Poland has weathered the global financial crisis better than most of its European neighbors, but how easy is it doing business there?
Poland has been steadily liberalizing its economy since 1990 and is currently placed by the World Bank as Europe’s eighth largest economy, largely due to its export-orientated private sector. This has allowed it to emerge from the global financial crisis in better shape than neighboring countries. Tourism, banking and energy are prominent growth sectors, with traditional exports in chemicals and textiles remaining a strong feature of the Polish economy.
Despite strong annual growth figures since 1991 – achieving 24 per cent growth compared to the EU average of 0.6 per cent – and a skilled workforce, there remain a number of hurdles facing the Polish economy that should be considered by businesses looking to establish and maintain business relations there. In particular, the recent change in government on a controversial reform agenda may impact on the previous government’s planned reforms.
Essential for anyone wishing to do business in Poland is an understanding that traditionally Polish businesses have retained a hierarchical and formal business culture. While management styles may differ among different personalities and company cultures (especially for multinational companies in the country), in a Polish-owned business you may find a Polish manager to be authoritative. Personal relationships based on trust and familiarity are key and seniority is an important concept in Polish business culture, especially evident in meetings where the senior employees dominate most of the discussions. They also enjoy lively debate and are not afraid of expressing their opinions, while remaining polite and courteous. Generally, with the influx of overseas investment and internationalization Poles in the private business sector are very professional and open-minded: this may not always be the case on the public sector side, though with increasing exceptions.
Construction activity in Poland is currently regulated by a variety of national laws. Since 2012, Polish authorities have been working on proposals to introduce a single construction code to replace the numerous acts regulating the industry.
Total implementation of the proposals has been delayed. However, a number of planned reforms have been pushed through. Most notably, the requirement for building permits has been lifted for minor construction projects. In a positive step forward for business certainty, there is now also a 14 day time limit for local authorities to file comments requiring an applicant to correct any mistakes in an application for a building permit.
The government has recently embarked on a program of public works to modernize its infrastructure. As such, road and rail transport systems, alongside renewable energy infrastructure projects, may present a number of construction project opportunities.
Enacted in 1974, the Polish Labor Code (“the Code”) governs employment and labor relations in Poland. The Code has been updated this year, with changes in the governance of fixed-term contracts taking effect. Such changes accompany an increase in the powers of the National Labor Inspectorate to access documentation of workers employed in hazardous or demanding conditions.
Despite recent reform attempts, Polish employment law is notably rigid. The updated Code now only permits contracts for a fixed-term or an indefinite-term, which are preceded by a probationary period, and must be concluded in writing. Alongside the Code, the influence of trade unions, employee works councils and collective bargaining is considerable in protecting workers’ rights.
Environmental regulation is well enforced in Poland to both national and EU standards. Poland has surpassed the EU target to reduce greenhouse emissions (20 percent), achieving a 32 percent reduction since 1990. There are also binding targets on energy efficiency which may impact business operations. An integrated permits regime operates in Poland, where activities present numerous environmental issues. Such permits are strictly regulated, with public consultations and five-year reviews.
Sanctions vary across pollution type, with air, water and waste more heavily regulated. Criminal liability may be incurred alongside a fine and civil damages. In addition, non-governmental organizations play a prominent role in opposing the grant of industrial permits, often successfully utilizing both national and EU law to delay projects.
Tax and Administration
Businesses operating in Poland generally benefit from a low and historically stable corporation tax rate of 19 per cent. There is, however, divergence in the VAT rate charged depending on the type of goods or services provided, though the VAT system has been harmonized at EU level. Polish authorities also levy a tax on civil law transactions, varying between 0.5 and 1 per cent. Withholding tax is also charged on dividends distributed abroad. Poland was recently praised in the World Bank’s Doing Business 2016 series for its introduction of enhanced electronic tax systems for company payment and filing of VAT and transport tax.
There are also a number of exemptions offered by the Polish government, for example income tax and real estate exemptions for operators in “Special Economic Zones” (“SEZs”) – uninhabited regions earmarked for rapid industrial development. There are currently 14 SEZs across Poland which have accumulated an estimated investment value of 100 billion Polish Zloty in 20 years of operation.
In 2015, Poland was rated 30th of 168 countries on Transparency International’s Corruptions Perceptions Index. The Criminal Code defines corruption widely, encompassing both direct and indirect undue benefits, alongside both active and passive acts. Crucially, no damage is required to be inflicted and there are no defenses or safe harbors recognized by the Criminal Code. Corruption laws and regulations in Poland are enforced by the AntiCorruption Bureau, and Poland is also a signatory of the United Nations Convention against Corruption.
In January 2015, the Internal Affairs Minister, Finance Minister and Prosecutor General reached an agreement on enforcing economic crimes, encompassing a commitment to cooperation between tax, police and court authorities and registration of trust property derived from economic crimes.
Investment and Dispute Resolution
Poland does not have specific arbitration laws. Rather, the process is administered though the Polish Chamber of Commerce and governed by the Polish Civil Procedure Code enacted in 1964, which is largely based on the United Nations Commission on International Trade Law (“UNCITRAL”) model law. There is no distinction between domestic and international arbitration, save for recognition and enforcement of international awards. International decisions must be confirmed by the Polish courts before they can be enforced. Due to the lack of judges with specialized expertise, confirmation of foreign decisions can be delayed. Though Poland is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, it has enacted two reservations concerning reciprocity and a limitation in application to “commercial” disputes only.
Poland further plans to amend its civil procedure rules to promote mediation as an alternative dispute resolution mechanism and submitted draft laws to Parliament in May 2015. It is intended that such amendments will reduce the duration and costs involved in resolving disputes.
Poland is a well-established member state within the EU with low levels of corruption and, as such, businesses may take certainty from the application of its supranational norms across a variety of areas such as environmental and VAT regulation. Commitments to promoting mediation as a dispute resolution tool are also welcomed. The Polish government’s repeated efforts to modernize and update its various codes across a number of sectors show a willingness to reflect a modern approach to business, but it will also require businesses to keep informed of continued developments and monitor the frequent delays in the implementation of new laws.
Moreover, the recent change in government may alter the reforms currently in progress and initiate unforeseen reforms across sectors. The continued political unrest in neighboring Ukraine and trade disruptions with Russia may also give investors pause for thought.