With a population exceeding 38 million and ranking as the sixth-largest economy within the European Union, Poland currently stands as one of the most attractive destinations to do business, renowned for its welcoming investment climate. This, among others, is significantly underpinned by the country’s strategic geographical location at the heart of Europe, intersecting major trade routes.
In addition, with the hopeful prospect of an imminent end to the war in Ukraine, Poland emerges as a beacon of potential for companies aiming to contribute to the reconstruction of the war-torn region.
War in Ukraine and its impact on Poland’s entrepreneurial landscape
Since the outbreak of war, an estimated 6 million Ukrainian refugees have sought refuge and asylum in European Union countries. As of July 18, 2023, according to UNHCR data, Poland emerged as the primary destination for these displaced individuals, with approximately 1.6 million Ukrainians applying for asylum or seeking temporary protection within its borders.
Since then, Poland has not only become a shelter for refugees but also a new home for Ukrainian businesses. These Ukrainian companies have sought a safer operating environment, appreciating such advantages as Poland’s geographical location and cultural proximity. In addition, experts emphasize that, despite the ongoing war, Ukrainian companies are actively preparing for their country’s recovery. They are eager to establish partnerships that provide a solid foundation for future expansion, both into Western European markets and their homeland, Ukraine. Some even entertain that the branches established in Poland may become permanent, leading to mutually beneficial collaboration between Polish and Ukrainian businesses.
Taking the above into account, Poland emerges as an ideal destination for entrepreneurs looking to participate in Ukraine’s reconstruction efforts. However, to ensure success of this endeavor, it is essential to consider key aspects related to opening and running a business in Poland.
Specific business operational opportunities
First of all, it seems essential for an entrepreneur to determine at the outset whether they are establishing an entity in Poland or not. This aspect is especially important in the light of possibilities that Poland offers as one of the few countries in Europe which allows employment under a foreign contract without the requirement to establish a branch. The Polish employment system offers a variety of work arrangements corresponding to the specific needs of individuals based on their working environments.
Consequently, distinct forms of employment exist, each characterized by different principles of income taxation (progressive, linear or lump sum), social security contributions and labor law obligations. These forms encompass, among others: appointment to the Management Board, managerial contracts, B2B (business-to-business contracts), employment contract.
Also, under certain business justifications and proper structuring, individuals may choose to perform their duties based on two different legal forms, taking advantage of the benefits associated with various employment or cooperation arrangements, so-called “split structures”.
Hints on taxation of individual’s income
Taxation of an individual’s income plays a pivotal role in selecting the most suitable form. Certain forms offer tax preferences that are for instance provided for creative workers, by transferring copyrights to the employer, or for businesses conducting research and development activities.
However, choosing the most advantageous form of taxation often carries risks if not managed properly, and preferably should be executed with the guidance of a tax advisor, to ensure that proper accounting practices are in place. Due to the scope of duties performed, some activities may not fall under a given form of employment. Misclassifications may lead to the tax authorities questioning a chosen form of cooperation, potentially reclassifying e.g. the B2B contract as an employment contract and subjecting it to the progressive taxation rules (32% PIT above the threshold of PLN 120 000 income).
The aforementioned solutions are in accordance with the presently effective legal regulations.
For individuals temporarily relocated to Poland or with their center of personal or economic interests located outside Poland, determining tax residence is also crucial, adhering to the Polish Personal Income Tax Act and relevant tax treaties to prevent double taxation. Notably, Polish tax residents are taxed on their global income, whereas non-Polish residents are only taxed on income generated within Poland, making it essential to navigate these complexities with the aid of a professional tax advisor.
Finally, it is essential to emphasize that there is no “shadow payroll” concept in Poland. Individuals who are Polish tax residents or derive income from the territory of Poland are obliged to withhold monthly tax advances to the relevant tax authorities.
With regard to Polish Social Security (ZUS) and healthcare duties, depending on the business setup, these obligations may be fulfilled either by the employer or the individuals themselves.
To mitigate these risks and streamline operations, many businesses choose to outsource these obligations to professional consulting and accounting firms, who ensure that all fiscal responsibilities are accurately and punctually managed, thereby avoiding negative consequences and reducing operational costs.
In the field of human resources and payroll, professional consulting companies provide comprehensive support starting from the necessary registration depending on the type of employment, along with all related obligations in the field of insurance and taxes, through monthly calculation of remuneration and, at the end of the year, preparation of annual declarations. They also support entrepreneurs in the event of termination of employment, settlement of payroll and issuance of necessary documents.
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