Corporate Advisory Supervisor at RSM Poland
Legal Counsel/ Radca Prawny
What we keep seeing in our Corporate Advisory practice is that a vast majority of foreign companies that decide to enter the Polish market choose to establish a new commercial company for this purpose. The most popular choice here is a limited liability company. And this is not surprising in fact. On the one hand, it has a (relatively) simple registration procedure and low requirements regarding the minimum initial capital (PLN 5,000), and on the other hand, it offers the freedom of share trading and many options of adjusting its model to the partners’ needs. With all this, a limited liability company is a truly flexible tool for running your business in any size and any industry. However, it is not always expedient to start a subsidiary in Poland (and maintain it later on). For example, if a foreign company has a temporary project in Poland or would just like to emphasize its presence on the Polish market, a foreign entrepreneur may consider some alternatives to establishing a company in Poland, namely opening a branch or a representative office of its foreign company in Poland.
Branch of a foreign company in Poland: simplified form of running a business
A branch in Poland may be established both by companies seated in the European Union (without any limitations) and by those seated outside the European Union, provided that the country where a given company is seated allows Polish companies to establish branches on their territory on the basis of reciprocity. It is worth remembering that as of 1 January 2021 companies seated in the United Kingdom are also considered non-EU companies. You can learn more about changes in starting a business in Poland with the participation of British companies and British citizens from 1 January 2021 in the previous post on our blog. A branch of a foreign company may actually be called its “extension” in Poland. Clearly, the most important thing about a branch is that a foreign entrepreneur may run its business in Poland with it, within the limits of the business activity conducted by the foreign company. In other words, the line of business activity conducted by the branch in Poland cannot go beyond the line of business of the company that has established its branch abroad. A branch of a foreign enterprise in Poland shall be registered in the National Court Register (just like companies incorporated in Poland). However, it does not have an independent legal status (therefore, unlike a company incorporated in Poland, it is not an independent legal person), its own bodies, articles of association or share capital. In trading, the branch is known under the original business name of the foreign company, with the legal status of the foreign company translated into Polish and a note saying “branch in Poland”. In the scope of business pursued by the branch, the foreign company is represented by a representative appointed by this company, i.e. a given natural person, who can be either a Polish citizen or a foreigner. The representative, referred to in relevant regulations as “a person authorized in the branch to represent the foreign entrepreneur” is the head of the branch in Poland and is revealed in the National Court Register. You must also know that a branch of a foreign company (just like companies registered in Poland) is obliged to keep their accounts in line with the rules and principles set forth in the Polish Accounting Act, e.g. when it comes to keeping their accounting books or preparing financial statements.
Representative office of a foreign company in Poland: only for advertising or promotional purposes
Unlike a branch of a foreign company, a representative office in Poland may only be used to advertise and promote the foreign entrepreneur who has established it. Therefore, it is not possible to run a business in the form of a representative office. A representative office may be established both by EU companies and non-EU companies, regardless of the fact whether the country where a given company is seated allows Polish companies to establish representative offices on their territory on the basis of reciprocity. This is another important difference between a representative office and a branch. A representative office shall be registered in the Register of Representative Offices of Foreign Entrepreneurs kept by the Minister of Development, Labour and Technology. An entry in the Register of Representative Offices of Foreign Entrepreneurs is made for a period of 2 years. Upon the request of a foreign entrepreneur submitted before the expiry of the entry validity period, the entry may be extended for another 2-year period. Just like a branch, a representative office does not have an independent legal status (therefore, just like a branch, it is not an independent legal person), its own bodies, articles of association or share capital. A representative office is known under the original name of the foreign company with a note saying “representative office in Poland”. Just like in the case of a branch, a foreign entrepreneur is obliged to appoint a representative. The representative shall be a natural person, either a Polish citizen or a foreigner. The representative referred to in relevant regulations as “a person authorized in the representative office to represent the foreign entrepreneur” is the head of the representative office in Poland and is revealed in the Register of Representative Offices of Foreign Entrepreneurs. Like a branch, any representative office must keep their accounts in line with the rules and principles set forth in the Polish Accounting Act.
Is it a good idea to open a branch or a representative office in Poland instead of starting a company?
The answer to this question primarily depends on what a given foreign entrepreneur needs. In particular, it depends on the nature of business to be run in Poland. If the purpose of your presence in Poland is to run a regular, long-term business activity on the Polish market, starting a new company would usually be the best choice. However, if you consider the growing number of obligations (and the costs involved) resulting from registering and maintaining a company in Poland (like the obligation to report beneficial owners, obtain electronic signatures, keep a register of shareholders in the case of joint-stock companies, etc.), starting a company does not seem like the best solution in all cases. It may be a better idea to establish a branch or a representative office in Poland. Even though there are certain formalities and costs on the way, too, they are still smaller than in the case of incorporating a new company.
Registering or purchasing a separate company by a foreign entrepreneur still seems, in most cases, to be the most flexible format for starting your business in Poland. Yet, you cannot forget that it comes with some specific costs and obligations. Therefore, it is a good idea to consider whether in a given case it would not be more appropriate to establish a branch or a representative office as they entail less formalities and costs.
Do you need professional legal advice in starting or running your business in Poland? Or perhaps you would like to set up or liquidate a company, a branch or a representative office? We also offer registered companies for sale. Contact us and get support from experienced professionals.
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