Junior Accountant at RSM Poland
Business activity in Poland can be conducted both by domestic and foreign entrepreneurs. Foreign entrepreneurs who want to start their business in Poland may open a branch of their foreign company on the territory of the Republic of Poland, and in this article I will share some insight as to what this branch office and its accounting is like.
A few words about how a branch of a foreign company operates
A branch office of a foreign company is a physically separated part of business of the parent company, yet it is not a separate legal entity. As the branch is not independent in its economic relations, it is obliged to run business only in the scope of business of the parent company. What is more, the name of the branch should be the same as the name of the parent company, and should also include:
- its legal form expressed in Polish,
- the phrase “oddział w Polsce” (branch in Poland).
Under the legal regulations, if the branch is not represented by an authorised body of the parent company, a representative of the foreign company must be appointed, and their details must be included in the application to the National Court Register. What is important is that when establishing a branch office of a foreign company in Poland, you do not have to accumulate any share capital. A foreign investor establishing a branch in Poland assumes unlimited liability for the branch operations, with full rights and obligations related to running this branch.
Prowadzanie ksiąg rachunkowych
Under the Freedom of Economic Activity Act, the books of a branch office of a foreign company operating in Poland must be kept:
- in Polish,
- in accordance with the Accounting Act.
The books can be kept either at the seat of the parent company or at the branch office.
What is special about the branch’s accounting is that there is a special “ring-fenced fund” for recording the assets acquired by the branch as a result of their allocation by the parent company as the branch’s equity.
Moreover, any settlements between the branch and the parent company shall be recorded on the “intercompany settlements” account, broken down into titles of settlements.
Using a VAT number
Any foreign entity setting up its branch in Poland is obliged to have a VAT number, which is assigned following a submission of either a NIP-2 or NIP-8 form, depending on the rules and principles adopted by a given tax office. For VAT and CIT purposes, this number remains the same for the parent company and its branch office.
An exception here is a situation in which the branch of a foreign company employs staff. In such case, the branch should have its own VAT number, because if the branch is subject to the obligation to pay social security contributions and advance personal income tax payments, the branch is considered an independent contributor who is independent from the parent company, according to tax authorities. The VAT number assigned to the branch of a foreign entrepreneur shall be used only for this type of settlements, which means that it shall not be provided on invoices.
Given the fact that the head entity and its branch office, the latter being totally dependent on the former, have the same VAT number, they are considered a single taxpayer under the VAT Act: what follows is that any services provided between them do not need to be taxed. However, any transfer of goods to Poland from another European Union country or the other way round is given a different treatment. The said transfer can be considered, as appropriate:
- intra-Community supply of goods,
- intra-Community acquisition of goods,
and treated as a non-transactional transfer of goods, characterised by the lack of any transfer of the right to control the goods to another entity.
There is no requirement for a foreign entity to register for VAT purposes in Poland. However, in order for a branch of a foreign company to settle the input tax on the purchase of goods and services, the foreign entity (and not its branch office) must register, using the VAT-R form. This results from the fact that the branch itself only performs the VAT obligations of the parent company. As a prerequisite for registration, the entity must:
- perform business activity subject to VAT,
- employ staff,
- have technical resources necessary to do business.
Head company as a CIT payer
Just like with VAT, when it comes to CIT, it is the parent entity and not the branch of a foreign company that is considered a taxpayer of the aforementioned tax. Under the provisions of the CIT Act, a principle of limited tax liability is applied to the head company that does not have its registered office or management board in Poland, meaning that only that part of the income that was generated by its branch in Poland is taxed. It must be emphasised, however, that if a double taxation treaty has been concluded with the country where the head company has its registered office, regulations of this treaty shall prevail.
Preparing and approving financial statements
A branch of a foreign entrepreneur located in Poland and running business here is under obligation to prepare annual financial statements in accordance with Polish legal regulations. Subsequently, the financial data included in the said financial statements are included in the financial statements prepared by the parent company in accordance with accounting regulations in force in the country where it is seated.
The branch prepares its financial statement not later than within three months from the balance sheet date. Under the Accounting Act, a single financial statement of the branch of a foreign company does not have to be approved, because this financial statement is considered automatically approved once the joint financial statements prepared by the head company and featuring financial data from the branch are approved. However, under the Polish regulations, branches of foreign companies must submit their financial statements to the National Court Register.
Summing up, a foreign entrepreneur running a business in Poland in the form of a branch, shall, upon meeting certain formal requirements, i.e. registering with the registry of entrepreneurs held by the National Court Register, obtaining a VAT number and registering for VAT purposes, be obliged to keep books of account, settle PIT and VAT, and prepare financial statements in accordance with the regulations in force in Poland. It is a good idea to entrust a professional provider of accounting services with these tasks as it will ensure that the branch’s books are kept in line with the Polish Accounting Act and the Polish tax law.
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