Foreign company branch or limited liability?
Foreign company branch in Poland may seem to be a good alternative to the limited liability company ( Sp. z o.o.) with foreign capital. The main reason for this, is cost of creation of the branch, which is lower than setting up a company. Foreign entrepreneur does not have an obligation to bring any additional share capital and avoids fees related to new certificate of incorporation. But keep in mind that one of the basics features of the foreign company branch is lack of separate legal entity, which means that all rights and responsibilities belong to the foreign company. And the same company is responsible with it’s whole wealth for the actions of the mandatory chosen representative. Furthermore, business of the branch cannot exceed beyond registered fields of the industry standard classification system.
Registering foreign company branch and limited liability company
To register foreign branch in Poland you need three legal statements:
- of establishing a branch on the territory of Poland and place of business,
- of appointment of the representative with notarized signature of the representative
- of notarized copy of the company agreement with original tenor from the foreign registry, translated by the Sworn translator.
Most time consuming and costly is registering a foreign branch in KRS (Country Court Registry). This stage may take from 30 up to 60 days. Application to the KRS and MSiG ( Court and Economical Monitor) costs 1000 PLN.
Setting up limited liability company is definitely more expensive, because it requires notarized copy of the company agreement. When creating the agreement it is wise to solve all aspects important for the future of the company. Which also helps to reduce costs related to altering the agreement. Notarization of the act of incorporation costs at least 600 PLN. Registration in KRS takes up to 6 months from date of the agreement. To that moment company functions as „organization pending”. In this window of time, shareholders are fully responsible for the company’s obligations. To register limited liability company in Poland you need to apply all required forms and documents to KRS and MSiG and bring a fee of 600 PLN.
Employment by foreign branch
For acquiring status of the employer by the foreign branch, it has to:
- place an entry in it’s statute, which states that foreign branch has separate organizational structure and funding,
- Acquire the right to independently employ and fire the employees. For that, foreign company has to authorize the branch to acquire rights and enlist commitments in the area of labor law. It should result from the statute or other document regulating the branch and it’s way of functioning of the foreign company.
Inadequate basis of authorization may cause a lot of issues. If statute or other regulating document lacks entries informing that the branch is and employer – employees will have to settle their accounts independently. Basis of authorization has to be granted to the branch as a organizational unit. But not a person authorized to representing foreign company in the branch. Also, branch has to indicate a representative responsible for employee relations. Such as signing work contracts or assigning tasks. Employee representative may be the same person assigned to representing foreign company or even plenipotent.
TAX responsibilities
According to regulations about CIT, foreign entities in Poland are subject to limited TAX responsibilities. Which means that they pay one law entity TAX only from the income acquired on the territory of Poland (the so-called source rule). Additionally branch may function as a VAT payer if:
- it leads taxed business on the territory of Poland,
- as employees,
- branch representant resides in Poland,
- branch operates in rented or owned space,
