Cross-Border Transformation Poland – How to move your business to Poland
Introduction
In this articles we provide you with a roadmap for transitioning your business established outside of Poland into a Polish entity (cross-border transition) and merging two entities located in Polish and foreign jurisdiction (cross-border mergers). We explain what are the strategic steps necessary for smooth transition of capital companies, highlight Poland’s dynamic market and favorable business climate. From legal procedures to economic benefits, this articles covers all facets of moving your business to Poland. It’s tailored to help you navigate through cimplexicites of cross-border transformation to Poland.
Whether you’re seeking growth opportunities or operational advantages, this articles will equip you with the knowledge to establish your business presence in Poland successfully.
The attractiveness of Poland as a business destination
The Polish market presents a compelling landscape for foreign investors, characterized by its strategic location in the heart of Europe. A robust and growing economy, and a sizable consumer market. Over last few years significant changes occurred on Poland in terms of how attractive it is for foreign investors. Poland’s attractiveness is bolstered by its stable political climate, it’s a member state of an European Union, and it has a well-educated workforce offering competitive labor costs. Recent economic data underscores this appeal, with Poland’s GDP reaching USD 688.18 billion in 2022, marking a steady growth trajectory. The projected Poland’s GDP for 2024 is USD 880 billion. All of the above makes Poland of the most popular country compared to other EU Member States.
The country has also demonstrated resilience, maintaining economic stability through global challenges such as the 2008 financial crisis and the COVID-19 pandemic. Looking ahead, the future of Poland’s economy appears promising, with forecasts predicting a GDP growth acceleration to 2.7% in 2024 and 3.2% in 2025.
This optimistic outlook is supported by a combination of rising real wages, government social support, and the anticipated influx of EU funds, which are expected to stimulate private consumption and investment.
Poland’s economic zones, such as the Katowice Special Economic Zone and the Lódź Special Economic Zone, have received global recognition, further enhancing the country’s profile as an investment destination.
Legal framework for business in Poland
Poland’s legal framework for business is grounded in the Polish Commercial Companies Code, Civil Code and Polish Entrepreneurs Law. Additionally, the participation of foreign entrepreneurs in the Polish economy is regulated by the Law on the Principles of Participation of Foreign Entrepreneurs and Other Foreign Persons in Commercial Transactions on the Territory of the Republic of Poland. This framework ensures that businesses in Poland can operate with clarity and security. The introduction of new regulations facilitating cross-border reorganizations, including ‘cross border division’, further enhances the legal framework for companies looking to reorganize within the EU internal market.
Before you decide to start your business in Poland, you need to decide what legal form will be most suitable for you. You can chose sole proprietorship (individual business run by natural persons), limited liability company, joint stock company, or any of the other forms permitted by law.
Whether you are considering setting up a new Polish company or a cross-border transformation of a business that is already operating abroad, our law firm will help you choose the most appropriate form.
Implementing new Polish regulations on cross-border transformations
It was not until mid-September 2023 that new regulations for cross-border conversions, cross-border mergers, and the protection mechanisms for creditors, minority shareholders, and employees of the merging companies were introduced into the Polish Company Law. Before that polish companies conducted cross-border reorganisations only based on company law covering other
The newly proposed regulations are an implementation of two EU Directives: (i) Directive of the European Parliament and of the Council (EU) 2019/2121 of November 27, 2019, amending Directive (EU) 2017/1132 with regard to cross-border transformation, merger and division of companies and the activities of a group of companies and (ii) Directive of the European Parliament and of the Council (EU) 2019/1151 of June 20, 2019, amending Directive (EU) 2017/1132 with regard to the use of digital tools and processes in company law.
In addition to implementing the EU Directives, the amendment to the Commercial Companies Code was also the implementation of a judgment of the Court of Justice of the European Union in case C-106/16 Polbud Wykonawstwo sp. z o.o. – that judgment concerned Polish regulations that required an entrepreneur to liquidate its Polish company before executing a cross-border conversions. The Court of Justice ruled that Polish domestic law in this regard is incompatible with the EU freedom of establishment and needed to be amended.
The described significant changes in Polish law are groundbreaking in terms of normalizing cross-border company and domestic corporate reorganizations in Poland and the European Union. The new proposed regulations were greatly anticipated in Poland.
Cross-Border Transformation – basic information
What exactly is the cross-border transformation to Poland
The purpose of cross-border transformation is to move the location of your company, which is headquartered in another EU member state, to Poland, while maintaining the continuation of its operations.
Thus, your company will not be dissolved, nor does the liquidation process begin. The goal is continuity of operations of the same entity with a change in the domestic law to the two new reorganization processeswhich it will be subject after the transformation. Hence, all contracts and obligations previously undertaken by your company will remain in force.
Who can participate in cross-border transformation
Foreign legal forms that can be cross-border converted into a Polish company are defined in Annex II to Directive (EU) 2017/1132. These can be, for example:
from Germany: Aktiengesellschaft, Kommanditgesellschaft auf Aktien, Gesellschaft mit beschränkter Haftung;
from France: société anonyme, société en commandite par actions, société à responsabilité limitée, société par actions simplifiée;
from Italy: società per azioni, società in accomandita per azioni, società a responsabilità limitata;
From Lithuania: akcinė bendrovė, uždaroji akcinė bendrovė.
After conversion, the company is given a proper Polish legal form:
limited liability company (PL. spółka z ograniczoną odpowiedzialnością),
limited joint-stock partnership (PL. spółka komandytowo-akcyjna),
joint-stock company (PL. spółka akcyjna).
What is the applicable law for cross-border transformation
To determine which domestic law is applicable to the transformation, we must establish the stage at which the whole process currently is. You need to check whether a certificate of compliance of the cross-border transformation with domestic law has already been issued (a detailed of description of what this documents is exactly can be found later).
Until the certificate is issued, the law of the previous domicile applies to the company. However, once the certificate is obtained, the tax lawof the receiving country – Poland in this case – applies.
Cross-border transformation plan
Your first step to successfully carry out the entire process is preparing a cross-border transformation plan. This is a rather elaborate document that contains the most important information on how the transformation will be carried out. According to the Polish legal system, it must include, among other things:
draft of the Articles of Incorporation of Articles of Association of the company in accordance with the Polish law,
the proposed timetable for cross-border reorganization,
list of powers granted by the transformed company to the Shareholders,
securities of claims proposed to the creditors,
benefits granted to members of the company’s bodies,
the likely effects of the cross-border reorganization processes on the state of employment,
the conditions for exercising the right of creditors, employees, and shareholders, and the address of the website where information on these conditions can be obtained free of charge.
Afterwards, your transformation plan may be subject to an audit conducted by an independent expert. However, in some situations such an audit will not be required or may be waived.
Shareholders, creditors and employees (or their representatives) may submit comments on the transformation plan. The comments must be submitted at least five working days before the date of the shareholders’ meeting or general meeting at which the resolution on the cross-border transformation is to be adopted.
Management Board Report
Another document that companies must prepare for a cross-border conversions is a Management Board’s Report. The Report is to explain the legal basis and justify the economic aspects of the cross-border transformations, including explaining the effects of the transformation on employees and on the company’s future operations.
The Report consists of two parts – the first contains a section for the corporate bodies – the Shareholders. The second section is for the Employees. You may decide to prepare both sections within one document, or two separate reports for shareholders and employees, respectively.
The part addressed to Shareholders
The part of the report that is addressed to the shareholders should specify:
the share buyback price – if a minority shareholders are being bought out – along with the method of determining the price,
the effects of the cross-border conversion on the shareholders,
the rights and remedies of shareholders who are entitled to be bought back.
The Commercial Companies Code says that you do not have to prepare a Report in this part if the company is a one-person company, or if all Shareholders have agreed to waive the preparation of a Report in this part.
The part addressed to the Employees
The Report, in the part intended for Employees, specifies in particular:
the effects of the cross-border transformation on labor relations, as well as the measures applied to protect these relations,
significant changes in the applicable terms and conditions of employment and with regard to the company’s place of business,
to what extent the information listed above applies to subsidiaries.
The Management Board of the transformed company, in accordance with the Polish company law, shall attach to the Report the opinion of the employees or their representatives.
The Report in the employee section is not required if the transformed company and its subsidiaries do not employ any employees. If the company employs only Management Board Members, it does not need to prepare a Report.
Actions to be taken care of before adopting resolution on cross-border reorganizations
Public release of the transformation documents
Before your company adopts a resolution on cross-border transformation – which is the final stage of the cross-border reorganization – you must make available for public inspection the transformation documents. These are (i) a plan for cross-border transformation and (ii) a notice to the company’s shareholders, creditors and employees to submit comments on the transformation plan.
You can do the public disclosure in two ways:
you will file these documents with the registration court at least 5 weeks before the resolution on the transformation,
you will make the documents available on your website at least 5 weeks prior to the adoption of the resolution on transformation and notify the registration court about it.
Notification of the Shareholders
Another requirement that your company must meet is to notify the shareholders of its intention to facilitate cross-border reorganizations. The notification is made by the company’s Management Board.
The Commercial Companies Code requires a minimum of two notifications. The first must take place no later than 6 weeks before the meeting at which the resolution on cross-border conversion will be adopted. The second notice, on the other hand, must occur no more than 2 weeks after the first notice.
Share Buyback
In certain cases, a Shareholder who does not agree to a cross-border conversion may demand that the the company buys his shares out of the company. This applies to a Shareholder who:
voted against the transformation resolution,
or
was not allowed to participate in the shareholders’ meeting at which the resolution on cross-border transformation was adopted
The shareholder must submit a repurchase demand to the company within 10 days of the adoption of the resolution on transformation. In turn, the company has 2 months to buy back the shares and pay the purchase price.
Certificate of Compliance
Once you have gone through all the steps described above, you can finally apply for a Certificate on the legality of the cross-border conversion. The registration court then sends the applications of capital companies going through reorganization processes to the competent tax authorities (National Revenue Administration).
You must attach a number of documents to the application, but most importantly:
a cross-border transformation plan,
Management Board’s Report,
a copy of the resolution on cross-border conversion
a statement from the Members of the Management Board that the resolution on cross-border reorganization has not been challenged within the prescribed period,
a statement from the Management Board regarding the place of actual management or business of the company after the date of conversion.
The registration court then has 3 months to issue a Certificate of Compliance of the cross-border transformation with Polish law. If, on the other hand, the court finds deficiencies in the application, it may call for their completion and set a new deadline to facilitate cross border reorganizations.
After the Certificate is issued, the company’s corporate bodies – Management Board – must submit it to the registry court of the country where the company will have its new headquarters.
The registry court accepts the Certificate of Compliance issued by the competent authority as a final confirmation that the procedures and formalities have been duly completed.
Tax Considerations
In general, the conversion should be tax-neutral for your company. Nevertheless, you must take into account the need to pay the so-called exit tax. This is a tax equivalent to the corporate income tax (CIT) your company would have to pay on profit gained in given tax year. This applies to the fiscal year of termination of operations in the country from which the company is transferred. Ensuring tax neutrality should be consulted with the tax advisor. Understanding the impact of tax deductible costs on financial planning is crucial for companies undergoing cross-border transformation, especially in light of Polish CIT law which requires careful consideration of the limitation of deductibility of certain fees for intangible services, royalties, and insurance costs.
When a company undergoes cross-border reorganisations, it can relocate its tax jurisdiction. This results in unrealized profits, originally taxable in the company’s home country. After the being taxed at a 19% rate for unrealized gains in the new jurisdiction.
According to Polish Tax Law standard CIT tax base rate is 19%. However, if the capital companies have revenues for the tax year lower than EUR 2,000,000, the tax rate is 9% (excluding capital gains).
Preventing Tax Avoidance
To avoid being accused of tax avoidance, remember to consult each transformation with a lawyer or tax advisor. A helpful tool for tax purposes is the ability to apply to the tax authorities for a tax interpretation before commencing the transformation. The tax interpretation of state authorities is binding and will give you peace of mind throughout the entire process.
If you need help with the transformation or want additional explanations, please contact our law firm. We can help.
