Business in Poland
TYPES OF COMPANIES IN POLAND
Foreign entrepreneurs planning to start a business activity in Poland choose this country because of the possibilities of company development.
The crucial element is choosing the right legal form for the planned company.
Other legal forms of Polish companies are:
- single-person company, which is the most common choice in the case of small companies, however, it must be remembered that the owner bears unlimited responsibility for possible obligations of the company,
- a civil law partnership, which legally means a company between two or more natural/legal persons. This type of activity has no legal personality, it is most often chosen by owners of small companies.
The division of companies according to their size is as follows:
- micro-enterprise – according to art. 104 of the Freedom of Economic Activity Act, it is a company which has been in at least one of the previous two years:
• had fewer than 10 employees,
• achieved an annual turnover from the sale of goods, products, services and financial operations that does not exceed EUR 2 000 000 net,
- small company – small companies include those that have been in at least one of the last two years:
• have fewer than 50 employees,
• have a net annual turnover of no more than EUR 10 000 000 in sales of goods and services, products and financial operations,
- medium-sized company – these are companies which have fulfilled both of the following conditions in at least one of the last two financial years:
• the company had no more than 250 employees,
• the annual net turnover from sales of goods and services, products and sales does not exceed EUR 50 000 000.
LIMITED LIABILITY COMPANY
A limited liability company is the most frequent choice of foreign investors.
This type of business activity is treated as a separate legal entity in relation to other shareholders who are not responsible for possible obligations of the company.
A limited liability company may be established by one or more entities – one shareholder may hold up to 100% of shares in the company.
The LLC company is obliged to have a minimum share capital of 5,000 PLN, while the minimum nominal value of individual shares is 50 PLN. The contribution to the share capital may be in cash or in kind.
The governing bodies of a joint stock company are
- Management Board of the company,
- Supervisory Board,
- General Meeting.
The creation of a Supervisory Board is required when the company has more than 25 shareholders and its initial capital exceeds PLN 500,000.
The Management Board of the company appointed by its shareholders or third parties may consist of one or more members regardless of nationality. Its task is to deal with the company's affairs and represent the LLC in relation to third parties.
All shareholders of the company are members of the General Meeting of Shareholders, which is responsible, among others, for appointing the Supervisory Board. The Supervisory Board must consist of a minimum of three members who will control all areas of the company's business. The shareholders of LLC do not bear full responsibility for possible liabilities of the company – they may only lose funds invested in order to acquire shares in the share capital.
The advantages of LLC are primarily:
- low share capital – the minimum amount of initial capital is 5,000 PLN, where the minimum value of a single share is 50 PLN,
- possibility to register a company online – companies with standard terms and conditions of the articles of association can be registered online,
- minimum formalities – the court automatically assigns NIP and REGON numbers to LLC, the waiting time is a few days from the date of registration of the company in the national court,
- no responsibility for the company's liabilities – the shareholders of LLC do not bear full responsibility for possible debts of the company,
- limited economic risk – LLC is a good option for people who want to develop their individual business,
- no ZUS – LLC is not obliged to pay ZUS if it has at least two shareholders,
- full accounting – detailed accounting is an opportunity to gain full control over settlements with contractors and employees.
Disadvantages of LLC:
- long time of company registration – the LLC registration procedure requires setting up a company bank account to which the share capital will be paid, appointing appropriate company bodies, registering the company in the National Court Register, tax office and ZUS,
- the articles of association in the form of a notarial deed – every even the smallest change in the rules of functioning of the LLC should be introduced by a notarial deed, the only exception to this rule is the contract company over the internet,
- double taxation – the company is subject to CIT, while taxable income in the form of dividends requires the payment of PIT, i.e. personal income tax,
- full accounting – LLC is obliged to keep detailed records of economic events,
- high cost of bookkeeping – full bookkeeping generates considerable costs associated with the need to record all economic events and the complexity of tax law regulations, specialist knowledge and professional financial services require the employment of a specialised tax office,
- annual accounts – companies are required to submit annual accounts to the court and the IRS.
JOINT-STOCK COMPANY AND PUBLIC LIMITED COMPANY (PLC)
In terms of liability of individual shareholders, the division of governing bodies and the tax liability of the joint-stock company and PLC are similar to the classic limited liability company. The main difference is the more stringent and formal provisions contained in the Commercial Companies Code. This legal form is used primarily for searching for PE (private equity) / VC (Venture capital) investors, for business planning IPO (Initial public offering) and under the requirements of Polish law, for example for banks, pension funds and other financial institutions.
In accordance with the regulations in Poland, the minimum share capital for a Polish joint-stock company is equivalent to PLN 100,000 and the minimum nominal value of a single share is PLN 0.01.
The regulations of the Commercial Companies Code and the Articles of Association of the joint-stock company indicate that the General Meeting is a body created by the company's shareholders, and the agenda is regulated by specific legal regulations. An Annual General Meeting should be convened within six consecutive months of the company's financial year.
The PLC shareholders have limited liability for the company's potential liabilities – they may only lose the equivalent of their shares held in the form of a cash or in-kind contribution invested in taking up shares in the working capital.
General Partnership is a company consisting of at least two people who run the company under their own name. The partners are obliged to sign a Partnership Agreement which sets out all rights and obligations of the partners, and are jointly and severally liable for any debts of the company.
LIMITED PARTNERSHIP (LP)
LP is a company that can be established by general partners with unlimited liability or by limited partners to permanent partners.
LIMITED LIABILITY PARTNERSHIP (LLP)
The LLP is most often set up to provide professional services, for example by lawyers, doctors or tax advisors. The partners of a limited liability company are not responsible for the company's activities related to the professional activities of other partners.
PARTNERSHIP LIMITED BY SHARES
A limited partnership is a rarely chosen form of business activity which requires the possession of at least one shareholder and one general partner who will have unlimited liability.
ESTABLISHMENT AND REGISTRATION OF A COMPANY IN POLAND
One of the greatest difficulties for foreign investors is the need to choose the appropriate legal form for their operations in Poland. Foreign entrepreneurs usually decide to open a limited liability company or a joint-stock company.
How to open a limited liability company or a joint-stock company?
- NOTARY'S ARTICLES OF ASSOCIATION
The preparation and signing of the LLC should take place in the presence of a notary public. The cost of the notarial fee does not exceed PLN 10,000 plus VAT and 0.5% tax on civil law transactions from the original capitalization of LLC. The notary's consent is also necessary to prepare the court application on the KRS-W3 form. The fee for a lawyer ranges from PLN 5,000 to 25,000 and includes taxes, social security and registered office.
A company using a standard company statute operating on basic principles may be registered via the Internet – in such a case a notary's certificate is not required. Standard forms of the articles of association can be found in the system of the Ministry of Justice on the website: https://ems.ms.gov.pl. Establishing the company in such a way requires only registration on the platform and signing the articles of association with an electronic signature. The time of processing the application is from 24 hours to several days.
- PAYMENT OF THE INITIAL CAPITAL TO THE COMPANY'S ACCOUNT
Each Polish company is obliged to have a company bank account – the documents necessary to open an account are determined individually by each bank.
The initial capital should be paid into the company's bank account before the documents are submitted to the court, in the case of LLC companies it concerns the full amount of the initial capital, while for PLC companies it concerns at least 25% of its value.
- REGISTRATION IN THE KRS (National Court Register)
Establishment of business activity requires registration of the company in the National Court Register - KRS and authorities such as the Social Insurance Institution (ZUS), Tax Office and Statistical Office. The court automatically assigns the NIP number (tax identification number) and the REGON number (statistical number) within a few days of submitting a set of documents.
Registration in the National Court Register can be carried out online and its cost is PLN 500 plus PLN 100 for publication in the official journal of the court.
- REGISTRATION IN US AND VAT REGISTER
Within 21 days from the moment the company is entered into the National Court Register, the company is obliged to submit a NIP-8 form. The document containing supplementary data should be delivered to the head of the tax office.
The entry in the VAT register and the tax office should be made before the start of taxable activity. In order to register the company, a VAT-R form, confirmation of the company's registration in the National Court Register and information about the address of the company's registered office should be provided.
Registration as a VAT payer in the European Union is required when the company intends to carry out commercial activities within the EU. The first step is to be registered in the ordinary VAT register, then a relevant application must be submitted before starting foreign activity in the EU.
Registration as an income tax payer is free of charge, whereas if the entrepreneur wants to receive a confirmation of registration, entry in the VAT register is a cost of PLN 170.
- COMPANY EMPLOYEES
A company which employs employees should be registered with the Social Insurance Institution (ZUS) and the National Labour Inspectorate (PIP). Registration with both institutions does not require any fees.
Registration of a sole proprietorship
Running a self-employed business – a sole proprietorship – requires registration with the town hall or voivodship office.
The entrepreneur should submit an application for entry in the commercial register (entry in the business activity register), classify the activity and apply for a tax identification number (NIP) and statistical number (REGON). The next stage of setting up a sole proprietorship is registration with the Social Insurance Institution (ZUS) and possible entry in the VAT register (registration as a VAT payer).
Natural persons register their business activity in CEIDG – Central Register of Entrepreneurs and Information on CEIDG-1 form available directly in the office or online.
The business activity may be commenced on the day the application is submitted, however, the entrepreneur has the possibility to determine a later date for commencing the activity.
WHAT SHOULD AN EMPLOYER KNOW ABOUT?
The basic aspect of employing an employee is to prepare a contract in an appropriate form that clearly defines the employer's responsibilities.
The employer's obligations are regulated by the Labour Code, the Civil Code, the Act on the Social Security System and the Income Tax Act.
The Labour Code regulates issues concerning working time, remuneration of employees and holiday leave. It is also responsible for the basic scope of issues related to occupational safety and health.
The employer's basic obligations are:
- registration of employees in the social insurance system – the employer should register within seven days from the date of the employment relationship, the ZUA form containing notification of the employee should include: social insurance and health insurance, Guaranteed Employee Benefits Fund and Labor Fund,
- timely payment of employee salaries, keeping records and accounting of the company,
- settlements with the tax office and exemption from employee income tax,
- ordering the performance of an occupational medicine examination – before starting work, the employer should order the performance of examinations necessary for a given position – their cost is entirely the responsibility of the company,
- conducting health and safety training – initial health and safety training should be conducted before starting work,
- the provision of security measures to guarantee adequate working conditions, including free personal protective equipment and work clothes,
- keeping employee records – the company should keep records related to the employment of employees and employee personal files,
- support for employees in connection with the improvement of professional qualifications,
- respect for the dignity of workers, their rights and freedoms and the prevention of abuse among workers.
The formalities relating to the hiring of workers are:
- preparation of employee documents (personal questionnaire, previous work certificates),
- signing the employment contract,
- drawing up the PIT-2 form (the new PIT-2 form used since 2017 is a statement submitted by the employee to calculate the advance income tax payments),
- conducting training in the field of health and safety at work (the entrepreneur collects statements confirming that he has become familiar with the work regulations and health and safety rules functioning in the company),
- withdrawal of the certificate from an occupational doctor (a medical certificate is a confirmation of no contraindications to work at a given position),
- receiving permission to process the employee's personal data,
- to receive a signed declaration that you have read the information on equal treatment in the workplace,
- preparing a confirmation of the allocation of the company's assets to a given employee (laptop, telephone or company car).
Employees with children should additionally inform their employer in writing about the intention or lack of intention to use childcare privileges.
The employer is obliged to inform the employee about the social insurance coverage within seven days from the date of concluding the insurance contract (ZUA form).
Formalities for dismissal of an employee
If the contract is terminated by the employer, the employee has the right to take leave to seek work:
- when the notice period is two weeks/month, the employee may take two days off,
- where the period of notice is three months, the staff member shall have three working days to serve.
What are the employer's obligations in connection with the dismissal of an employee? First of all, he should:
- issue an employment certificate immediately,
- deregister the employee from ZUS (ZWUA form),
- pay an allowance for unused leave (termination of the contract by notice allows the employee to take the outstanding leave at that time – leave may also be granted without the employee's approval).
EMPLOYMENT COSTS OF EMPLOYEES IN POLAND
Costs related to the hiring of employees are all expenses which the employer is obliged to cover.
CONTRACT OF EMPLOYMENT
Hiring an employee on an employment contract is a necessity to bear costs related to pay and taxes. The amount of remuneration is only 60% of the employee's employment costs.
From the gross amount of the employee's monthly salary the employer pays:
- insurance premiums (about 13.7%),
- advances on income tax of 17%.
For the minimum monthly salary of PLN 2,250, the actual amount the employee receives is PLN 1633.78 net.
The other costs that should be covered by the employer are:
- medical examinations (performed by an occupational doctor),
- training in occupational health and safety,
- safety measures, clothing and work footwear,
- the necessary equipment for the workplace.
The average cost of employing an employee is about 20.74% of the gross salary, and the basic administrative costs increase with each additional employee.
The cost of employing an employee on the basis of a Fee-for-Task Agreement depends on the current employment status of the employee:
- If the Fee-for-Task Agreementis the only source of the employee's income, the employer's costs will be the same as in the case of employment under the contract of mandate (gross salary, social security contributions),
- if an employee is at the same time employed in another company under an employment contract and his salary is lower than the minimum wage, the employer pays the gross salary and all social security contributions,
- if an employee is at the same time employed by another company under an employment contract and his salary is higher than the minimum wage, the employer employing the employee under a civil law contract only pays social security contributions,
- in the case of employees under 26 years of age employed on the basis of a Fee-for-Task Agreement, the sole cost of the employer is the amount of gross remuneration.
CONTRACT FOR SPECIFIC WORK
In the case of a contract for a specific task, the only cost of the employer is the gross salary of the employee. In principle, the employer is not obliged to pay social security contributions, however, the payment of contributions is necessary when:
- the employee employed on the basis of a contract of employment undertakes cooperation with his employer on the basis of a contract for specific work,
- the recipient of the work is the employer.
TAXES IN POLAND
One of the costs that a company incurs is taxes – the choice of form of taxation is a key issue that affects the amount of taxes paid.
The choice of the form of taxation should be dictated by both the nature of the business and the revenue of the company. An entrepreneur can choose from such forms of taxation as flat rate tax, lump sum tax, tax card and general taxation.
- TAXATION ON GENERAL PRINCIPLES
Taxation under the general rules is a tax rate of 17% (from 1 October 2019) or 32% (for companies operating KPiR – the Revenue and Expenditure Book).
This form of taxation works well in case:
- companies which generate income not exceeding PLN 85,000,
- companies that generate considerable costs,
- entrepreneurs who intend to take advantage of the tax-free allowance or to settle the tax with their spouse.
- FLAT-RATE TAX
The flat-rate tax is intended for entrepreneurs who keep KPiR (the Revenue and Expenditure Book) – the fixed tax rate is 19%. The flat-rate tax makes it impossible to take advantage of tax reliefs and settlement options with a spouse.
This form of taxation is particularly useful when the company's annual income significantly exceeds PLN 85,000.
- A LUMP SUM ON RECORDED INCOME
A lump sum taxation consists of charging a percentage of the company's recorded income. Depending on the type of services provided, the amount of tax ranges from about 2% to 20%.
The tax rates for a lump sum are:
- 2% – it is charged on the sale of own products,
- 3% – concerns revenue from catering, commercial activities and services related to animal production,
- 5.5% – is calculated to the income from construction, production and car fleet (capacity over two tons),
- 8.5% – concerns, among others, rental income,
- 10% – is used to dispose of real estate and property rights,
- 17% – is calculated, among other things, for income from photographic and telecommunication services, the work of travel agencies, the activities of employment agencies, car rental and leasing and accommodation and property management,
- 20% – concerns income earned by natural persons from professional services.
An entrepreneur does not have the right to reduce the tax base by the costs necessary to operate – the exception is income from so-called 'liberal professions'. Running KPiR (Revenue and Expenditure Book) is not required.
- TAX CARD
A tax card is a method of taxation consisting in determining a fixed amount of tax that the tax office pays each month. The amount of tax is determined by the type and scope of the business, the number of employees employed in the company or the number of residents in the place where the business is conducted.
An entrepreneur may change the form of taxation of his business activity until 20 January each year.
THE COMPETENT ACCOUNTANT – HOW TO FIND HIM?
Establishing a company and running a business requires keeping accounts and scrupulous monitoring of financial results – for this reason, the help of an accountant may prove necessary.
What is the best accountant for your company?
The best accountant is an accountant who is able to provide a comprehensive service to the company tailored to the individual needs of the business and expectations of the entrepreneur. The first choice should be a competent and fully professional person experienced in aspects of tax law – knowledge of tax nuances guarantees protection against errors, and experience ensures smooth functioning of the company.
The work of an accountant must maximise the benefits for the company, therefore his competence cannot be limited to everyday duties only. Practical use of knowledge of tax secrets should constitute an effective tax protection for the company.
What services should an accountant provide?
An accountant responsible for the company's financial issues should be responsible for all issues related to financial aspects in a given market segment – from everyday duties enabling the company to operate efficiently to its effective tax protection.
It is worth remembering that the comprehensiveness of services should be closely matched to the characteristics of the company's operations, and cooperation with a professional tax company is based on partnership. Qualified staff and many years of experience of a tax company are a guarantee of satisfaction and individual approach to the expectations of a business partner.
Cooperation should be based on mutual trust
Trust is the basis on which cooperation between the accountant and the entrepreneur should be based. The company entrusts the tax company with all financial matters by relying on the qualifications of the accountant, which is why it is so important for the accountant to provide services at the highest level, minimising the risk of making serious consequences of errors.
In order for the cooperation to proceed without reservations, it is worthwhile to use the services of a proven, reputable tax company, which flexibly approach the needs of customers by adjusting the scope of services to the specific nature of the company's activity. An accountant's experience and knowledge of the secrets of tax law is a simple way to save time spent so far on keeping the company's accounts or tracking changes in tax law.
SUSPENSION OF BUSINESS ACTIVITIES
Running your own business involves the risk of losing financial liquidity, and shorter or longer periods of low income can affect any business. In crisis situations, an entrepreneur has the option of suspending his business, instead of terminating it completely. The main reasons for suspending a company are seasonal activity and temporary lack of orders resulting in a lack of funds to cover the current costs of the activity, however, business activity can also be suspended in the case of a change of ownership of the company, its illness, going abroad or other random events.
Who has the right to suspend business activity?
Suspension of business activity is a privilege for entrepreneurs who have the right:
- conduct sole proprietorship,
- do not employ workers.
For how long can an entrepreneur suspend the company's activity?
The period of suspension of business activity ranges from 1 month to maximum 24 months. The date of suspension of the business activity is included in the application to CEIDG, however it cannot be earlier than the date of submitting the form.
How can I suspend my business activity?
An entrepreneur can suspend his business activity by submitting an application to the Central Register of Business Activity and Information (CEIDG) – detailed information about the suspension of the activity and submitting the application in Polish and English can be found here.
What activities are allowed during the suspension of the business activity?
During the period of suspension of business activity, a company cannot obtain income from its activity or depreciate fixed assets. Despite this, the entrepreneur has the right to perform certain activities under the Freedom of Business Activity Act during the suspension period. This applies to, among others:
- activities necessary to maintain and secure the company's sources of income,
- the servicing of receivables and liabilities arising before the date of suspension of business activities,
- to dispose of the company's assets and equipment (VAT return),
- participate in judicial, tax and administrative proceedings relating to the company's activities,
- an inspection from the tax office carried out on the principles for persons conducting business activity.
How to resume business activity?
The company's activity can be resumed by filling in the CEIDG-1 form. The application to resume the business activity should be submitted within the next 24 months, after that time the company is removed from the register of entrepreneurs.
Is it possible to extend the period of suspension of the activity?
The period of suspension of business activity is a maximum of 24 months not subject to extension. An entrepreneur who would like to extend the period of suspension of the company's activity has the possibility to resume the activity and then suspend it again. To do this, you must fill in the CEIDG-1 form.