When foreign investors choose to open a company in Poland, they have the option of choosing between a branch and a subsidiary. Polish legislation allows foreign investors to open companies just as any other Polish citizen, so the choice regarding the optimal business entity relies solely on the parent company abroad.
The subsidiary is basically a Polish limited liability company that will have to observe all the applicable rules and regulations for taxation and accounting in Poland. The types of businesses that will most likely opt to open a subsidiary will be small and medium-sized companies.
The table below highlights the main characteristics of the subsidiary in Poland:
The subsidiary is a separate legal structure from the company abroad, a distinction that is not applicable to the branch.
The foreign company is in no way liable for the subsidiary’s actions in Poland and the members of the Polish subsidiary have limited liability.
The subsidiary in Poland is a company that is 100% foreign owned.
The subsidiary is a company that has separate management, unlike the branch which can have joint management with the foreign company. This is a trait linked to the subsidiary’s independence and can prove useful for economic performance.
Together with one of our Polish company formation experts, you will be able to decide what type of companysuits your needs. Our experts will also explain to you the biggest difference between Polish branches and subsidiaries: the liability of the parent company abroad.
The advantages of a subsidiary in Poland
A subsidiary in Poland is independent of the mother company abroad and this gives it the greatest advantage, compared to a branch in Poland. The foreign company that wants to open a branch in Poland will have to prepare to bear all the liabilities of the Polish unit. However, a subsidiary will be treated as any other Polish company and will be liable for its business activities in Poland.
Unlike the branch, the subsidiary will take more time to register, but foreign business owners who are concerned with the liabilities that will fall upon the mother company are willing to make an extra step and open a subsidiary instead of a branch.
Those who want to register a company in Poland will have to follow a few basic steps and comply with the regulations concerning the minimum share capital and the mandatory registration documents.
Open a subsidiary in Poland
There are two corporate forms in Poland that can be used to open a subsidiary: the private limited liability company (Sp.z.o.o.) and the joint-stock company (SA). The main differences between the two lie in the number of founders and the minimum share capital required for incorporation.
A limited liability company in Poland requires a minimum share capital of 5,000 PLN divided into non-transferable shares. The name of a limited liability company must be unique and followed by the termination “spolka z o.o” (or abbreviated Sp. Z.O.O.). The management is assured by a Board of Managers, whose members are chosen by the Supervisory Board or by the general meeting of the shareholders.
The rules for Polish company formation require the following document whenever registering a subsidiary: the foreign company’s decision to open a subsidiary in Poland, the subsidiary’s Articles of Association stating the name and address of the subsidiary, the internal regulations, the objectives, the name of the shareholders, their contribution to the capital and details regarding the shares and their attached rights. Also, a bank account must be opened for the subsidiary in Poland.
The corporation comes into existence once it is registered with the National Court Register. All registered companies are then assigned a tax identification number, also referred to as the NIP, and they receive this once they are registered with a local tax office.
Companies in Poland are required to comply with the rules applicable to corporate names. A subsidiary may verify if a chosen name is available for use prior to commencing the registration process. The main rule is for the name to not be the same as an already existing one or to not resemble an existing one in such a manner that is will be confusing to the public. Moreover, requirements are also in place in regards to using certain names. We recommend that investors who wish to open a subsidiary prepare more than one name, in case their first option is not available for registration.
A Polish subsidiary is considered a legal entity with the same rights and obligations as a local company so it’s necessary to register for VAT. In terms of taxation, the subsidiary will need to comply with the Polish taxation principles. The corporate income tax will apply to the subsidiary’s worldwide income as it is treated as a locally registered company. In terms of share control, the foreign company will typically have access only to a percent of shares, meaning that it does not exert complete control as in the case of the branch.
We invite you to watch a video on the characteristics of the Polish subsidiary:
Subsidiary tax compliance in Poland in 2021
As mentioned above, the subsidiary will need to comply with all of the tax registration and reporting rules applicable to resident Polish companies.
You can read below the main rates for Polish taxes applicable in 2021. Ongoing compliance is important and we encourage foreign investors to reach out to us if they have any questions about the taxation regime for locally registered companies. We can help you remain up to date with any projected tax changes.
Our agents who specialize in company formation in Poland list the main taxes below:
-19%: the standard corporate income tax rate applicable to companies in Poland and also applicable to subsidiaries;
-9%: a lower corporate income tax that can apply in case of small taxpayers to income other than capital gains (when the business has an income lower than 1.2 million EUR in the year);
-19%: the withholding tax on dividends applicable to companies in most cases; certain exemptions do apply;
-23%: the standard value-added tax rate imposed on the provision of goods and services and the import and export of goods;
-0%, 5% and 8%: the reduced value-added tax rates, applicable to companies that provide certain foods and services, such as intra-community supplies as well as others.
Other taxes include the real property tax (imposed at a local level for real estate transactions) as well as the social security contributions that apply to both the employer and the employee (of approximately 35% of the employee’s salary). The transfer tax and the stamp duty are two other taxes that apply in Poland. The Ministry of Finance is the one in charge of the policies regarding the taxation of companies and individuals.
As far as the accounting and reporting requirements are concerned, subsidiaries will follow the International Financial Reporting Standards or the Polish GAAP. The tax year is a 12-month period that is usually the same as the calendar year or another one. A self-assessment method is in place through which companies pay advance income tax during the year and can rely on the data from previous years to determine the amount. The final calculation is due three months before the end of the tax year.
Auditing requirements are only in place in some cases and they depend on the size of the business. They are mandatory for certain types of companies, the SA which is suited for large businesses as well as for banks or insurers. Other companies will need to go through the auditing process when two of the following three conditions are met: the average number of employed individuals is 50, the total net annual turnover if at least 5 million euros and/or the total balance sheet assets at the end of the tax year are at least 2.5 million euros.
Certain tax exemptions or reductions (for example for the taxation of dividends) can apply under the EU Parent-Subsidiary Directive. Our team can tell you how these apply in 2021.
In some situations, a branch may be transformed into a subsidiary when the parent company decides to make the transfer of assets in order to change the business form. One of our experts in Poland can give you more information about this.
The main advantage of the subsidiary over the branch is its independence from the parent company abroad. The foreign entity will still control its polish subsidiary (through being the majority shareholder in the subsidiary), however, it will not be liable for the debts that the subsidiary may incur in Poland. Moreover, the activities of the subsidiary can be different from those of the parent company, thus the business will not be constrained in this manner. We advise foreign companies to reach out to our agents for more information about the differences between branches and subsidiaries before deciding to expand the company to the Polish market.
If you want to open a subsidiary and need help with company formation in Poland in 2021, please contact our Polish company formation consultants. We can provide ongoing assistance to foreign investors throughout all of the subsidiary incorporation steps and in the post-registration phase.
Companyincorporationpoland.com is a part of Bridgewest.eu, a team of European and offshore company formation experts that has agents in many different countries. We also help investors with company formation in Slovakia and many more. We also work with a local team of partners at a Polish law firm who can provide different legal services to foreign and local investors.
Call us now at +48 42 663 65 03 to set up an appointment with our company formation agents in Poland. As a CGO Legal Counseling client, you will beneficiate from the joint expertise of local lawyers and international consultants for opening a company in Poland.
Michał Gawlak - Partner / Attorney-at-Law
Jakub Chajdas - Partner / Attorney
Piotr Owczarek -Partner / Attorney
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