreign entrepreneurs is published by the Minister of Entrepreneurship and Technology in an Excel file.

The choice of the legal form of business activity depends, inter alia, on: the foreign investor’s status, the extent of liability that the investor is ready to bear as well as the degree of formalization of activities related to the establishment and functioning of the selected legal form. Taking into account these aspects, foreign investors mainly choose the limited liability company (in Polish: spółka z ograniczoną odpowiedzialnością). In general, there are no special requirements for foreign investors who wish to establish such a company. However, the Polish limited liability company cannot be incorporated by another sole-shareholder limited liability company.

Incorporation of the Polish limited liability company requires the articles of association to be executed in front of the Polish notary public. Since 2015 there is a possibility to establish a limited liability company via the Internet, however the available template of the articles of association is very simplified. Moreover, it requires online registration in a dedicated platform of the Polish Ministry of Justice and e-signature. Therefore most foreign investors prefer the first method as they can be assisted by a sworn translator and easily include all the relevant clauses in the articles.

Within 6 months from the execution of the articles of association, the members of the management board should file the application for the company’s registration with the National Court Register and attach all the relevant documents, including the statement that all contributions have been duly paid by all the shareholders and the share capital has been covered in full. The registration process lasts approx. 4 weeks. Apart from the registration number (KRS number), newly established company also obtains its individual tax identification number (NIP number) and statistical number (REGON number) unless the company has obtained these numbers before filing the application for registration. Since 1 July 2021, all applications to the National Court Register have to be submitted electronically, what requires the use of an e-signature.

In the period between the execution of the articles of association and the entry of the company into the register, the company operates as a so-called “company in organization”. It means that the company may own assets, acquire rights and obligations as well as make valid contracts, however full legal personality gains after being entered into the register of entrepreneurs.

When it comes to the company’s governing bodies, both Polish and other countries citizens can be appointed to the management board. They do not have to be present in Poland in order to run the company’s activity nor do they have to obtain any compensation for the performance of their duties. However, due to the fact that some issues concerning the management of the company’s affairs (e.g. execution of annual financial statements, notification to the Central Register of Beneficial Owners) require the use of a qualified electronic signature, they should arrange for such an e-signature as soon as they have been appointed.

Additionally, foreign entrepreneurs can also open a branch office in order to conduct business activity in Poland but only within the scope of their activity pursued in the country of origin and after having registered the branch office with the Polish register of entrepreneurs. There is no share capital required for the branch office, however it is necessary to appoint a legal representative. In case of non-EU entrepreneurs there must be a mutual agreement between Poland and the country where the investor comes from that provides a so-called “reciprocity rule” allowing to establish branch offices in both countries.

Foreign entrepreneurs are also entitled to establish a representative office in Poland under which they can conduct activities only in the field of advertising and promotion. Establishment of a representative office requires an entry in the relevant register kept by the Minister of Entrepreneurship and Technology and appointment of a person that will be authorized to represent the foreign entrepreneur at the office. The representative office may be set up only for two years, however it may be renewed for two more years.

4. Corporate Taxation

 The corporate income tax (CIT) is imposed not only on legal persons such as limited liability company, simple joint-stock company and joint-stock company but also on organisational units without legal personality in the form of limited partnership and limited joint-stock partnership. CIT may be also imposed on general partnerships having their seat or management board in the territory of the Republic of Poland, if the partners of the general partnership are not exclusively natural persons and the general partnership does not file relevant information.

The CIT rate is 19% of the tax base and – for so-called small taxpayers – 9% of the tax base on revenues (income) other than capital gains – in the case of taxpayers whose revenues earned in the tax year did not exceed the PLN equivalent of EUR 2,000,000. 9% tax rate may not apply if the establishment of the company was not a result of transformation or merger (in the first tax year).

As of January 1, 2019 Polish law applies the concept of exit tax and assumes a taxation of unrealised capital gains in the case of transfer of assets, change of tax residence (including cross-border transformation, which may be interpreted, e.g. as cross-border mergers), or taxpayer’s permanent establishment outside the territory of Poland. The exit tax rate has been established at 19%.

The tax base is the surplus of the market value of assets, with respect to which Poland would lose taxing rights, over their tax value. Under certain conditions, taxpayers may be able to apply for payment in instalments for a period not exceeding five years.

Revenues resulting from the receipt of dividends or other payments from participation in the profits of legal persons are subject to withholding tax (WHT). The general domestic WHT rate for dividends is 19%. The general WHT rate on interest and royalties paid to non-residents is 20%

5. Other types of foreign investments

 Popular amongst foreign investors format of investing is joint venture, which is an investment made by having the participants in a project form a special purpose vehicle (SPV).

In order to regulate the establishment and, above all, the operation of the SPV precisely, the participants in a joint venture project, prior to the establishment of the SPV, enter into a JVA (joint venture agreement) or SHA (shareholders’ agreement). This type of agreement is not regulated in Polish law and therefore is created based on the principle of freedom of contract, one of the most important regulations of polish contract law. This means that it is possible to include in the agreement such provisions that are not prohibited by law.

The most commonly used special purpose vehicles in joint venture transactions in Poland are companies with share capital, i.e., limited liability companies and joint stock companies. These companies have legal personality, are separate entities with rights and obligations, and own the relevant units of the share capital – shares.

Basic element of the JVA or SHA, apart from purpose of the investment, is defining the amount of share capital of the SPV, as well as specifying the proportions of shares in which members shall participate. In terms of new SPV, this issue shall be defined at the moment of establishment of the SPV, however when investing in existing entity, in order not to create any claims, investors will specify precisely the regulations concerning increase of the share capital.

For foreign companies, there are multiple benefits of a joint venture in Poland, including lower labour costs, qualified personnel, access to cheaper sources of supply or access to foreign markets. Another worth mentioning, is tax relief for individuals investing in venture capital funds.

6. Labor Laws

1. Labor law legislation

In Poland, the labor issues are regulated in several acts and regulations but mainly in the Labor Code which provides for rights and obligations of employer and employee, with a wide range of benefits and protection for employees.

Labor Code applies only to those working under employment relationship (mainly based on employment contract) while in Poland it is common to use other forms of employment as well: contract of mandate, specific-task contract or self-employment (Business-to-Business contracts). They are not subject to Labor Code as they are regulated by the civil law (mainly Civil Code). Other forms of employment shall not be used to hide an employment relationship.

There are several types of employment contracts: for indefinite period of time, for fixed period of time (up to 33 months and not more than 3 such contracts), for trial period (up to 3 months).

National Labor Inspectorate is an authority established in order to supervise and inspect the observance of labor law by the employers, in particular occupational safety and health rules and legality of employment.

2. Working time

Basic working time system provides for maximum 8 hours per day and average 40 hours per week in an average 5-days week. Several different working time systems are possible if justified, including balanced working time system under which the working time may be extended by up to 12 hours balanced by a shorter working time or with days off.

Work performed in excess of the binding working time is overtime which entitles an employee, in addition to the regular remuneration, to a bonus in the amount of 100% or 50% of remuneration (depending when the overtime occurs). Alternatively, in exchange for overtime, an employer may grant the employee time off equal to the overtime (on the request of an employee) or equal to one and a half times the number of hours worked overtime (without the employee’s request).

As a rule, employees managing the workplace are not entitled to overtime compensation.

3. Minimum wage and other benefits

The Polish law provides for a minimum wage for the employees on employment contract. The amount of the minimum wage may vary every year. In 2021 it was equal to 2,800 PLN gross per month, in 2022 3,010 PLN gross per month.

The minimum hourly rate is regulated for those who work under contract of mandate. In 2021 it was equal to 18.30 PLN gross per hour, in 2022 19.70 PLN gross per hour.

Specific benefit offered to the employees in the form of welfare is related to the Social Benefits Fund – a fund that shall be created and financed by an employer who hires at least 50 employees. However, an employer may opt-out from creating the Social Benefits Fund under specific conditions.

4. Leaves

Employees are entitled to 20 or 26 days (depending on the overall tenure and years of education) of paid holiday leave per year. Employees are also entitled to sick leave with a compensation equal to 80% which is covered by the employer only during first 33 days of sick leave – then the compensation is paid by the public Social Insurance Institution (ZUS). There are some differences in this regard applying to the employees who are 50 years old or more and pregnant employees.

5. Parental benefits

Polish Labor Code provides for a wide range of benefits and privileges related to pregnancy and parenthood. Pregnant employee is protected against termination of employment and against detrimental working conditions, including overtime work and working at nights. A mother-employee is entitled to overall 52 weeks of paid maternity and parental leave. 32 weeks of this parental leave may be shared between both parents or used only by father. The Social Insurance Institution (ZUS) covers the compensation paid during maternity and/or paternity leave.

The employees are entitled to 36-months unpaid upbringing leave until a child is 6 years old. As a rule, the upbringing leave provides a protection against termination (with a few exceptions).

Other categories of employees protected against termination of employment include among others: employees in pre-retirement age, trade union activists, employees using sick leave (up to certain time period).

6. Dismissal

There are four main modes of termination of employment contract: (i) termination upon notice; (ii) termination without notice due to employee’s fault; (iii) termination without notice through no fault of an employee; (iv) mutual agreement.

Termination upon notice of an employment contract for indefinite period of time requires providing written reasons justifying termination. Notice period equals 2 weeks, 1 month or 3 months depending on the tenure at the given employer.

Termination without notice due to employee’s fault may be justified with a severe breach of employee’s obligation and shall be handed out within 1 month from acknowledging this breach by the employer.

Termination without notice through no fault of an employee may occur after a defined period of time when an employee uses a long-term sick leave and does not return to work.

In the described situations an employee may appeal to a labor court and demand either compensation (as a rule up to 3-months remuneration) or reinstatement to work if the provided reasons for termination were not true or not justified or the termination occurred outside the time limits provided by the Labor Code.

In case of redundancy occurring at the employer hiring at least 20 employees, an employee will receive additional severance payment in the amount from 1- to 3-months remuneration.

7. Retirement age and benefits

The retirement age in Poland is 60 years for women and 65 years for men.

There are mandatory monthly contributions for retirement insurance paid to the Social Insurance Institution (ZUS), financed by the employer and employee (included in the monthly remuneration). In addition, the employer must offer an Employee Capital Plan – a voluntary long-term saving system for employees co-financed by employers (compulsory contribution is 1,5% of the employee’s monthly remuneration), employees and the state.

7. Intellectual Property

Not all intellectual property rights have to be registered in order to obtain legal protection in Poland. For example, there are no formal requirements to meet to obtain copyright protection. Creative works are protectable under Polish Law if they can be recognized as „work” with the meaning of a creative activity. Furthermore, there is a distiction between author’s economic and moral rights. Protection of economic rights extends until 70 years after the death of the creator of a work. Only the economic rights  are transferable.

Furthermore, the protection for patent can be granted for maximum 20 years since the registraion.  When it comes to the industrial design, the protection rights are given up to 25 years and are effective from the date of filling the industrial design for registration and subject to the payment of all fees.

As for the utility models protection, it is given for 10 years counted from the date of filling a utility model application with the Patent Office. The trademark protection lasts 10 years and it can be subsequently prolonged for consecutive 10-year periods.

The protection is being effective from the date of filling and subject to a successful registration.

Geographical indications have unlimited time of protection. It needs to be noted that the licenses are not allowed. Databases may be protected under the Copyrights Act or under the Database Protection Act. The database protection can lasts 15 years from the year of its compilation. There is no formal procedure, so no registration of the database is required.

Poland is a World Intellectual Property Organization (WIPO) member. Not to mention, it is a signatory of several international treaties on this matter.

The law regarding intellectual property in Poland is stated in The Copyright and Related Rights Act and the Industrial Property Act.

The Polish Patent Office is responsible for protection of rights such as: inventions, trademarks, geopraphical indications, topography of intergrated circuits.

8. Regulatory Agencies

There are several regulatory agencies that are relevant for making business in Poland. The most important ones are:

• Office of Competition and Consumer Protection (Polish: Urząd Ochrony Konkurencji i Konsumentów) – It is a central authority of government administration competent in matters of competition (antitrust) and consumer protection. With respect to antitrust issues, the Office handles proceedings concerning competition restricting practices, such as prohibited agreements (cartels) and abuses of a dominant position. Additionally, the Office is also authorized to control mergers of entrepreneurs and ensures that no dominant entity is created on the market as a result of such a transaction. When it comes to the consumer protection, the Office carries out proceedings concerning practices infringing collective consumer interests as well as publishes, among others on the Office’s website, consumer warnings. Moreover the Office also carries out proceedings concerning general product safety as well as verifies contracts between consumers and entrepreneurs in order to eliminate contractual provisions that define consumers’ interests in a manner infringing the law or good practices (the so-called prohibited clauses).
• Personal Data Protection Office (Polish: Urząd Ochrony Danych Osobowych) – It is an independent national data protection authority that is responsible mainly for monitoring and enforcing the application of the data protection legislation in Poland. In this regard, the Office, inter alia, investigates complaints related to an alleged infringement of the personal data protection and issue appropriate decisions (warnings, reprimands, orders) to the controller or the processor. Moreover the Office promotes public awareness and understanding of the risks, rules, safeguards and rights in relation to personal data protection as well as the awareness of controllers and processors of their obligations to that extent.

• Office of Electronic Communications (in Polish: Urząd Komunikacji Elektronicznej) is a regulatory authority that is responsible for postal and telecommunications activities as well as frequency resources management. In that regard, the Office analyzes, regulates and monitors the telecommunications and postal market, controls the fulfillment of electromagnetic compatibility requirements as well as manages radio spectrum and telephone numbering resources. Moreover the Office is a supervisory authority which controls compliance of products that emit or are vulnerable to emission of electromagnetic field, including in particular radio equipment that is placed on the market in Poland.

• National Broadcasting Council (in Polish: Krajowa Rada Radiofonii i Telewizji) is a state authority competent in matters of broadcasting. Its main tasks are making decisions on licenses for broadcasting and distribution of programs as well as controlling the activity of broadcasters.

• Energy Regulatory Office (in Polish: Urząd Regulacji Energetyki) is a central body of state administration that is responsible for regulation in energy sector as well as promotion of competition between the energy enterprises. The competences of the Office cover, inter alia, granting and withdrawing licenses, approving and controlling application of tariffs for gaseous fuels, electricity and heat as well as collecting and publishing information related to average sales price of electricity and heat.

• Financial Supervision Authority (in Polish: Komisja Nadzoru Finansowego) is a financial regulatory authority in Poland. Its main tasks include supervision of banking, capital, insurance and pension sectors as well as supervision over payment institutions, payment service offices, electronic money institutions and the cooperative credit union sector.

• Office for Registration of Medicinal Products, Medical Devices and Biocidal Products (in Polish: Urząd Rejestracji Produktów Leczniczych, Wyrobów Medycznych i Produktów Biobójczych) is a central body of government administration responsible for matters related to, inter alia, placing of medicinal products and biocidal products on the market, supervision of medical devices, their safety and use as well as conducting clinical trials. In this respect the Office grants marketing authorizations for the above mentioned products and authorizations of clinical trials or veterinary clinical trials as well as collects reports and information on medical incidents and adverse reactions to medicinal products or medical devices.

9. Alternative Dispute resolutions

The Alternative Dispute Resolution (“ADR“) which refers to any means of settling the disputes outside of the courtroom are highly supported by the Polish legal system. The most common ADR includes negotiation, conciliation, mediation and arbitration.

The greatest advantages of the ADR are the privacy, flexibility (including possible choice of the place, language and law) and speed of proceeding which arises from the one instance (the arbitration centres declare that the arbitral award shall be issued within 9 months after the commencement of the proceeding).

ADR is an excellent choice for the foreign investors and the cross-border contracts. It especially allows solving the commercial disputes by nationally neutral court, in joint language (most often English), based on the law chosen by the parties. The arbitrators appointed to the arbitral tribunal are specialists in the area which is the subject of a dispute, which enables the parties the solution of the dispute on a high professional and expert level.

The mediation shall be selected when the parties are still working together and the arisen dispute is the only obstacle in their cooperation. The arbitration is the best option when the parties are no longer able to resolve the dispute amicably.

Poland is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards as of 1958 which provides the recognition of the arbitration agreements and court recognition and enforcement of the foreign and non-domestic arbitral awards.

Poland, as many other countries, has adopted the arbitration laws based on the UNCITRAL Model Law on International Commercial Arbitration, which covers all the stages of the arbitral process from the arbitration agreement, the composition and jurisdiction of the arbitral tribunal and the extent of court intervention to the recognition and enforcement of the arbitral award. Polish arbitration law is stipulated in Part Five of the Polish Code of Civil Procedure and deals with all the above aspects. Unless a special provision provides otherwise, the parties may submit to the arbitral tribunal for resolution: 1) the disputes over property rights, with the exception of cases concerning alimony; 2) the disputes over non-property rights, if they may be the subject of a court settlement.

The court may refuse to recognise or enforce the arbitral award or settlement only if: 1) the dispute cannot be resolved by arbitration under the law; 2) the recognition or enforcement of the arbitral award or settlement reached before the arbitral tribunal would be contrary to the fundamental principles of the Polish legal order (public policy clause). Therefore, the risk of no recognition of the arbitral award in Poland is limited.

The leading arbitration and mediation institution in Poland includes:

• the Court of Arbitration at the Polish Chamber of Commerce in Warsaw (SAKIG) (the main and the oldest arbitration centre in Poland);
• the Court of Arbitration at the Polish Confederation Lewiatan.

10. Anti-corruption law and compliance programs

Because of the fact, that Poland is a member of European Union, some areas are to be in accordance with EU regulations, therefore Polish legislator is obliged to implement EU’s legal acts. In directives, European Union defines standards of the countries’ future domestic regulations, giving opportunity to the Member States to propose more restrictive law. One of those directives is AML (Anti money laundering). Polish implementing act does not propose any more restrictive regulations than the directive itself.

The basic regulation covers wide list of the Obliged Entities, which are obliged to take certain actions aimed at preventing money laundering occurring in those entities. The most important action is introducing proper procedures. Topics of introduction, content and scope of the procedures are widely covered in the AML Directive. It defines the obligations of both the Obliged Entity and clients, as well as the whistle-blowers.

The procedure shall create internal regulations concerning creating system targeted at preventing money laundering in Obliged Entities. This issue is to be under control, by thorough identification of the client, by the Entity (e.g., defining beneficial owner of the client) or obtaining certain declarations from a client such as declaration of not being entrusted with prominent public functions. According to AML directive as well as polish act implementing European regulations, the clients shall be criminally liable for untruthful completing of the declarations.

One of the most important regulations, concerning obligations of the Obliged Entities are ones concerning notification of the irregularities, which are aimed at the protection of the person reporting those irregularities, called whistle-blowers. The procedure shall allow whistle-blower to notify all irregularities occurring in the entity concerning money laundering, without any risk of termination of employment or discrimination by employer. Furthermore, the whistle-blower shall have certainty, that the notification will be examined by a proper external body (the General Inspector for Financial Information, Polish: Generalny Inspektor Informacji Finansowej).

As was mentioned above, in the AML Directive, there are important regulations concerning protection of whistle-blowers. This area is also regulated in the Whistle-blowers Directive. However, the polish implementing regulations were not introduced yet. Whatsoever it is important to know that EU citizens can successfully protect their rights against Member State of EU, for not implementing the directive.

11. Other peculiarities of Poland

Poland legislator decided to provide youth with one of the most profitable reliefs that a country can propose, a scraping of tax income. However, tax relief has certain conditions. One of the limitations is age, young people that are older than 26 shall not fit into taxation relief. Other is income – people earning above 85 528 PLN (1EUR = 4,6PLN) a year are obliged to pay tax income, however those who have earned abovementioned number or less, fit into a taxation relief. Foreign citizens who are not polish residents, are not included in tax relief, furthermore those who have obtained a polish residence certificate could not pay tax income. However, the long-term relief could come with certain disadvantages, such as the rapid change of life after 26^th birthday. After this date young people are obliged to obey any regulations provided for people who do not benefit from any tax relief, that is to pay minimum of 17% of tax income, which could significantly influence household budget.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

 If you need further info please contact Kopec Zaborowski Law Firm at www.kkz.com.pl.