Policies Towards Foreign Direct Investment

Italy welcomes foreign direct investment (FDI).  As a European Union (EU) member state, Italy is bound by the EU’s treaties and laws.  Under EU treaties with the United States, as well as OECD commitments, Italy is generally obliged to provide national treatment to U.S. investors established in Italy or in another EU member state.

EU and Italian antitrust laws provide Italian authorities with the right to review mergers and acquisitions for market dominance.  In addition, the Italian government may block mergers and acquisitions involving foreign firms under its investment screening authority (known as “Golden Power”) if the proposed transactions raise national security concerns.  Enacted in 2012 and further implemented through decrees or follow-on legislation in 2015, 2017, 2019 and 2020, the Golden Power law allows the Government of Italy (GOI) to block foreign acquisition of companies operating in strategic sectors: defense/national security, energy, transportation, telecommunications, critical infrastructure, sensitive technology, and nuclear and space technology.  In March 2019, the GOI expanded the Golden Power authority to cover the purchase of goods and services related to the planning, realization, maintenance, and management of broadband communications networks using 5G technology.  Under the April 6, 2020 Liquidity Decree the Prime Minister’s Office issued, the government strengthened Italy’s investment screening authority to cover all sectors outlined in the EU’s March 2019 foreign direct investment screening directive.  The decree also extends (at least until June 30, 2021) Golden Power review to certain transactions by EU-based investors and gives the government new authorities to investigate non-notified transactions.

The Italian Trade Agency (ITA) is responsible for foreign investment attraction as well as promoting foreign trade and Italian exports.  According to the latest figures available from the ITA, foreign investors own significant shares of 12,768 Italian companies.  As of 2019, these companies had overall sales of €573.6 billion and employed 1,211,872 workers.  ITA operates under the coordination of the Italian Ministry of Economic Development and the Ministry of Foreign Affairs.  As of April 2021, ITA operates through a network of 79 offices in 65 countries.  ITA promotes foreign investment in Italy through Invest in Italy program: http://www.investinitaly.com/en/.  The Foreign Direct Investment Unit is the dedicated unit of ITA for facilitating the establishment and development of foreign companies in Italy.

While not directly responsible for investment attraction, SACE, Italy’s export credit agency, has additional responsibility for guaranteeing certain domestic investments.  Foreign investors – particularly in energy and infrastructure projects – may see SACE’s project guarantees and insurance as further incentive to invest in Italy.

Additionally, Invitalia is the national agency for inward investment and economic development operating under the Italian Ministry of Economy and Finance.  The agency focuses on strategic sectors for development and employment.  Invitalia finances projects both large and small, targeting entrepreneurs with concrete development plans, especially in innovative and high-value-added sectors.  For more information, see https://www.invitalia.it/eng.  The Ministry of Economic Development (https://www.mise.gov.it/index.php/en/) within its Directorate for Incentives to Businesses also has an office with some responsibilities relating to attraction of foreign investment.

Italy’s main business association (Confindustria) also helps companies in Italy:  https://www.confindustria.it/en.

Limits on Foreign Control and Right to Private Ownership and Establishment

Under EU treaties and OECD obligations, Italy is generally obliged to provide national treatment to U.S. investors established in Italy or in another EU member state.  EU and Italian antitrust laws provide national authorities with the right to review mergers and acquisitions over a certain financial threshold.  The Italian government may block mergers and acquisitions involving foreign firms to protect the national strategic interest or in retaliation if the government of the country where the foreign firm is from applies discriminatory measures against Italian firms.  Foreign investors in the defense and aircraft manufacturing sectors are more likely to encounter resistance from the many ministries involved in reviewing foreign acquisitions than are foreign investors in other sectors.

Italy maintains a formal national security screening process for inbound foreign investment in the sectors of defense/national security, transportation, energy, telecommunications, critical infrastructure, sensitive technology, and nuclear and space technology through its “Golden Power” legislation.  Italy expanded its Golden Power authority in March 2019 to include the purchase of goods and services related to the planning, realization, maintenance, and management of broadband communications networks using 5G technology.  On April 6, 2020 the GOI passed a Liquidity Decree in which the Prime Minister’s office made three main changes to its Golden Power authority to prevent the hostile takeover of Italian firms as they weather the financial impact of the COVID-19 crisis.  First, under the decree Golden Power authority now encompasses the financial sector (including insurance and credit) and all the sectors listed under the EU’s March 19, 2019 regulations establishing a framework for the screening of foreign direct investment.  The Italian government previously had adopted only some of the sectors in the EU regulations when it passed its National Cybersecurity Perimeter legislation in November 2019.  The EU regulations cover:  (1) critical infrastructure, physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defense, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate; (2) critical technologies and dual use items, including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defense, energy storage, quantum and nuclear technologies, and nanotechnologies and biotechnologies; (3) supply of critical inputs, including food security, energy, and raw materials; (4) access to sensitive information; and (5) freedom of the media.

Second, until the end of the COVID-19 pandemic, EU-based investors must notify Italy’s investment screening authority if they seek to acquire, purchase significant shares in, or change the core activities of an Italian company in one of the covered sectors.  Previously EU-based investors had to notify the government only of transactions deemed strategic to national interests, such as in the defense sector.  Third, the government now has the power to investigate non-notified transactions and require that both public and private entities cooperate with the investigation.  In addition to being able to fine companies for non-notified transactions, the government can impose risk mitigation measures for non-notified transactions.  An interagency group led by the Prime Minister’s office reviews acquisition applications and makes recommendations for Council of Ministers’ decisions.

Other Investment Policy Reviews

The OECD published its Economic Survey for Italy in April 2019.  See https://www.oecd.org/economy/surveys/Italy-2019-OECD-economic-survey-overview.pdf.

Business Facilitation

Italy has a business registration website, available in Italian and English, administered through the Union of Italian Chambers of Commerce:  http://www.registroimprese.it.  The online business registration process is clear and complete, and available to foreign companies.  Before registering a company online, applicants must obtain a certified e-mail address and digital signature, a process that may take up to five days.  A notary is required to certify the documentation.  The precise steps required for the registration process depend on the type of business being registered.  The minimum capital requirement also varies by type of business. Generally, companies must obtain a value-added tax account number (partita IVA) from the Italian Revenue Agency; register with the social security agency (Istituto Nazionale della Previdenza Sociale– INPS); verify adequate capital and insurance coverage with the Italian workers’ compensation agency (Istituto Nazionale per L’Assicurazione contro gli Infortuni sul Lavoro – INAIL); and notify the regional office of the Ministry of Labor.  According to the World Bank Doing Business Index 2020, Italy’s ranking decreased from 67 to 98 out of 190 countries in terms of the ease of starting a business:  it takes seven procedures and 11 days to start a business in Italy.  Additional licenses may be required, depending on the type of business to be conducted.

Invitalia and the Italian Trade Agency’s Foreign Direct Investment Unit assist those wanting to set up a new business in Italy.  Many Italian localities also have one-stop shops to serve as a single point of contact for, and provide advice to, potential investors on applying for necessary licenses and authorizations at both the local and national level.  These services are available to all investors.

Outward Investment

Italy neither promotes, restricts, nor incentivizes outward investment, nor restricts domestic investors from investing abroad.

Italy does not have a bilateral investment treaty (BIT) with the United States.

Italy has bilateral investment agreements with the countries listed below.  (Additional information and the text of the agreements are available at the following website:  http://investmentpolicyhub.unctad.org/IIA/CountryBits/103.)

Albania, Angola, Argentina, Bahrain, Bangladesh, Barbados, Belize (signed, not in force), Brazil (signed, not in force), Cameroon, Cape Verde (signed, not in force), Chad, Chile, China, Congo, Cote d’Ivoire (signed, not in force),  Cuba, Democratic Republic of Congo (signed, not in force), Djibouti, Dominican Republic, Egypt, Eritrea, Ethiopia,  Gabon, Ghana (signed, not in force), Guatemala, Guinea, Hong Kong, Iran, Jamaica, Democratic People’s Republic of Korea  (signed, not in force),  Republic of Korea, Republic of Kuwait, Lebanon, Libya, Malawi, Malaysia, Malta (signed, not in force), Mauritania, Mexico, Republic of Mongolia, Morocco, Mozambique, Namibia, Nicaragua, Nigeria, Oman, Pakistan, Panama, Paraguay, Peru, Philippines, Qatar, Russian Federation, Saudi Arabia, Senegal, Serbia (signed, not in force), Sri Lanka, Sudan (signed, not in force), Tanzania, United Republic of Tunisia, Turkey, Turkmenistan (signed, not in force), United Arab Emirates, Uruguay, Venezuela (signed, not in force), Vietnam, Yemen, Zambia, Zimbabwe (signed, not in force).

Italy has not ratified a BIT since 2009 and has not negotiated a BIT since 2014.  Since 2009, investment treaty negotiations fall within the competence of the EU:  http://ec.europa.eu/trade/policy/accessing-markets/investment/.

Likewise, Italy’s FTA negotiations are handled at the EU level:  http://ec.europa.eu/trade/policy/.

Italy shares a bilateral taxation treaty with the United States.  The text of the treaty is available at:  https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z.

Transparency of the Regulatory System

Regulatory authority exists at the national, regional, and municipal level.  All applicable regulations could be relevant for foreign investors.  The GOI and individual ministries, as well as independent regulatory authorities, develop regulations at the national level.  Regional and municipal authorities issue regulations at the sub-national level.  Draft regulations may be posted for public comment, but there is generally no requirement to do so.  Final national-level regulations generally are published in the Gazzetta Ufficiale (and only become effective upon publication).  Regulatory agencies may publish summaries of received comments.

No major regulatory reform affecting foreign investors was undertaken in 2020.

Aggrieved parties may challenge regulations in court.  Public finances and debt obligations are transparent and are publicly available through banking channels such as the Bank of Italy (BOI).

International Regulatory Considerations

Italy is a Member of the European Union (EU).  EU directives are brought into force in Italy through implementing national legislation.  In some areas, EU procedures require Member States to notify the European Commission (EC) before implementing national-level regulations.  Italy on occasion has failed to notify the EC and/or the World Trade Organization (WTO) of draft regulations in a timely way.  For example, in 2017 Italy adopted Country of Origin Labelling (COOL) measures for milk and milk products, rice, durum wheat, and tomato-based products.  Italy’s Ministers of Agriculture and Economic Development publicly stated these measures would support the “Made in Italy” brand and make Italian products more competitive.  Though the requirements were widely regarded as a Technical Barrier to Trade (TBT), Italy failed to notify the WTO in advance of implementing these regulations.  Moreover, in March 2020, the Italian Ministers of Agriculture and Economic Development extended the validity of such COOL measures until December 31, 2021.  Italy is a signatory to the WTO’s Trade Facilitation Agreement (TFA) and has implemented all developed-country obligations.

Legal System and Judicial Independence

Italian law is based on Roman law and on the French Napoleonic Code law.  The Italian judicial system consists of a series of courts and a body of judges employed as civil servants.  The system is unified; every court is part of the national network.  Though notoriously slow, the Italian civil legal system meets the generally recognized principles of international law, with provisions for enforcing property and contractual rights.  Italy has a written and consistently applied commercial and bankruptcy law.  Foreign investors in Italy can choose among different means of alternate dispute resolution (ADR), including legally binding arbitration, though use of ADR remains rare.  The GOI in recent years has introduced justice reforms to reduce the backlog of civil cases and speed new cases to conclusion.  These reforms also included a digitization of procedures, and a new emphasis on ADR.

Regulations can be appealed in the court system.

Laws and Regulations on Foreign Direct Investment

Italy is bound by EU laws on FDI.

Digital Services Tax

In 2020, Italy began implementing a digital services tax (DST), applicable to companies that meet the following two conditions:

1. €750 million in annual global revenues from any source, not just digital services; and,
2. €5.5 million in annual revenues from digital services delivered in Italy.

As currently formulated, many U.S. technology companies will fall under Italy’s DST, and some Italian media firms could also be subject to the tax.  Taxes incurred in 2020 are due in May 2021.   (The government has twice postponed the tax payment deadline.)  The government has declared that payments for future tax years will also be due in the month of May of the following year.  The Italian DST includes a sunset clause should countries reach a multilateral agreement in the G20/OECD Inclusive Framework negotiations to reform the international tax regime.

Competition and Anti-Trust Laws

The Italian Competition Authority (AGCM) is responsible for reviewing transactions for competition-related concerns.  AGCM may examine transactions that restrict competition in Italy as well as in the broader EU market.  As a member of the EU, Italy is also subject to interventions by the European Commission Competition Directorate (DG COMP).  AGCM decisions can be appealed in courts.  In March 2020, at the beginning of the COVID health crisis, AGCM launched an investigation against Amazon and eBay for price spikes on hand sanitizer and other products.  In July 2020 AGCM launched an investigation against Apple and Amazon for banning the sale of Apple and Beats branded products to retailers who do not join the official program.  In September 2020, the Competition Authority initiated an investigation of Google, Apple and Dropbox for alleged unfair commercial practices and contractual clauses.

Expropriation and Compensation

The Italian Constitution permits expropriation of private property for “public purposes,” defined as essential services (including during national health emergencies) or measures indispensable for the national economy, with fair and timely compensation.  Expropriations have been minimal in 2020.

Dispute Settlement

ICSID Convention and New York Convention

Italy is a member state of the World Bank’s International Centre for the Settlement of Investment Disputes (ICSID convention).  Italy has signed and ratified the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).  Italian civil law (Section 839) provides for and governs the enforcement of foreign arbitration awards in Italy.

Italian law recognizes and enforces foreign court judgments.

Investor-State Dispute Settlement

Italy is a contracting state to the 1965 Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States (entered into force on April 28, 1971).

Italy has had very few publicly known investment disputes involving a U.S. person in the last 10 years.  Italy does not have a history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Italy is a party to the following international treaties relating to arbitration:

• The 1927 Geneva Convention on The Execution of Foreign Arbitral Awards (entered into force on February 12, 1931); and
• The 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (entered into force on May 1, 1969); and
• The 1961 European Convention on International Commercial Arbitration (entered into force on November 1, 1970).

Italy’s Code of Civil Procedure (Book IV, Title VIII, Sections 806-840) governs arbitration, including the recognition of foreign arbitration awards.  Italian law is not based on the UNCITRAL Model Law; however, many of the principles of the Model Law are present in Italian law.  Parties are free to choose from a variety of Alternative Dispute Resolution methods, including mediation, arbitration, and lawyer-assisted negotiation.

Bankruptcy Regulations

Italy’s bankruptcy regulations are somewhat analogous to U.S. Chapter 11 restructuring and allow firms and their creditors to reach a solution without declaring bankruptcy.  In recent years, the judiciary’s role in bankruptcy proceedings has been reduced to simplify and expedite proceedings.  In 2015, the Italian parliament passed a package of changes to the bankruptcy law, including measures to ease access to interim credit for bankrupt companies and to restructure debts.  Additional changes were approved in 2017 (juridical liquidation, early warning, simplified process, arrangement with creditors, insolvency of affiliated companies as a group, and reorganization of indebtedness rules).  The measures aim to reduce the number of bankruptcies, limit the impact on the local economy, and facilitate the settlement of corporate disputes outside of the court system.  The reform follows on the 2015 reform of insolvency procedures.  In early 2019, the government issued an “implementation decree” for the 2017 bankruptcy reform legislation.  In the World Bank’s “Doing Business Index 2020,” Italy ranks 21 out of 190 economies in the category of “Ease of Resolving Insolvency.”

Investment Incentives

The GOI offers modest incentives to encourage private sector investment in targeted sectors and economically depressed regions, particularly in southern Italy.  The incentives are available to eligible foreign investors as well.  Incentives include grants, low-interest loans, and deductions and tax credits.  Some incentive programs have a cost cap, which may prevent otherwise eligible companies from receiving the incentive benefits once the cap is reached.  The GOI applies cost caps on a non-discriminatory basis, typically based on the order in which the applications were filed.  The government does not have a practice of issuing guarantees or jointly financing foreign direct investment projects.

Italy provides an incentive for investments by SMEs in new machinery and capital equipment (“New Sabatini Law”), available to eligible companies regardless of nationality.  This investment incentive provides financing, subject to an annual cost cap.  Sector-specific investment incentives are also available in targeted sectors.  The government has renewed “New Sabatini Law” benefits, extending them through 2021.

In January 2018, the GOI also provided “super amortization” and “hyper amortization” (essentially generous tax deductions) on investments in special areas of the economy.  Of these the 2019 budget law renewed only “hyper amortization.”  The GOI reintroduced the “super amortization” by decree in December 2019 to stimulate investment.  Both the 2020 and 2021 budget laws replaced these measures with a tax credit on investment goods.

In the 2021 budget, the GOI renewed the broad “Industry 4.0” initiative launched by the previous government, which had expired in 2020.  The GOI allocated €23.8 billion in 2021-2023 for the private investment plan to transition to “Industry 4.0,” which aims to improve the Italian industrial sector’s competitiveness through a combination of policy measures, tax credits, and research and infrastructure funding.  Additionally, in the 2021 budget, the GOI allocated €2 billion for deferred tax assets to spur bank mergers and attract a potential buyer for state-owned Monte dei Paschi di Siena.

The Italian tax system generally does not discriminate between foreign and domestic investors, though the digital services tax implemented by Parliament in December 2019 and now accruing will have a significant impact on certain U.S. companies and affect some Italian media companies as well.  The corporate income tax (IRES) rate is 24 percent.  In addition, companies may be subject to a regional tax on productive activities (IRAP) at a 3.9 percent rate.  The World Bank estimates Italy’s total tax rate as a percent of commercial profits at 59.1 percent in 2019, higher than the OECD high-income average of 39.7 percent.

Foreign Trade Zones/Free Ports/Trade Facilitation

The main free trade zone (FTZ) in Italy is in Trieste, in the northeast of the country.  The goods brought into the zone may undergo transformation, free of any customs restraints.  There is an absolute exemption from duties on products coming from a third country and re-exported to a non-EU country.  There is draft legislation proposing creation of other FTZs in Genoa and Naples.  A free trade zone in Venice was operating previously, but the government is restructuring it.

Italy’s “for the South” law (Laws 91of 2017 and amended by Law 123 of 2017) allowed for the creation of eight Special Economic Zones (ZES – Zone Economica Speciale) managed by port authorities in Italy’s less-developed south (the regions of Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia) and on the islands of Sardinia and Sicily.  Investors will be able to access up to €50 million in tax breaks, hiring incentives, reduced bureaucracy, and reimbursement of the IRAP regional business tax, covered by national allotments of €250 million annually through 2022.  In April 2019, the GOI allocated €300 million to boost the ZESs’ infrastructure but the 2020 budget law cancelled those funds.  The 2021 budget law provided for a 50% reduction of income taxes for all business conducted in the ZES.

The ZES in the Region of Campania was the first to become operational.  The Naples ZES encompasses over 54 million square meters of land in the ports of Naples, Salerno, and Castellamare di Stabia, as well as industrial areas and transport hubs in 37 cities and towns in Campania.  Incentives are not automatic as investments must be approved by local government bodies in a procedure governed by the Port Authority of the Central Tyrrhenian Sea.  The Region of Campania forecasts that the ZES will create and/or save between 15,000 and 30,000 jobs.  In February 2021 Campania defined the requirements for companies to qualify for the fiscal and administrative benefits of the ZES: any business can access the benefits if at least 50% of the related investments are carried out within the borders of Campania’s ZES.

A ZES encompassing the port cities of Bari and Brindisi on the Adriatic finished its approval procedure in late 2019, followed by a ZES based around the transshipment port of Gioia Tauro in Calabria.  The zones of the remaining five regions are:  eastern Sicily (Augusta, Catania, and Siracusa); western Sicily (Palermo); Sardinia (Cagliari); ZES Ionica (Taranto in Puglia and the region of Basilicata); and a ZES to be shared between the ports in Abruzzo and Molise, which received local approval in 2020.

With the 2020 budget law, the GOI established that each ZES is to be chaired by a government commissioner.  Only two commissioners have been appointed to date: Rosanna Nisticò in Calabria (October 2020) and Gianpiero Marchesi in Taranto (December 2020).

In addition to the ZESs, Italian ports are focusing on Customs Free Zones, where port operators can conduct commercial activities and take advantage of significant customs incentives.  In mid-February 2021, the Port Authority of the Ionian Sea launched Taranto’s Customs Free Zone, an area of approximately 163 hectares.  In March 2021, the Port of Brindisi established a small 20- hectare Customs Free Zone.

Currently, goods of foreign origin may be brought into Italy without payment of taxes or duties, if the material is to be used in the production or assembly of a product that will be exported.  The free-trade zone law also allows a company of any nationality to employ workers of the same nationality under that country’s labor laws and social security systems.

Performance and Data Localization Requirements

Italy does not mandate local employment.  Non-EU nationals who would like to establish a business in Italy must have a valid residency permit or be nationals of a country with reciprocal arrangements, such as a bilateral investment agreement, as described at: https://www.esteri.it/mae/en/servizi/stranieri/.

Work permits and visas are readily available and do not inhibit the mobility of foreign investors.  As a member of the Schengen Area, Italy typically allows short-term visits (up to 90 days) without a visa.  The Italian Ministry of Foreign Affairs has specific information about visa requirements: http://vistoperitalia.esteri.it/home/en.

However, temporary COVID-19-related restrictions to travel are in place.  Effective January 26, 2021 all airline passengers to the United States ages two years and older must provide a negative COVID-19 viral test taken within three calendar days of travel.  The Department of State has issued a Level 3 Travel Advisory for Italy recommending that travelers avoid all nonessential travel to Italy.  In addition, the Centers for Disease Control has issued a Level 4 Travel Health Notice for Italy due to COVID-19 concerns and similarly recommends that travelers defer all nonessential travel to Italy.  Regions in Italy are divided in a color-coded system ranging from white (very low risk), yellow (low risk), orange (high risk) and red (very high risk) depending on transmission rates, availability of hospital and ICU beds, and other parameters.  Different restrictive measures apply to each zone.  Essential services such as food stores, pharmacies, newsstands, and tobacco shops remain open throughout Italy.  These restrictions are temporary and are routinely reviewed as the health situation improves.

As a member of the EU, Italy does not follow forced localization policies in which foreign investors must use domestic content in goods or technology.  Italy does not have enforcement procedures for investment performance requirements.  Italy does not require local data storage but companies transmitting customer or other business-related data within or outside of the EU must comply with relevant EU privacy regulations.

In 2020, the GOI exercised its Golden Power authority in several 5G-equipment procurement cases.  In some cases, the GOI authorized telecom operators to purchase equipment from certain foreign IT vendors if they could adhere to a set of “prescriptions.”  One of these prescriptions includes access to the foreign IT vendors’ source code.

Real Property

According to the World Bank 2020 Doing Business Index, Italy ranks 26 worldwide out of 190 economies for the ease of registering property.  Real property registration takes an average of 16 days, requires four procedures, and costs an average of 4.4 percent of the value of the property.  Real property rights are enforced in Italian courts.  Mortgages and judgment liens against property exist in Italy and the recording system is reliable.  Although Italy does not publish official statistics on property with titling issues, the Embassy estimates that less than 10 percent of the land in Italy lacks clear title.  Italian law includes provisions whereby peaceful and uninterrupted possession of real property for a period of 20 years can, under certain circumstances, allow the occupying party to take title to a property.

Intellectual Property Rights

USTR removed Italy from its Special 301 Watch List in 2014 after the Italian Communications Authority (AGCOM) issued a new regulation to combat digital copyright theft.  The regulation created a process by which rights holders can report online infringements to AGCOM, which will then block access to the domestic and international sites hosting infringing content.  This reduced the need for lengthy litigation.  Authorities further strengthened the system in 2018 when they adopted new measures to prevent previously blocked websites from opening under different domain names.  AGCOM is working to further expand application of the regulation.  Italian copyright stakeholders report satisfaction with the AGCOM’s action and note improved judicial action by magistrates.  Counterfeiting remains an issue, but it is in Italy’s interest to protect the “Made in Italy” branding and, accordingly, Italian law enforcement reportedly is active in combatting this phenomenon.  USTR’s Notorious Market List includes two domains reportedly located in Italy that host infringing content.

The Italian customs agency, Agenzia Dogane Monopoli (ADM), has an active enforcement posture at Italian ports of entry for interdicting the importation of counterfeit and substandard goods into Italy and the European Union.  In 2019, the last year for which full data is available, ADM seized over 10,000 tons of counterfeit goods at ports of entry with a retail value of €1.97 billion (with fines of €144 million).

The Republic of San Marino (covered by U.S. Embassy Rome) is home to an ongoing transnational case involving ‘legal fakes’ of a U.S. brand, SUPREME.  According to the complaint, a San Marino-based company applied to register the SUPREME trademark with the San Marino Trademark Office in November 2015 through UK-registered International Brand Firm Ltd. (IBF).  According to SUPREME, IBF was able to obtain trademark registrations with the World Intellectual Property Organization and in several third countries.  Owning a national trademark, for example, a U.S. trademark, does not automatically lead to worldwide trademark protection against copycats.  IBF is now using these registrations as the legal basis for the production and distribution of the SUPREME trademark-infringing products internationally.  There are proceedings pending before the European Intellection Property Office (EUIPO) on the legality of IBF’s trademark registration.

In June 2019, the European Observatory for Intellectual Property Rights, based in Spain, launched a new single EU platform for IPR protection issues.  EUIPO handles the registration of trademarks, designs, and models valid in all 27 EU member states.  EUIPO has also consolidated three databases for case tracking, enforcement, and anti-counterfeiting intelligence.

For additional information about treaty obligations and points of contact at local IPR offices, please see the World Intellectual Property Organization’s country profiles at http://www.wipo.int/directory/en/.

Capital Markets and Portfolio Investment

The GOI welcomes foreign portfolio investments, which are generally subject to the same reporting and disclosure requirements as domestic transactions.  Financial resources flow relatively freely in Italian financial markets and capital is allocated mostly on market terms.  Foreign participation in Italian capital markets is not restricted.  In practice, many of Italy’s largest publicly traded companies have foreign owners among their primary shareholders.  While foreign investors may obtain capital in local markets and have access to a variety of credit instruments, gaining access to equity capital is difficult.  Italy has a relatively underdeveloped capital market and businesses have a long-standing preference for credit financing.  The limited venture capital available is usually provided by established commercial banks and a handful of venture capital funds.

Netherlands-based Euronext is acquiring Italy’s stock exchange, the Milan Stock Exchange (Borsa Italiana), from the London Stock Exchange.  The acquisition should be completed by mid-2021.  The exchange is relatively small, 377 listed companies and a market capitalization of 37 percent of GDP at the end of December 2020.  Although the exchange remains primarily a source of capital for larger Italian firms, Borsa Italiana created “AIM Italia” in 2012 as an alternative exchange with streamlined filing and reporting requirements to encourage SMEs to seek equity financing.  Additionally, the GOI recognizes that Italian firms remain overly reliant on bank financing and has initiated some programs to encourage alternative forms of financing, including venture capital and corporate bonds.  Financial experts have held that slow CONSOB (the Italian Companies and Stock Exchange Commission) processes and cultural biases against private equity have limited equity financing in Italy, and the Italian Association of Private Equity, Venture Capital, and Private Debt (AIFI) estimates investment by private equity funds in Italy decreased by 26 percent from 2018 to 2019, totaling €7.2 billion – a low figure given the size of Italy’s economy.

Italy’s financial markets are regulated by the Italian securities regulator CONSOB, Italy’s central bank (the Bank of Italy), and the Institute for the Supervision of Insurance (IVASS).  CONSOB supervises and regulates Italy’s securities markets (e.g., the Milan Stock Exchange).  As of January 2021, the European Central Bank directly supervised 11 of Italy’s largest banks and indirectly supervised less significant Italian banks through the Bank of Italy.  IVASS supervises and regulates insurance companies.  Liquidity in the primary markets is sufficient to enter and exit sizeable positions, though Italian capital markets are small by international standards.  Liquidity may be limited for certain less-frequently traded investments (e.g., bonds traded on the secondary and OTC markets).

Italian policies generally facilitate the flow of financial resources to markets.  Dividends and royalties paid to non-Italians may be subject to a withholding tax, unless covered by a tax treaty.  Dividends paid to permanent establishments of non-resident corporations in Italy are not subject to the withholding tax.

Italy imposed a financial transactions tax (FTT, a.k.a. Tobin Tax) beginning in 2013.  Financial trading is taxed at 0.1 percent in regulated markets and 0.2 percent in unregulated markets.  The FTT applies to daily balances rather than to each transaction.  The FTT applies to trade in derivatives as well, with fees ranging from €0.025 to €200.  High-frequency trading is also subject to a 0.02 percent tax on trades occurring every 0.5 seconds or faster (e.g., automated trading).  The FTT does not apply to “market makers,” pension and small-cap funds, transactions involving donations or inheritances, purchases of derivatives to cover exchange/interest-rate/raw-materials (commodity market) risks, government and other bonds, or financial instruments for companies with a capitalization of less than €500 million.  The FTT has been criticized for discouraging small savers from investing in publicly traded companies on the Milan stock market.

There are no restrictions on foreigners engaging in portfolio investment in Italy.  Financial services companies incorporated in another EU member state may offer investment services and products in Italy without establishing a local presence.

Since April 2020, investors, Italian or foreign, acquiring a stake of more than one percent of a publicly traded Italian firm must inform CONSOB but do not need its approval.  Earlier the limit was three percent for non-SMEs and five percent for SMEs.

Any Italian or foreign investor seeking to acquire or increase its stake in an Italian bank equal to or greater than ten percent must receive prior authorization from the Bank of Italy (BOI).  Acquisitions of holdings that would change the controlling interest of a banking group must be communicated to the BOI at least 30 days in advance of the closing of the transactions.  Approval and advance authorization by the Italian Insurance Supervisory Authority are required for any significant acquisition in ownership, portfolio transfer, or merger of insurers or reinsurers.  Regulators retain the discretion to reject proposed acquisitions on prudential grounds (e.g., insufficient capital in the merged entity).

Italy has sought to curb widespread tax evasion by improving enforcement and changing attitudes.  GOI actions include a public communications effort to reduce tolerance of tax evasion; increased and visible financial police controls on businesses (e.g., raids on businesses in vacation spots at peak holiday periods); and audits requiring individuals to document their income.  In 2014 Italy’s Parliament approved the enabling legislation for a package of tax reforms, many of which entered into force in 2015.  The tax reforms institutionalized some OECD best practices to encourage taxpayer compliance, including by reducing the administrative burden for taxpayers through the increased use of technology such as e-filing, pre-completed tax returns, and automated screenings of tax returns for errors and omissions prior to a formal audit.  The reforms also offer additional certainty for taxpayers through programs such as cooperative compliance and advance tax rulings (i.e., binding opinions on tax treatment of transactions in advance) for prospective investors.  The Draghi-led government has said it plans to pursue a general tax reform to simplify Italy’s tax system, which remains complex and has relatively high tax rates on labor income.

The GOI and the Bank of Italy have accepted and respect IMF obligations, including Article VIII.

Money and Banking System

Despite isolated problems at individual Italian banks, the banking system remains sound and capital ratios exceed regulatory thresholds.  However, Italian banks’ profit margins have suffered since 2011.  The BOI said the profitability of Italian banks in 2019 was broadly in line with that of European peers but that the annualized rate of return on equity (ROE) at 5.0% (net of extraordinary components) was below the estimated cost of equity.  In the first nine months of 2020, according to the BOI, the return on equity fell from 7.8 to 2.2 percent, though the downturn slowed in the third quarter.  The capitalization of large banks (the ratio between common tier 1 equity and risk weighted assets) was 15.1 percent as of the third quarter of 2020.

While the financial crisis brought a pronounced worsening of the quality of banks’ assets, the ratio of non-performing loans (NPLs) to total outstanding loans has decreased significantly since its height in 2017.  As of January 2021, net NPLs stand at €19.9 billion, the lowest level since June 2009 and down from €20.9 billion in December 2020 and €26.3 billion in January 2020.  ABI, the Italian banking association, reported the NPL ratio was 1.14% (net of provisions) in January 2021, down from 1.2% of December 2020 and 4.89% in November 2015.  The GOI has also taken steps to facilitate acquisitions of NPLs by outside investors.

In 2016, the GOI created a €20 billion bank rescue fund to assist struggling Italian banks in need of liquidity or capital support.  Italy’s fourth-largest bank, Monte dei Paschi di Siena (MPS), became the first bank to avail itself of this fund in January 2019.  The government currently owns 64% of MPS but hopes to exit the bank by the end of 2021, as agreed with EU authorities.  To attract a private buyer for MPS and otherwise encourage M&A activity in the banking sector, the GOI allocated €2.0 billion in tax benefits in the 2021 budget.  The GOI also facilitated the sale of two struggling “Veneto banks” (Banca Popolare di Vicenza and Veneto Banca) to Intesa San Paolo in 2017.  In 2019, Banca Carige, the smallest Italian bank under ECB supervision, was put under special administration.

The main risks for Italian banks are possible deterioration in credit quality and a further decline in profitability.  The rate of new NPLs (as of January 2021) has remained very low despite the COVID-induced economic crisis, benefiting from government measures to extend credit, including through state guarantees on loans, and flexibility from supervisory authorities regarding loan classification.  Some analysts express concern that NPL levels could rise again once government support begins to decline.  Government loan guarantees (to large companies via SACE, Italy’s export credit agency, and to SMEs via the Central Guarantee Fund, or Fondo Centrale di Garanzia) and repayment moratoriums also helped lead to an 8.5 percent increase in credit to firms in 2020, the fastest rate of growth since 2008.

Despite some banking-sector M&A activity since the financial crisis, the ECB, OECD, and Italian government have had to encourage additional consolidation to improve efficiency.  In 2019, Italy had 55 (down from 58) banking groups and 98 stand-alone banks, 229 fewer than one year earlier and as well as 80 subsidiaries of foreign banks.  The cooperative credit reform and the consolidation of the network of small cooperative and mutual banks significantly altered the structure of the banking system.  The most significant recent consolidation was Intesa San Paolo’s takeover in 2020 of UBI Banca, which created Italy’s largest banking group.  The Italian banking sector remains overly concentrated on physical bank branches for delivering services, further contributing to sector-wide inefficiency and low profitability.  Electronic banking is available in Italy, but adoption remains below euro-zone averages.  Cash remains widely used for transactions.

Most non-insurance investment products are marketed by banks and tend to be debt instruments.  Italian retail investors are conservative, valuing the safety of government bonds over most other investment vehicles.  Less than ten percent of Italian households own Italian company stocks directly.  Several banks have established private banking divisions to cater to high-net-worth individuals with a broad array of investment choices, including equities and mutual funds.

Credit is allocated on market terms, with foreign investors eligible to receive credit in Italy.  In general, credit in Italy remains largely bank-driven.  In practice, foreigners may encounter limited access to finance, as Italian banks may be reluctant to lend to prospective borrowers (even Italians) absent a preexisting relationship.  Weak demand, combined with risk aversion by banks, continues to limit lending, especially to smaller firms.

The Ministry of Economy and Finance and BOI have indicated interest in blockchain technologies to transform the banking sector.  As of March 2021, the Italian Banking Association (ABI) had implemented a Distributed Ledger Technology-based system across the Italian banking sector.  The process aims to reconcile material (and not digitalized) products that are exchanged between banks, such as commercial paper or promissory notes.

According to the Financial Action Task Force, Italy has a strong legal and institutional framework to fight money laundering and terrorist financing, and authorities have a good understanding of the risks the country faces.  Italy, however, presents a continued risk of money laundering from activities of organized crime and its significant black-market economy.

Foreign Exchange and Remittances

Foreign Exchange

In accordance with EU directives, Italy has no foreign exchange controls.  There are no restrictions on currency transfers; there are only reporting requirements.  Banks are required to report any transaction over €1,000 due to money laundering and terrorism financing concerns.  Profits, payments, and currency transfers may be freely repatriated.  Residents and non-residents may hold foreign exchange accounts.  In 2016, the GOI raised the limit on cash payments for goods or services to €3,000.  Payments above this amount must be made electronically.  Enforcement remains uneven.  The rule exempts e-money services, banks, and other financial institutions, but not payment services companies.

Italy is a member of the European Monetary Union (EMU), with the euro as its official currency.  Exchange rates are floating.

Remittance Policies

There are no limitations on remittances, though transactions above €1,000 must be reported.  In December 2018 Parliament passed a decree that imposed a 1.5 percent tax on remittances sent outside of the EU via money transfer.  The government estimates that the tax on remittances to countries outside of the EU will raise several hundred million euros per year.

Sovereign Wealth Funds

The state-owned national development bank Cassa Depositi e Prestiti (CDP) launched a strategic wealth fund in 2011, now called CDP Equity (formerly Fondo Strategico Italiano – FSI).  CDP Equity has €3.4 billion in invested capital and twelve companies in its portfolio, holding both majority and minority participations.  CDP Equity invests in companies of relevant national interest and on its website (http://en.cdpequity.it/) provides information on its funding, investment policies, criteria, and procedures.  CDP Equity is open to capital investments from outside institutional investors, including foreign investors.  CDP Equity is a member of the International Working Group of Sovereign Wealth Funds and follows the Santiago Principles.

The Italian government formerly owned and operated several monopoly or dominant companies in certain strategic sectors.  However, beginning in the 1990s and through the early 2000s, the government began to privatize most of these state-owned enterprises (SOEs).  Notwithstanding this privatization effort, the GOI retains 100 percent ownership of the national railroad company (Ferrovie dello Stato) and road network company (ANAS), which merged in January 2018.  The GOI holds a 99.56 percent share of RAI, the national radio and television broadcasting network; and retains a controlling interest, either directly or through CDP in companies such as, but not limited to, shipbuilder Fincantieri (71.6 percent), postal and financial services provider Poste Italiane (65 percent), electricity provider ENEL (23.6 percent), oil and gas major Eni (30 percent), defense conglomerate Leonardo-Finmeccanica (30.2 percent), natural gas transmission company Snam (30.1 percent), as well as electricity transmission provider Terna (29.85 percent).  The role and influence of CDP in the economy is increasing steadily with the number of deals it completed in 2020.

The COVID crisis has stimulated greater GOI intervention in the economy with the GOI shoring up companies such as airline Alitalia.  The GOI also has taken a shareholding position in AMInvestco, an Italian subsidiary of Luxembourg-based steel producer Arcelor Mittal, which is operating a steel plant in Taranto in southern Italy.  Despite the Italian government’s shareholding position, most of these companies are operating in a competitive environment (domestically and internationally) and are increasingly responsive to market-driven decision-making rather than GOI demands.  In addition, many of the state-controlled entities are publicly traded, which provides additional transparency and corporate governance obligations, including equitable treatment for non-governmental minority shareholders.  SOEs are subject to the same tax treatment and budget constraints as fully private firms.  Additionally, industries with SOEs remain open to private competition.

As an EU member, Italy is covered by EU government procurement rules.  As an OECD member, Italy adheres to the Guidelines on Corporate Governance of State-owned Enterprises.

Privatization Program

The COVID-19 triggered economic crisis caused the GOI to halt and reverse its privatization program.  Notably, it embarked on rescuing troubled institutions like Alitalia, Autostrade, and the Arcelor Mittal steel plant in Taranto (formerly known as ILVA).  Through its national development bank, CDP, the previous Italian government (led by Giuseppe Conte) also took large stakes in Italian companies it considered essential for economic security and prosperity.  CDP took investment positions in Borsa Italiana, NexiSPA, and WeBuild, and likely will invest in other COVID-hit companies.  On March 11, the new government of Mario Draghi published regulations for a fund to assist certain pandemic-affected companies to strengthen their balance sheets.  The so-called “Patrimonio Destinato,” worth up to €40 billion, will be financed by specially issued sovereign bonds and managed by CDP.  CDP will then use the sovereign bonds as collateral to raise liquidity on the market.  Taking advantage of the EU’s more flexible approach to state aid, the fund will invest – via capital injections, convertible bonds, or subordinated debt – in non-financial Italian companies with revenues above €50 million with the aim of helping “strategic” companies weather severe financial difficulty because of the current economic crisis.  CDP may also use the fund to support healthier companies on ordinary market terms and buy stakes in listed companies deemed of strategic importance, but only on the condition that CDP partners with market investors.  The government approved the “Patrimonio Destinato” fund in the May 2020 Relaunch Degree.  The 170-year-old CDP, of which the Ministry of Economy and Finance (MEF) now owns 83%, has played an active role in ensuring strategic assets remain in national hands and in mitigating the economic damage caused by the pandemic.

The MEF owns 64% of Banca Monte dei Paschi di Siena (MPS) after a 2017 bailout that cost taxpayers €5.4 billion; however, the government must sell its stake by the beginning of 2022.  The MEF reportedly is ready to take two steps to guarantee re-privatization of the distressed institution:  1) increase MPS’ capital by injecting €2.5 billion in capital from the Italian Treasury, and 2) allow conversion of approximately €3.7 billion of MPS’ tax assets into tax credits.  Finally, the MEF is said to be considering a divestment of €10 billion of legal risk from the bank.

There is a general awareness of expectations and standards for responsible business conduct (RBC) in Italy.  Enforcement of civil society disputes with businesses is generally fair, though the slow pace of civil justice may delay individuals’ ability to seek effective redress for adverse business impacts.  In addition, EU laws and standards on RBC apply in Italy.  In the event Italian courts fail to protect an individual’s rights under EU law, it is possible to seek redress at the European Court of Justice (ECJ).

CONSOB has enacted corporate governance, accounting, and executive compensation standards to protect shareholders.  Information on corporate governance standards is available at: https://www.consob.it/c/portal/layout?p_l_id=892052&p_v_l_s_g_id=0 .

As an OECD member, Italy supports and promotes the OECD Guidelines for Multinational Enterprises (“Guidelines”), which are recommendations by governments to multinational enterprises for conducting a risk-based due diligence approach to achieve responsible business conduct (RBC).  The Guidelines provide voluntary principles and standards in a variety of areas including employment and industrial relations, human rights, environment, information disclosure, competition, consumer protection, taxation, and science and technology.   (See OECD Guidelines: http://www.oecd.org/dataoecd/12/21/1903291.pdf). The Italian National Contact Point (NCP) for the Guidelines is in the Ministry of Economic Development.  The NCP promotes the Guidelines; disseminates related information; and encourages collaboration among national and international institutions, the business community, and civil society.  The NCP also promotes Italy’s National Action Plan on Corporate Social Responsibility which is available online.  See Italian NCP: http://pcnitalia.sviluppoeconomico.gov.it/en/.

Independent NGOs and unions operate freely in Italy.  Additionally, Italy’s three largest trade union confederations actively promote and monitor RBC.  They serve on the advisory body to Italy’s NCP for the OECD Guidelines for Multinational Enterprises.

Italy encourages adherence to OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas and has provided operational guidelines for Italian businesses to assist them in supply chain due diligence.  Italy is a member of the Extractive Industries Transparency Initiative (EITI).  The Italian Ministry of Foreign Affairs works internationally to promote the adoption of best practices.

Additional Resources 

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities and;
• North Korea Sanctions & Enforcement Actions Advisory

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor.
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain.

Corruption and organized crime continue to be significant impediments to investment and economic growth in parts of Italy, despite efforts by successive governments to reduce risks.  Italian law provides criminal penalties for corruption by officials.  The government has usually implemented these laws effectively, but officials sometimes have engaged in corrupt practices with impunity.  While anti-corruption laws and trials garner headlines, they have been only somewhat effective in stopping corruption.  Since 2014, Italy has improved its overall rank and score in Transparency International’s Corruption Perceptions Index, reaching a rank of 52 in the 2020 Index.  Italy has made improvements in strengthening its institutions and public administration, but Transparency International assesses that the COVID 19 emergency has undermined the efficiency of Italy’s anti-corruption and transparency efforts.  The organization cited weaknesses in regulation and oversight procedures for the use of the over €200 billion in Next Generation EU funds Italy expects to receive to spur its economic recovery – funds to be allocated in digitalization, green transition, infrastructures, education/research and social inclusion.

In December 2018 Italy’s Parliament passed an anti-corruption bill that introduced new provisions to combat corruption in the public sector and regulate campaign finance.  The measures in the bill changed the statute of limitations for corruption-related crimes as well as other crimes and made it more difficult for people to “run out the clock” on their respective cases.  Italy’s anti-money laundering laws also apply to public officials, defined as people entrusted with important political functions, as well as their immediate family members.  (This includes officials ranging from the head of state to members of the executive bodies of state-owned companies.)  In 2019 the government passed an anti-corruption measure, called “spazza-corrotti,” giving the same treatment for political parties and related foundations, strengthening the penalties for corruption crimes against public administration, and providing more tools for investigations.

U.S. individuals and firms operating or investing in foreign markets should take the time to become familiar with the anticorruption laws of both the foreign country and the United States to comply with them and, where appropriate, U.S. individuals and firms should seek the advice of legal counsel.

While the U.S. Embassy has not received specific complaints of corruption from U.S. companies operating in Italy in the past year, commercial and economic officers are familiar with high-profile cases that may affect U.S. companies.  The Embassy has received requests for assistance from companies facing a lack of transparency and complicated bureaucracy, particularly in the sphere of government procurement and specifically in the aerospace industry.  There have been no reports of government failure to protect NGOs that investigate corruption (e.g., Transparency International Italy).

Italy has signed and ratified the UN Anticorruption Convention and the OECD Convention on Combatting Bribery.

Resources to Report Corruption

Autorità Nazionale Anticorruzione (ANAC)
Via Marco Minghetti, 10 – 00187 Roma
Phone:  +39 06 367231
Fax:  +39 06 36723274
Email:  protocollo@pec.anticorruzione.it

Contact Info page:  http://www.anticorruzione.it/portal/public/classic/MenuServizio/Contatti

ANAC’s whistleblowing web page is:  http://www.anticorruzione.it/portal/public/classic/Servizi/ServiziOnline/SegnalazioneWhistleblowing

Transparency International Italia
P.le Carlo Maciachini 11
20159 Milano – Italy
T:  +39 02 40093560
F:  +39 02 406829
E:  info@transparency.it
General web site:  www.transparency.it
Corruption Specific:  https://www.transparency.it/alac/

Politically motivated violence is not a threat to foreign investments in Italy.  On rare occasion, extremist groups have made threats and deployed letter bombs, firebombs, and Molotov cocktails against Italian public buildings, private enterprises and individuals, and foreign diplomatic facilities.  Though many of these groups have hostile views of the United States, they have not targeted U.S. property or citizens in recent years.

Italy-specific travel information and advisories can be found at: www.travel.state.gov.

Unemployment continues to be a pressing issue in Italy, particularly among youth (ages 15-24).  Italy has one of the EU’s highest rates of youth unemployment at 29.7 percent (December 2020), while the overall unemployment rate was 9.0 percent in December 2020.  The unemployment rate has decreased since the pandemic, but the decrease significantly underestimates the pandemic’s impact on the economy and labor as the government has banned most layoffs and implemented a program to provide paid furloughs, which allow companies to reduce staff temporarily without adding them to the ranks of the unemployed.  Despite these measures, Italy lost 456,000 jobs in 2020, while Italy’s inactive population (neither working nor seeking work actively) rose 0.9 percent.  Job losses were concentrated among those employed under temporary contracts and in the services sector, disproportionately affecting young people and women.  As of December 2020, only 49% of females were employed, the second to lowest rate of all EU countries.  The ratio of long-term unemployment (unemployment lasting over 12 months) as a share of overall unemployment continues to be among the highest of major European economies.  Underemployment (employment that is not full-time or not commensurate with the employee’s skills and abilities) is also a serious issue.  These jobs are often concentrated in the service industry and other low-skilled professions.

Long-term unemployment is also elevated, leading to a permanent reduction in human capital and earnings potential.  Italy’s labor force participation rates are among the lowest in the EU, particularly among women, the young, and the elderly, and particularly in the South.  However, low labor force participation rates do not encompass labor in the large informal economy, which Italy’s statistics agency estimates as comprising at least 12 percent of Italian GDP.

The productivity of Italy’s labor force – one of the main weaknesses of the country’s economy – is also below the EU average.  Many Italian employers report an inability to find qualified candidates for highly skilled positions, demonstrating significant skills mismatches in the Italian labor market.  Many well-educated Italians find more attractive career opportunities outside of Italy, with large numbers of Italians taking advantage of EU freedom of movement to work in the United Kingdom (pre-Brexit), Germany, or other EU countries.  There is no reliable measure of Italians working overseas, as many expatriate workers do not report their whereabouts to the Italian government.  Skilled labor shortages are a particular problem in Italy’s industrialized North.

Companies may bring in a non-EU employee after the government-run employment office has certified that no qualified, unemployed Italian is available to fill the position.  However, the cumbersome and lengthy process acts as a deterrent to foreign firms seeking to comply with the law; language barriers also prevent outsiders from competing for Italian positions.  Work visas are subject to annual quotas, although intra-company transfers are exempt.

Indefinite employment contracts signed before March 2015 are governed by the 2012 labor regime, which allows firms to conduct layoffs and firings with lump sum payments.  Under the 2012 system, according to Article 18 of the workers’ statute of 1970, judges can order reinstatement of dismissed employees (with back pay) if they find the dismissal was a pretext for discriminatory or disciplinary dismissal.  In practice, dismissed employees reserved the right to challenge their dismissal indefinitely, often using the threat of protracted legal proceedings or an adverse court ruling to negotiate additional severance packages with employers.

Indefinite employment contracts signed after March 2015 are governed by the rules established under the 2015 Jobs Act, a package of labor market reforms that provides for employment contracts with protections increasing with job tenure.  During the first 36 months of employment, firms may dismiss employees for bona fide economic reasons.  Under the Jobs Act regime, dismissed employees must appeal their dismissal within 60 days and reinstatements are limited.

Regardless of the reason for termination of employment, a former employee is entitled to receive severance payments (TFR – trattamento di fine rapporto) equal to 7.4 percent of the employee’s annual gross compensation for each year worked.

Other Jobs Act measures enacted in 2015 include universal unemployment and maternity benefits, as well as a reduced number of official labor contract templates (from 42 to six).  The GOI’s unemployment insurance (NASPI) provides up to six months of coverage for laid-off workers.  The GOI also provides worker retraining and job placement assistance, but services vary by region and implementation of robust national active labor market policies remains in progress.

In 2018 the government introduced the so-called “Dignity Decree,” which rolled back some of the structural reforms to Italy’s labor market adopted as part of the 2015 Jobs Act.  For example, the Dignity Decree extended incentives to hire people under 35 years old, set limits on how often a short-term contract could be renewed – the government has suspended the limit during the pandemic – and made it more costly to fire workers.

Italy offers residents other social safety net protections.  In 2017 the government implemented an anti-poverty plan (Reddito di Inclusione, or “Inclusion Income”) aimed at providing some financial relief and training to homeless individuals and people with income below a certain threshold.  In the 2019 budget, a prior government introduced the Citizenship Income (Reddito di Cittadinanza), which replaced and broadened the Inclusion Income program of 2017.  The Citizenship Income program provides a basic income of €780 a month to eligible citizens and acts as an employment agency to a portion of those receiving the Citizenship Income.  The estimated annual cost of the program was approximately €6.5 billion, but the pandemic increased the number of potential beneficiaries.  The program provides benefits to around 1.3 million households (or 3.1 million individuals).

In 2019 the government implemented an early retirement scheme (Quota 100), which changed the pension law and permitted earlier retirement for eligible workers aged 62 years or older with at least 38 years of employment.  The benefit expires at the end of 2021.

While the Jobs Act included a statutory minimum wage, it has not yet been implemented.  With no national minimum wage, wages are set through sector-wide collective bargaining.  The government in 2016 established an agency for Job Training and Placement (ANPAL) to coordinate (with Italian regions) implementation of many labor policies.  ANPAL oversees implementation of the Assegno di Ricollocazione (a “relocation allowance”), an initiative to provide unemployment benefits to workers willing to move to different regions of the country), and a related special wage guarantee fund (Cassa Integrazione Straordinaria) that provides stipends for retraining.  The Citizenship Income program and ANPAL appear to have failed in their goal of helping eligible workers find jobs.  The Citizenship Income program, however, seems to have played a role in reducing poverty before the pandemic, and limiting its rise in 2020 during the economic crisis.  In March 2021 the Ministry of Labor set up a committee to examine how to reform the Citizenship Income program.  Historical regional labor market disparities remain unchanged, with the southern third of the country posting a significantly higher unemployment rate than northern and central Italy.  Despite these differences, internal migration within Italy remains modest, while industry-wide national collective bargaining agreements set equal wages across the entire country.

Italy is a member of the International Labor Organization (ILO).  Italy does not waive existing labor laws to attract or retain investments.  Terms and conditions of employment are periodically fixed by collective labor agreements in different professions.  Most Italian unions are grouped into four major national confederations: the General Italian Confederation of Labor (CGIL), the Italian Confederation of Workers’ Unions (CISL), the Italian Union of Labor (UIL), and the General Union of Labor (UGL).  The first three organizations are affiliated with the International Confederation of Free Trade Unions (ICFTU), while UGL has been associated with the World Confederation of Labor (WCL).  The confederations negotiate national-level collective bargaining agreements with employer associations, which are binding on all employers in a sector or industry irrespective of geographical location.

Collective bargaining is widespread in Italy, occurring at the national-level (primarily aimed at securing pay adjustments that take account of inflation/changes in the cost-of-living) and industry-level (to secure pay adjustments that reflect increased productivity and/or profitability).  Firm-level collective bargaining is limited.  The Italian Constitution provides that unions may reach collective agreements that are binding on all workers.  There are no official estimates of the percentage of the economy covered by collective bargaining agreements.  A 2019 estimate from The European Trade Union Institute said collective bargaining coverage was approximately 80 percent (for national-level bargaining), with less coverage for industry-level agreements and minimal coverage for company-level agreements.

Collective agreements may last up to three years, although recent practice is to renew collective agreements annually.  Collective bargaining establishes the minimum standards for employment, but employers retain the discretion to apply more favorable treatment to some employees covered by the agreement.

Labor disputes are handled through the civil court system, though they are subject to specific procedures.  Before entering the civil court system, parties must first attempt to resolve their disputes through conciliation (administered by the local office of the Ministry of Labor) and/or through specific union-agreed dispute resolution procedures.

In cases of proposed mass layoffs or facility closures, the Ministry of Economic Development may convene a tripartite negotiation (Ministry, company, and union representatives) to attempt to reach a mutually acceptable agreement to avoid the layoff or closure.  In recent years, U.S. companies have faced significant resistance from labor unions and politicians when attempting to right size operations.  Due to the pandemic, the government has banned most layoffs through June 2021.  (This date may be extended.)

There have been no recent strikes that posed investment risks.  The Italian Constitution recognizes an employee’s right to strike.  Strikes are permitted in practice, but are typically short-term (e.g., one working day) to draw attention to specific areas of concern.  In addition, workers (or former employees) commonly participate in demonstrations to show opposition to proposed job cuts or facility closings, but these demonstrations have not threatened investments.  In addition, occasional strikes by employees of local transportation providers may limit citizens’ mobility.

* Italian GDP data are taken from ISTAT, the official statistics agency.  ISTAT publishes preliminary year end GDP data in early February and issues revised data in early March.  Italian FDI data are from the Bank of Italy and are the latest available; new data are released in May.

**2020 GDP is $1,967,248 (€1,651,595).

The statistics above show Italy’s largest investment partners to be within the European Union and the United States.  This is consistent with Italy being fully integrated with its EU partners and the United States.

U.S. Embassy Rome
Economic Section
Via Vittorio Veneto, 119
Tel. 39-06-4674-2867
RomeECON@state.gov

Mailing Address:
Unit 9500
Attn:  Economic Section
DPO, AE 09624
Email:  RomeECON@state.gov
Tel:  +39 06 4674 2107

Policies Toward Foreign Direct Investment

Poland welcomes foreign investment as a source of capital, growth, and jobs, and as a vehicle for technology transfer, research and development (R&D), and integration into global supply chains. The government’s Strategy for Responsible Development identified key goals for attracting investment, including improving the investment climate, a stable macroeconomic and regulatory environment, and high-quality corporate governance, including in state-controlled companies. By the end of 2019, according to IMF and National Bank of Poland data, Poland attracted around $234.9 billion (cumulative) in foreign direct investment (FDI), principally from Western Europe and the United States. In 2019, reinvested profits again dominated the net inflow of FDI to Poland. The greatest reinvestment of profits occurred in services and manufacturing, reflecting the change of Poland’s economy to a more service-oriented and less capital-intensive structure.

Foreign companies generally enjoy unrestricted access to the Polish market. However, Polish law limits foreign ownership of companies in selected strategic sectors, and limits acquisition of real estate, especially agricultural and forest land. Additionally, the current government has expressed a desire to increase the percentage of domestic ownership in some industries such as media, banking and retail which have large holdings by foreign companies, and has employed sectoral taxes and other measures to advance this aim. In March 2018, Sunday trading ban legislation went into effect, which has gradually phased out Sunday retail commerce in Poland, especially for large retailers. From 2020, the trade ban applies to all but seven Sundays a year. In 2020, a law was adopted requiring producers and importers of sugary and sweetened beverages to pay a fee. The government is planning to introduce (in mid-2021) an advertising tax – hailed as a “solidarity fee”- covering a wide array of entities including publishers, tech companies and cinemas. Only small media businesses would be exempt from the new levy. The revenue would support the National Health Fund, the National Fund for the Protection of National Monuments, and establish a new fund, the Media Support Fund for Culture and National Heritage, to support Polish culture and creators struggling due to the pandemic. Polish authorities have also publicly favored introducing a comprehensive digital services tax. The details of such a tax are unknown because no draft has been publicly released, but it would presumably affect mainly large foreign digital companies.

There are a variety of agencies involved in investment promotion:

The Ministry of Development has two departments involved in investment promotion and facilitation: the Investment Development and the Trade and International Relations Departments. The Deputy Minister supervising the Investment Development Department is also the ombudsman for foreign investors. https://www.gov.pl/web/przedsiebiorczosc-technologia/ 

The Ministry of Foreign Affairs (MFA) promotes Poland’s foreign relations including economic relations, and along with the Polish Chamber of Commerce (KIG), organizes missions of Polish firms abroad and hosts foreign trade missions to Poland. https://www.msz.gov.pl/ ; https://kig.pl/ 

The Polish Investment and Trade Agency (PAIH) is the main institution responsible for promotion and facilitation of foreign investment. The agency is responsible for promoting Polish exports, for inward foreign investment and for Polish investments abroad. The agency operates as part of the Polish Development Fund, which integrates government development agencies. PAIH coordinates all operational instruments, such as commercial diplomatic missions, commercial fairs and programs dedicated to specific markets and sectors. The Agency has opened offices abroad including in the United States (San Francisco and Washington, D.C, Los Angeles, Chicago, Houston and New York). PAIH’s services are available to all investors. https://www.paih.gov.pl/en 

The American Chamber of Commerce has established the American Investor Desk – an investor-dedicated know-how gateway providing comprehensive information on investing in Poland and investing in the USA: https://amcham.pl/american-investor-desk 

Limits on Foreign Control and Right to Private Ownership and Establishment

Poland allows both foreign and domestic entities to establish and own business enterprises and engage in most forms of remunerative activity per the Entrepreneurs’ Law which went into effect on April 30, 2018. Forms of business activity are described in the Commercial Companies Code. Poland does place limits on foreign ownership and foreign equity for a limited number of sectors. Polish law limits non-EU citizens to 49 percent ownership of a company’s capital shares in the air transport, radio and television broadcasting, and airport and seaport operations sectors. Licenses and concessions for defense production and management of seaports are granted on the basis of national treatment for investors from OECD countries.

Pursuant to the Broadcasting Law, a television broadcasting company may only receive a license if the voting share of foreign owners does not exceed 49 percent and if the majority of the members of the management and supervisory boards are Polish citizens and hold permanent residence in Poland. In 2017, a team comprised of officials from the Ministry of Culture and National Heritage, the National Broadcasting Council (KRRiT) and the Office of Competition and Consumer Protection (UOKiK) was created in order to review and tighten restrictions on large media and limit foreign ownership of the media. While no legislation has been introduced, there is concern that possible future proposals may limit foreign ownership of the media sector as suggested by governing party politicians.

Over the past five years, Poland’s ranking on Reporters without Borders’ Press Freedom Index has dropped from 18th to 62nd. The governing Law and Justice (PiS) party aims to decrease foreign ownership of media, particularly outlets critical of their governing coalition. Approaches have included proposals to set caps on foreign ownership, the use of a state-controlled companies to purchase media, and the application of economic tools (taxes, fines, advertising revenue) to pressure foreign and independent media. In the insurance sector, at least two management board members, including the chair, must speak Polish. The Law on Freedom of Economic Activity (LFEA) requires companies to obtain government concessions, licenses, or permits to conduct business in certain sectors, such as broadcasting, aviation, energy, weapons/military equipment, mining, and private security services. The LFEA also requires a permit from the Ministry of Development for certain major capital transactions (i.e., to establish a company when a wholly or partially Polish-owned enterprise has contributed in-kind to a company with foreign ownership by incorporating liabilities in equity, contributing assets, receivables, etc.). A detailed description of business activities that require concessions and licenses can be found here: https://www.paih.gov.pl/publications/how_to_do_business_in_Poland 

Polish law restricts foreign investment in certain land and real estate. Land usage types such as technology and industrial parks, business and logistic centers, transport, housing plots, farmland in special economic zones, household gardens and plots up to two hectares are exempt from agricultural land purchase restrictions. Since May 2016, foreign citizens from European Economic Area member states, Iceland, Liechtenstein, and Norway, as well as Switzerland, do not need permission to purchase any type of real estate including agricultural land. Investors from outside of the EEA or Switzerland need to obtain a permit from the Ministry of Internal Affairs and Administration (with the consent of the Defense and Agriculture Ministries), pursuant to the Act on Acquisition of Real Estate by Foreigners, prior to the acquisition of real estate or shares which give control of a company holding or leasing real estate. The permit is valid for two years from the day of issuance, and the ministry can issue a preliminary document valid for one year. Permits may be refused for reasons of social policy or public security. The exceptions to this rule include purchases of an apartment or garage, up to 0.4 hectares of undeveloped urban land, and “other cases provided for by law” (generally: proving a particularly close connection with Poland). Laws to restrict farmland and forest purchases (with subsequent amendments) came into force April 30, 2016 and are addressed in more detail in Section 5, Protection of Property Rights.

Since September 2015, the Act on the Control of Certain Investments has provided for the national security-related screening of acquisitions in high-risk sectors including: energy generation and distribution; petroleum production, processing and distribution; telecommunications; media; mining; and manufacturing and trade of explosives, weapons and ammunition. Poland maintains a list of strategic companies which can be amended at any time, but is updated at least once a year, usually in late December. The national security review mechanism does not appear to constitute a de facto barrier for investment and does not unduly target U.S. investment. According to the Act, prior to the acquisition of shares of strategic companies (including the acquisition of proprietary interests in entities and/or their enterprises) the purchaser (foreign or local) must notify the controlling government body and receive approval. The obligation to inform the controlling government body applies to transactions involving the acquisition of a “material stake” in companies subject to special protection. The Act stipulates that failure to notify carries a fine of up to PLN 100,000,000 ($25,000,000) or a penalty of imprisonment between six months and five years (or both penalties together) for a person acting on behalf of a legal person or organizational unit that acquires a material stake without prior notification.

As part of the COVID-19 Anti-Crisis Shield, on June 24, 2020, new legislation entered into force extending significantly the FDI screening mechanism in Poland for 24 months. An acquisition from a country that is not a member of the EU, the EEA, or the OECD requires prior clearance from the President of the Polish Competition Authority if it targets a company generating turnover exceeding EUR 10 million (almost $12 million) that either: 1) is a publicly-listed company, 2) controls assets classified as critical infrastructure, 3) develops or maintains software crucial for vital processes (e.g., utilities systems, financial transactions, food distribution, transport and logistics, health care systems); 4) conducts business in one of 21 specific industries, including energy, gas and oil production, storage, distribution and transportation; manufacture of chemicals, pharmaceuticals and medical instruments; telecommunications; and food processing. The State Assets Ministry is preparing similar and more permanent measures.

In November 2019, the governing Law and Justice party reestablished a treasury ministry, known as the State Assets Ministry, to consolidate the government’s control over state-owned enterprises. The government dissolved Poland’s energy ministry, transferring that agency’s mandate to the State Assets Ministry. The Deputy Prime Minister and Minister of State Assets announced he would seek to consolidate state-owned companies with similar profiles, including merging Poland’s largest state-owned oil and gas firm PKN Orlen with state-owned Lotos Group. At the same time, the government is working on changing the rules of governing state-owned companies to have better control over the firms’ activities. In September 2020, a new government plenipotentiary for the transformation of energy companies and coal mining was appointed.

Other Investment Policy Reviews

The government has not undergone any third-party investment policy review through a multilateral organization,

The OECD published its 2020 survey of Poland. It can be found here: https://www.oecd.org/economy/poland-economic-snapshot/ 

Additionally, the OECD Working Group on Bribery has provided recommendations on the implementation of the OECD Anti-Bribery Convention in Poland here:  https://www.oecd.org/poland/poland-should-urgently-implement-reforms-to-boost-fight-against-foreign-bribery-and-preserve-independence-of-prosecutors-and-judges.htm 

Business Facilitation

In 2020, government activities and regulations focused primarily on addressing challenges related to the outbreak of the pandemic.

The Polish government has continued to implement reforms aimed at improving the investment climate with a special focus on the SME sector and innovations. Poland reformed its R&D tax incentives with new regulations and changes encouraging wider use of the R&D tax breaks. As of January 1, 2019, a new mechanism reducing the tax rate on income derived from intellectual property rights (IP Box) was introduced. Please see Section 5, Protection of Property Rights of this report for more information.

A package of five laws referred to as the “Business Constitution”—intended to facilitate the operation of small domestic enterprises—was gradually introduced in 2018. The main principle of the Business Constitution is the presumption of innocence of business owners in dealings with the government.

Poland made enforcing contracts easier by introducing an automated system to assign cases to judges randomly. Despite these reforms and others, some investors have expressed serious concerns regarding over-regulation, over-burdened courts and prosecutors, and overly burdensome bureaucratic processes. Tax audit methods have changed considerably. For instance, in many cases an appeal against the findings of an audit must now be lodged with the authority that issued the initial finding rather than a higher authority or third party. Poland also enabled businesses to get electricity service faster by implementing a new customer service platform that allows the utility to better track applications for new commercial connections.

The Ministry of Finance and the National Tax Administration have launched an e-Tax Office, available online at https://www.podatki.gov.pl/ . The website, which will be constructed in stages through September 2022, will make it possible to settle all tax matters in a single user-friendly digital location. digital location.

In Poland, business activity may be conducted in the forms of a sole proprietor, civil law partnership, as well as commercial partnerships and companies regulated in provisions of the Commercial Partnerships and Companies Code. Sole proprietor and civil law partnerships are registered in the Central Registration and Information on Business (CEIDG), which is housed with the Ministry of Development here:  https://prod.ceidg.gov.pl/CEIDG.CMS.ENGINE/?D;f124ce8a-3e72-4588-8380-63e8ad33621f 

Commercial companies are classified as partnerships (registered partnership, professional partnership, limited partnership, and limited joint-stock partnership) and companies (limited liability company and joint-stock company). A partnership or company is registered in the National Court Register (KRS) and maintained by the competent district court for the registered office of the established partnership or company. Local corporate lawyers report that starting a business remains costly in terms of time and money, though KRS registration in the National Court Register averages less than two weeks according to the Ministry of Justice and four weeks according to the World Bank’s 2020 Doing Business Report. A 2018 law introduced a new type of company—PSA (Prosta Spółka Akcyjna – Simple Joint Stock Company). PSAs are meant to facilitate start-ups with simpler and cheaper registration procedures. The minimum initial capitalization is 1 PLN ($0.25) while other types of registration require 5,000 PLN ($1,274) or 50,000 PLN ($12,737). A PSA has a board of directors, which merges the responsibilities of a management board and a supervisory board. The provision for PSAs will enter into force in July 2021.

On August 5, 2020, the Government Legislation Center published the detailed assumptions of a draft amendment to the Commercial Companies Code developed by the Commission for Owner Oversight Reform with the Ministry of State Assets. The draft amendment’s primary assumption is to enact a so-called “holding law,” laying down the principles of how a parent company may instruct its subsidiaries, as well as stipulating the parent company’s liability and the principles of creditor, officer, and minority shareholder protections. Apart from introducing the holding law, the draft provides for several additional regulations, including those enhancing the supervisory board’s position, both within the holding law framework and for companies not comprising any group. The amendment is projected to come into force sometime in 2021.

On January 1, 2021, a new law on public procurement entered into force. This law was adopted by the Polish Parliament on September 11, 2019. The new law aims to reorganize the public procurement system and further harmonize it with EU law. The new public procurement law is also more transparent than the previous act.

Beginning in July 2021, an electronic system must be used for all applications submitted in registration proceedings by commercial companies disclosed in the National Court Register, i.e., both applications for registration, deletion, and any changes in the register.

A certified e-signature may be obtained from one of the commercial e-signature providers listed on the following website:  https://www.nccert.pl/ 

National Court Register (KRS): https://www.gov.pl/web/gov/uslugi-dla-przedsiebiorcy 

Agencies with which a business will need to file in order to register in the KRS include:

Central Statistical Office to register for a business identification number (REGON) for civil-law partnership http://bip.stat.gov.pl/en/regon/subjects-and-data-included-in-the-register/ 

ZUS – Social Insurance Agency http://www.zus.pl/pl/pue/rejestracja 

Ministry of Finance http://www.mf.gov.pl/web/bip/wyniki-wyszukiwania/?q=business percent20registration 

Both registers (KRS and REGON) are available in English and foreign companies may use them.

Poland’s Single Point of Contact site for business registration and information is: https://www.biznes.gov.pl/en/ 

Outward Investment

The Polish Agency for Investment and Trade (PAIH), under the umbrella of the Polish Development Fund (PFR), plays a key role in promoting Polish investment abroad. More information on PFR can be found in Section 7, State-Owned Enterprises and at its website: https://pfr.pl/ 

PAIH has 70 offices worldwide, including six in the United States.

PAIH assists entrepreneurs with administrative and legal procedures related to specific projects as well as with the development of legal solutions and with finding suitable locations, and reliable partners and suppliers.

The Agency implements pro-export projects such as “Polish Tech Bridges” dedicated to the outward expansion of innovative Polish SMEs.

Poland is a founding member of the Asian Infrastructure Investment Bank (AIIB). Poland co-founded and actively supports the Three Seas Initiative, which seeks to improve north-south connections in road, energy, and telecom infrastructure in 12 countries on NATO’s and the EU’s eastern flank.

Under the Government Financial Support for Exports Program, the national development bank BGK (Bank Gospodarstwa Krajowego) grants foreign buyers financing for the purchase of Polish goods and services. The program provides the following financing instruments: credit for buyers granted through the buyers’ bank; credit for buyers granted directly from BGK; the purchase of receivables on credit from the supplier under an export contract; documentary letters of credit post-financing; the discounting of receivables from documentary letters of credit; confirmation of documentary letters of credit; and export pre-financing. BGK has international offices in London and Frankfurt.

In May 2019, BGK and the Romanian development bank EximBank founded the Three Seas Fund, a commercial initiative to support the development of transport, energy and digital infrastructure in Central and Eastern Europe. As of March 2021, there were nine core sponsors involved in the Fund.

In July 2019, BGK, the European Investment Bank, and four other development banks (French Deposits and Consignments Fund, Italian Deposits and Loans Fund, the Spanish Official Credit Institute, and German Credit Institute for Reconstruction), began the implementation of the “Joint Initiative on Circular Economy” (JICE), the goal of which is to eliminate waste, prevent its generation and increase the efficiency of resource management. PFR TFI S.A, an entity also under the umbrella of PFR, supports Polish investors planning to or already operating abroad. PFR TFI manages the Foreign Expansion Fund (FEZ), which provides loans, on market terms, to foreign entities owned by Polish entrepreneurs. See https://www.pfrtfi.pl/  and https://pfr.pl/en/offer/foreign-expansion-fund.html 

A current list of all Poland’s BITs, including the documents themselves, can be found at: https://investmentpolicy.unctad.org/international-investment-agreements/countries/168/poland 

The United States and Poland signed a Treaty Concerning Business and Economic Relations in 1990 that was amended and re-ratified in October 2004 due to Poland’s entrance into the EU. In May 2020, all EU-member states, except Sweden, Finland, Austria and Ireland (Ireland is not a party to any intra-EU BITs), signed an agreement on the termination of intra-EU BITs. This agreement will terminate several intra-EU BITs which Poland still has or terminate the sunset clauses of the treaties already denounced by Poland. Sweden, Finland and Austria have announced their intention to sign bilateral agreements with Poland terminating the “sunset clauses” of the BITs denounced by Poland.     Poland has signed double taxation treaties with over 80 countries. The United States shares a double taxation treaty with Poland; an updated bilateral tax treaty was signed in February 2013 and is awaiting U.S. ratification. The “Agreement between the United States of America and the Republic of Poland on Social Security” prevents double taxation, enables resumption of payments to suspended beneficiaries, and allows transfer of benefit eligibility. The double taxation treaty does not cover stock options as part of remuneration packages, according to some investors.The Polish tax system underwent significant changes in 2018, many of which became effective in 2019, 2020 or will become effective in 2021. The most important changes involved:

• An obligatory split payment mechanism;
• A “White List” of VAT taxpayers (along with their VAT numbers and bank account details) and tax-deductible costs;
  Relief from income taxes for bad debts;
• Major changes to the processes for “withholding tax” (postponed until 30 June 2021);
• A new matrix of VAT rates;
• The replacement of VAT returns with a new Uniform Control File (JPK) structure;
• An agreement on cooperation in tax matters;
• Incentives for registering intellectual property, a.k.a. “IP Box” (See Section 5 for more details); and
  New rules for accounting for tax loss.

More information can be found at http://taxsummaries.pwc.com/ID/Poland-Overview 

With a regulatory update in November 2020, Poland adopted several major changes on the taxation of businesses. The changes include the double taxation of some partnerships; deferral of corporate income tax (CIT) for small companies owned by individuals; an obligation for large companies to publish their tax strategies; and a new model of taxation for real estate companies.

Limited partnerships: The key update on limited partnerships (spolka komandytowa) imposes the status of “corporate profits taxpayer” for those with a seat or place of management in Poland, which previously had been tax transparent. The model results in double taxation: firstly on the level of the partnership’s profit, and secondly at the level of profit distribution to the partners. Limited partners will be entitled to an exemption on 50% of received distributions, but only up to approximately PLN 60,000 ($16,000 per year per limited partnership.

General partners (those with unlimited liability) will be entitled to credit proportionally for the entire income tax paid by the partnership, but only within five years. Thus, the new system will differentiate the tax position of limited and unlimited partners. The above regulations entered into force on January 1 2021. These rules will also apply to general partnerships (spolka jawaa) but only if the partners are not individuals, or if the taxpayers participating in their profits are not disclosed. General partnerships with disclosed partners will still be tax transparent.

Deferral of corporate income tax: Lump sum taxation, being a sort of deferral of income tax until the moment of dividend distribution, will apply to companies which select such a system for four years. Companies will have to be owned by individuals, have an annual turnover in the preceding year of up to approximately EUR 25 million, and not have shares in other entities or passive income exceeding 50% of turnover. There are other requirements and conditions for this system to apply, including consideration of employment, and investments in new assets.

Tax Strategies: Companies with a turnover exceeding EUR 50 million per year and tax capital groups will be obliged to prepare and publish strategy reports on the execution of their tax policy on their websites within 12 months following the end of the tax year.

Real estate companies – New model of taxation: Real estate companies will have a series of new duties to perform. For example, when a shareholder in the company sells shares, the company is required to pay any capital gains tax. Some real estate companies will be obliged to appoint a formal tax representative, and many will have to report information about their shareholders (those holding over 5 percent of shares).

Other changes include:

• Entities operating in special economic zones (SEZs) will not be entitled to change the depreciation rates for new assets.
• Losses carried forward will not be possible after further reorganizations.
• Transfer pricing documentation will be required when the beneficial owner of the party to a transaction is from a tax haven.
• A reduced 9 percent CIT rate will apply to companies with a turnover of up to EUR 2 million (increased from EUR 1.2 million).

As of January 1, 2021, retail outlets with high sales volume are required to pay additional taxes in Poland. While the Retail Sales Tax Act technically entered into force on September 1, 2016, no taxes were collected prior to 2021 due to questions from the European Commission (EC) about the legality of the tax. On March 16, 2021, the Court of Justice of the European Union (ECJ) issued a judgment on the compatibility of Poland’s tax on retail sales with the EU law on state aid. The ECJ found that the Polish retail sales tax does not infringe EU law. The European Commission has announced that it will carefully analyze the ECJ’s verdict. This tax is levied on revenues from retail sales exceeding PLN 17 million ($4.3 million) in a given month. Two tax rates apply:

• 0.8 percent of the tax base – applicable to revenues between PLN 17 million and PLN 170 million ($43 million);
• 1.4 percent of the tax base over PLN 170 million ($43 million).

The retail sales tax is payable on a monthly basis, no later than the 25th day of the month following the month in which the revenue was earned.

Some U.S. investors have expressed concern that Poland’s tax authorities do not consistently uphold presumably binding tax decisions and sometimes seek retroactive payments after a reversal. Over the last three years, changes to the regulations on transfer pricing, withholding tax and value added tax (VAT) reporting have significantly increased the obligations on the part of taxpayers, in line with a long-term government strategy of increasing tax collection and the effectiveness of inspections. In 2020, tax offices carried out nearly one-fifth fewer audits than in 2019. Lower activity was the effect of restrictions and staffing problems during the pandemic. Irregularities were found more often, but the amount recovered to the budget was lower. This trend has been observed for a few years and shows that the tax system is being effectively sealed and taxpayers are more accurately selected for audits. The number of tax inspections is likely to increase in 2021 to confirm funds from Anti-Crisis Shield programs were not misused.

On February 2, the Polish government published a draft bill for a tax on revenues earned from digital and conventional advertising. Officially the bill was titled “the Act on additional revenue for the National Health Fund, the National Fund for the Protection of Historical Monuments, and the creation of a Media Support Fund for Culture and National Heritage.” The government has claimed the tax, which it refers to as a “solidarity levy,” is necessary to address the long-term consequences of the COVID-19 pandemic, with economic winners supporting economic losers. The tax would apply rates from 2 to 15 percent of revenues earned and would enter into force on July 1, 2021. Media and digital companies have protested the proposed tax, and some have expressed concern that it could irreparably harm struggling media outlets and adversely affect independent journalism in Poland. The government continues to work on the bill.

Transparency of the Regulatory System

The Polish Constitution contains a number of provisions related to administrative law and procedures.  It states administrative bodies have a duty to observe and comply with the law of Poland.  The Code of Administrative Procedures (CAP) states rules and principles concerning participation and involvement of citizens in processes affecting them, the giving of reasons for decisions, and forms of appeal and review.

As a member of the EU, Poland complies with EU directives by harmonizing rules or translating them into national legislation.  Rule-making and regulatory authority exists at the central, regional, and municipal levels.  Various ministries are engaged in rule-making that affects foreign business, such as pharmaceutical reimbursement at the Ministry of Health or incentives for R&D at the Ministry of Development, Labor, and Technology.  Regional and municipal level governments can levy certain taxes and affect foreign investors through permitting and zoning.

Polish accounting standards do not differ significantly from international standards.  Major international accounting firms provide services in Poland.  In cases where there is no national accounting standard, the appropriate International Accounting Standard may be applied.  However, investors have complained of regulatory unpredictability and high levels of administrative red tape.  Foreign and domestic investors must comply with a variety of laws concerning taxation, labor practices, health and safety, and the environment.  Complaints about these laws, especially the tax system, center on frequent changes, lack of clarity, and strict penalties for minor errors.

Poland has improved its regulatory policy system over the last several years.  The government introduced a central online system to provide access for the general public to regulatory impact assessments (RIA) and other documents sent for consultation to selected groups such as trade unions and business.  Proposed laws and regulations are published in draft form for public comment, and ministries must conduct public consultations.  Poland follows OECD recognized good regulatory practices, but investors say the lack of regulations governing the role of stakeholders in the legislative process is a problem.  Participation in public consultations and the window for comments are often limited.

New guidelines for RIA, consultation and ex post evaluation were adopted under the Better Regulation Program in 2015, providing more detailed guidance and stronger emphasis on public consultation.  Like many countries, Poland faces challenges to fully implement its regulatory policy requirements and to ensure that RIA and consultation comments are used to improve decision making.  The OECD suggests Poland extend its online public consultation system and consider using instruments such as green papers more systematically for early-stage consultation to identify options for addressing a policy problem.  OECD considers steps taken to introduce ex post evaluation of regulations encouraging.

Bills can be submitted to Parliament for debate as “citizens’ bills” if authors collect 100,000 signatures in support for the draft legislation.  NGOs and private sector associations most often take advantage of this avenue.  Parliamentary bills can also be submitted by a group of parliamentarians, a mechanism that bypasses public consultation and which both domestic and foreign investors have criticized.  Changes to the government’s rules of procedure introduced in June 2016 reduced the requirements for RIA for preparations of new legislation.

Administrative authorities are subject to oversight by courts and other bodies (e.g., the Supreme Audit Chamber – NIK), the Office of the Human Rights Ombudsperson, special commissions and agencies, inspectorates, the Prosecutor and parliamentary committees.  Polish parliamentary committees utilize a distinct system to examine and instruct ministries and administrative agency heads.  Committees’ oversight of administrative matters consists of: reports on state budgets implementation and preparation of new budgets, citizens’ complaints, and reports from the NIK.  In addition, courts and prosecutors’ offices sometimes bring cases to parliament’s attention.

The Ombudsperson’s institution works relatively well in Poland.  Polish citizens have a right to complain and to put forward grievances before administrative bodies.  Proposed legislation can be tracked on the Prime Minister’s webpage,  https://legislacja.rcl.gov.pl/  and the Parliament’s webpage:  https://www.sejm.gov.pl/sejm9.nsf/proces.xsp . Poland has consistently met or exceeded the Department of State’s minimum requirements for fiscal transparency: https://www.state.gov/2020-fiscal-transparency-report/

Poland’s budget and information on debt obligations were widely and easily accessible to the general public, including online. The budget was substantially complete and considered generally reliable. NIK audited the government’s accounts and made its reports publicly available, including online. The budget structure and classifications are complex, and the Polish authorities agree more work is needed to address deficiencies in the process of budgetary planning and procedures. State budgets encompass only part of the public finances sector.

The European Commission regularly assesses the public finance sustainability of Member States based on fiscal gap ratios. In 2021, Poland’s public finances will continue to be exposed to a high general government deficit, uncertainty in financial markets resulting primarily from the macroeconomic environment, the effects of the fight against the COVID-19 epidemic, and the monetary policy of the NBP and major central banks, including the European Central Bank and the U.S. Federal Reserve.

International Regulatory Considerations

Since its EU accession in May 2004, Poland has been transposing European legislation and reforming its regulations in compliance with the EU system. Poland sometimes disagrees with EU regulations related to renewable energy and emissions due to its important domestic coal industry.

Poland participates in the process of creation of European norms. There is strong encouragement for non-governmental organizations, such as environmental and consumer groups, to actively participate in European standardization. In areas not covered by European normalization, the Polish Committee for Standardization (PKN) introduces norms identical with international norms, i.e., PN-ISO and PN-IEC. PKN actively cooperates with international and European standards organizations and with standards bodies from other countries. PKN has been a founding member of the International Organization for Standardization (ISO) and a member of the International Electro-technical Commission (IEC) since 1923.

PKN also cooperates with the American Society for Testing and Materials (ASTM) International and the World Trade Organization’s (WTO) Agreement on Technical Barriers to Trade (TBT). Poland has been a member of the WTO since July 1, 1995 and was a member of GATT from October 18, 1967. All EU member states are WTO members, as is the EU in its own right. While the member states coordinate their position in Brussels and Geneva, the European Commission alone speaks for the EU and its members in almost all WTO affairs. PKN runs the WTO/TBT National Information Point in order to apply the provisions of the TBT with respect to information exchange concerning national standardization.

Useful Links:
http://ec.europa.eu/growth/single-market/european-standards/harmonised-standards/ 
http://eur-lex.europa.eu/oj/direct-access.html?locale=en )

Legal System and Judicial Independence

The Polish legal system is code-based and prosecutorial.  The main source of the country’s law is the Constitution of 1997.  The legal system is a mix of Continental civil law (Napoleonic) and remnants of communist legal theory.  Poland accepts the obligatory jurisdiction of the ECJ, but with reservations.  In civil and commercial matters, first instance courts sit in single-judge panels, while courts handling appeals sit in three-judge panels. District Courts (Sad Rejonowy) handle the majority of disputes in the first instance.  When the value of a dispute exceeds a certain amount or the subject matter requires more expertise (such as those regarding intellectual property rights), Circuit Courts (Sad Okregowy) serve as first instance courts.  Circuit Courts also handle appeals from District Court verdicts.  Courts of Appeal (Sad Apelacyjny) handle appeals from verdicts of Circuit Courts as well as generally supervise the courts in their region.

The Polish judicial system generally upholds the sanctity of contracts.  Foreign court judgements, under the Polish Civil Procedure Code and European Community regulation, can be recognized.  There are many foreign court judgments, however, which Polish courts do not accept or accept partially.  There can also be delays in the recognition of judgments of foreign courts due to an insufficient number of judges with specialized expertise.  Generally, foreign firms are wary of the slow and over-burdened Polish court system, preferring other means to defend their rights.  Contracts involving foreign parties often include a clause specifying that disputes will be resolved in a third-country court or through offshore arbitration.  (More detail in Section 4, Dispute Settlement.)

Since coming to power in 2015, the PiS government has pursued far-reaching reforms to Poland’s judicial system. The reforms have led to legal disputes with the European Commission over threats to judicial independence. The reforms have also drawn criticism from legal experts, NGOs, and international organizations. Poland’s government contends the reforms are needed to purge the old Communist guard and increase efficiency and democratic oversight in the judiciary.

Observers noted in particular the introduction of an extraordinary appeal mechanism in the 2017 Supreme Court Law.  The extraordinary appeal mechanism states:  final judgments issued since 1997 can be challenged and overturned in whole or in part for a three-year period starting from the day the legislation entered into force on April 3, 2018.  On February 25, 2021, the Sejm passed an amendment to the law on the Supreme Court, which extended by two years (until April 2023) the deadline for submitting extraordinary complaints.  The bill is now waiting for review by the opposition-controlled Senate.  During 2020, the Extraordinary Appeals Chamber received 217 new complaints. During 2020, the Chamber reviewed 166 complaints, of which 18 were accepted, and 13 were rejected. Seventy-three cases were pending at the end of 2020 the status of the remaining cases was unavailable.

On April 8, 2020, the European Court of Justice (ECJ) issued interim measures ordering the government to suspend the work of the Supreme Court Disciplinary Chamber with regard to disciplinary cases against judges. The ECJ is evaluating an infringement proceeding launched by the European Commission in April 2019 and referred to the ECJ in October 2019. The commission argued that the country’s disciplinary regime for judges “undermines the judicial independence of…judges and does not ensure the necessary guarantees to protect judges from political control, as required by the Court of Justice of the EU.” The commission stated the disciplinary regime did not provide for the independence and impartiality of the Disciplinary Chamber, which is composed solely of judges selected by the restructured National Council of the Judiciary, which is appointed by the Sejm. The ECJ has yet to make a final ruling. The European Commission and judicial experts complained the government has ignored the ECJ’s interim measures.

On April 29, 2020, the European Commission launched a new infringement procedure regarding a law that came into effect on February 14, 2020. The law allows judges to be disciplined for impeding the functioning of the legal system or questioning a judge’s professional state or the effectiveness of his or her appointment. It also requires judges to disclose memberships in associations. The commission’s announcement stated the law “undermines the judicial independence of Polish judges and is incompatible with the primacy of EU law.” It also stated the law “prevents Polish courts from directly applying certain provisions of EU law protecting judicial independence and from putting references for preliminary rulings on such questions to the [European] Court of Justice.” On December 3, the commission expanded its April 29 complaint to include the continued functioning of the Disciplinary Chamber in apparent disregard of the ECJ’s interim measures in the prior infringement procedure.  On January 27, 2021, the European Commission sent a reasoned opinion to the Polish government for response. If not satisfied, the Commission noted it would refer the matter to the ECJ.

Laws and Regulations on Foreign Direct Investment

Foreign nationals can expect to obtain impartial proceedings in legal matters. Polish is the official language and must be used in all legal proceedings. It is possible to obtain an interpreter. The basic legal framework for establishing and operating companies in Poland, including companies with foreign investors, is found in the Commercial Companies Code. The Code provides for establishment of joint-stock companies, limited liability companies, or partnerships (e.g., limited joint-stock partnerships, professional partnerships). These corporate forms are available to foreign investors who come from an EU or European Free Trade Association (EFTA) member state or from a country that offers reciprocity to Polish enterprises, including the United States.

With few exceptions, foreign investors are guaranteed national treatment. Companies that establish an EU subsidiary after May 1, 2004 and conduct or plan to commence business operations in Poland must observe all EU regulations. However, in some cases they may not be able to benefit from all privileges afforded to EU companies. Foreign investors without permanent residence and the right to work in Poland may be restricted from participating in day-to-day operations of a company. Parties can freely determine the content of contracts within the limits of European contract law. All parties must agree on essential terms, including the price and the subject matter of the contract. Written agreements, although not always mandatory, may enable an investor to avoid future disputes. Civil Code is the law applicable to contracts.

Useful websites (in English) to help navigate laws, rules, procedures and reporting requirements for foreign investors:

Polish Investment and Trade Agency: https://www.paih.gov.pl/en 
Polish Financial Supervision Authority (KNF):  https://www.knf.gov.pl/en/ 
Office of Competition and Consumer Protection (UOKIK):  https://uokik.gov.pl/legal_regulations.php 

Biznes.gov.pl is intended for people who plan to start a new business in Poland. The portal is designed to simplify the formalities of setting up and running a business. It provides up-to-date regulations and procedures for running a business in Poland and the EU; it supports electronic application submission to state institutions; and it answers questions regarding running a business. Information is available in Polish and English. https://www.biznes.gov.pl/en/przedsiebiorcy/ 

Competition and Antitrust Laws

Poland has a high level of nominal convergence with the EU on competition policy in accordance with Articles 101 and 102 of the Lisbon Treaty. Poland’s Office of Competition and Consumer Protection (UOKiK) is well within EU norms for structure and functioning, with the exception that the Prime Minister both appoints and dismisses the head of UOKiK. This is supposed to change to be in line with EU norms, however, as of March 2021, the Prime Minister was still exercising his right to remove and nominate UOKiK’s presidents.

The Act on Competition and Consumer Protection  was amended in mid-2019. The most important changes, which concern geo-blocking and access to fiscal and banking secrets, came into force on September 17, 2019. Other minor changes took effect in January 2020. The amendments result from the need to align national law with new EU laws.

Starting in January 2020, UOKiK may intervene in cases when delays in payment are excessive. UOKiK can take action when the sum of outstanding payments due to an entrepreneur for three subsequent months amounts to at least PLN 5 million ($1.7 million). In 2022, the minimum amount will decrease to PLN 2 million ($510,000).

The President of UOKiK issues approximately 100 decisions per year regarding practices restricting competition and infringing on collective interests of consumers. Enterprises have the right to appeal against those decisions to the court. In the first instance, the case is examined by the Court of Competition and Consumer Protection and in the second instance, by the Appellate Court. The decision of the Appellate Court may be challenged by way of a cassation appeal filed to the Supreme Court. In major cases, the General Counsel to the Republic of Poland will act as the legal representative in proceedings concerning an appeal against a decision of the President of UOKiK.

As part of new COVID-related measures, the Polish Parliament adopted legislation amending the Act of July 24, 2015, on the Control of Certain Investments, introducing full-fledged foreign direct investment control in Poland and giving new responsibilities to UOKiK. Entities from outside the EEA and/or the OECD have to notify the Polish Competition Authority of the intention to make an investment resulting in acquisition, achievement or obtaining directly or indirectly: “significant participation” (defined briefly as 20 percent or 40 percent of share in the total number of votes, capital, or profits or purchasing or leasing of an enterprise or its organized part) or the status of a dominant entity within the meaning of the Act of July 24, 2015, on the Control of Certain Investments in an entity subject to protection. The new law entered into force on July 24, 2020 and is valid for 24 months.

On October 28, 2020, the government proposed new legislation by virtue of which the tasks pursued by the Financial Ombudsman will be taken over by UOKiK. According to the justification of this legislation, the objective of the draft is to enhance the efficiency of protection, in terms of both group and individual interests of financial market entities’ clients. According to the new regulations, a new position of coordinator conducting out-of-court procedures in matters of resolving disputes between financial market entities and their clients will be established. Such a coordinator will be appointed by UOKiK for a four-year term. Moreover, the new proposal provides for creating the Financial Education Fund (FEF), a special-purpose fund managed by UOKiK.

Additional provisions in the proposed legislation concern the UOKiK’s investigative powers, cooperation between anti-monopoly authorities, and changes to fine imposition and leniency programs. One of the amendments also stipulates that the President of UOKiK will be elected to a 5-year term and the dismissal of the anti-monopoly authority will only be possible in precisely defined situations, such as: legally valid conviction for a criminal offense caused by intentional conduct and the deprivation of public rights or of Polish citizenship. Adoption of these solutions is linked to the implementation of the EU’s ECN+ directive.

All multinational companies must notify UOKiK of a proposed merger if any party to it has subsidiaries, distribution networks or permanent sales in Poland.

Examples of competition reviews can be found at:
https://www.uokik.gov.pl/news.php?news_id=16649  (Gazprom NS2)
https://www.uokik.gov.pl/news.php?news_id=17198  (Agora/Eurozet)
https://www.uokik.gov.pl/news.php?news_id=17202  (Orlen/Polska Press)
https://www.uokik.gov.pl/news.php?news_id=17198  (BPH Bank spread clauses)

Decisions made by the President of UOKiK can be searched here:
https://decyzje.uokik.gov.pl/bp/dec_prez.nsf 

The President of UOKiK has the power to impose significant fines on individuals in management positions at companies that violate the prohibition of anticompetitive agreements. The amendment to the law governing UOKiK’s operation, which entered into force on December 15, 2018, provides for a similar power to impose significant fines on the management of companies in the case of violations of consumer rights. The maximum fine that can be imposed on a manager may amount to PLN 2 million ($510,000) and, in the case of managers in the financial sector, up to PLN 5 million ($1.27 million).

Expropriation and Compensation

Article 21 of the Polish Constitution states: “expropriation is admissible only for public purposes and upon equitable compensation.”  The Law on Land Management and Expropriation of Real Estate states that property may be expropriated only in accordance with statutory provisions such as construction of public works, national security considerations, or other specified cases of public interest.  The government must pay full compensation at market value for expropriated property.  Acquiring land for road construction investment and recently also for the Central Airport and the Vistula Spit projects has been liberalized and simplified to accelerate property acquisition, particularly through a special legislative act. Most acquisitions for road construction are resolved without problems.  However, there have been a few cases in which the inability to reach agreement on remuneration has resulted in disputes.  Post is not aware of any recent expropriation actions against U.S. investors, companies, or representatives.

Dispute Settlement

ICSID Convention and New York Convention

Poland is not a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (Washington Convention). Poland is a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

Investor-State Dispute Settlement

Poland is party to the following international agreements on dispute resolution, with the Ministry of Finance acting as the government’s representative: the 1923 Geneva Protocol on Arbitration Clauses; the 1961 Geneva European Convention on International Trade Arbitration; the 1972 Moscow Convention on Arbitration Resolution of Civil Law Disputes in Economic and Scientific Cooperation Claims under the U.S.-Poland Bilateral Investment Treaty (BIT) (with further amendments).

The United Nations Conference on Trade and Development (UNCTAD) database for treaty-based disputes lists three cases for Poland involving a U.S. party over the last decade. The majority of Poland’s investment disputes are with companies from other EU member states. According to the UNCTAD database, over the last decade, there have been 16 known disputes with foreign investors.

There is no distinction in law between domestic and international arbitration. The law only distinguishes between foreign and domestic arbitral awards for the purpose of their recognition and enforcement. The decisions of arbitration entities are not automatically enforceable in Poland, but must be confirmed and upheld in a Polish court. Under Polish Civil Code, local courts accept and enforce the judgments of foreign courts; in practice, however, the acceptance of foreign court decisions varies. Investors say the timely process of energy policy consolidation has made the legal, regulatory and investment environment for the energy sector uncertain in terms of how the Polish judicial system deals with questions and disputes around energy investments by foreign investors, and in foreign investor interactions with state-owned or affiliated energy enterprises.

A Civil Procedures Code amendment in January 2016, with further amendments in July 2019, implements internationally recognized arbitration standards and creates an arbitration-friendly legal regime in Poland. The amendment applies to arbitral proceedings initiated on or after January 1, 2016 and introduced one-instance proceedings to repeal an arbitration award (instead of two-instance proceedings). This change encourages mediation and arbitration to solve commercial disputes and aims to strengthen expeditious procedure. The Courts of Appeal (instead of District Courts) handle complaints. In cases of foreign arbitral awards, the Court of Appeal is the only instance. In certain cases, it is possible to file a cassation (or extraordinary) appeal with the Supreme Court of the Republic of Poland. In the case of a domestic arbitral award, it will be possible to file an appeal to a different panel of the Court of Appeal.

International Commercial Arbitration and Foreign Courts

Poland does not have an arbitration law, but provisions in the Polish Code of Civil Procedures of 1964, as amended, are based to a large extent on UNCITRAL Model Law. Under the Code of Civil Procedure, an arbitration agreement must be concluded in writing. Commercial contracts between Polish and foreign companies often contain an arbitration clause. Arbitration tribunals operate through the Polish Chamber of Commerce, and other sector-specific organizations. A permanent court of arbitration also functions at the business organization Confederation Lewiatan in Warsaw and at the General Counsel to the Republic of Poland (GCRP). GCRP took over arbitral cases from external counsels in 2017 and began representing state-owned commercial companies in litigation and arbitration matters for amounts in dispute over PLN 5 million ($1.27 million). The list of these entities includes major Polish state-owned enterprises in the airline, energy, banking, chemical, insurance, military, oil and rail industries as well as other entities such as museums, state-owned media and universities.

The Court of Arbitration at the Polish Chamber of Commerce in Warsaw, the biggest permanent arbitration court in Poland, operates based on arbitration rules complying with the latest international standards, implementing new provisions on expedited procedure. In recent years, numerous efforts have been made to increase use of arbitration in Poland. In 2019, online arbitration courts appeared on the Polish market. Their presence reflects the need for reliable, fast and affordable alternatives to state courts in smaller disputes. Online arbitration is becoming increasingly popular with exporting companies. One of the reasons is the possibility to file claims faster for overdue payments to foreign courts.

Polish state courts generally respect the wide autonomy of arbitration courts and show little inclination to interfere with their decisions as to the merits of the case. The arbitral awards are likely to be set aside only in rare cases. As a rule, in post-arbitral proceedings, Polish courts do not address the merits of the cases decided by the arbitration courts. An arbitration-friendly approach is also visible in other aspects, such as in the broad interpretation of arbitration clauses.

In mid-2018, the Polish Supreme Court introduced a new legal instrument into the Polish legal field: an extraordinary complaint. Although this new instrument does not refer directly to arbitration proceedings, it may be applied to any procedures before Polish state courts, including post-arbitration proceedings (see Section 3 for more details).

Bankruptcy Regulations

Poland’s bankruptcy law has undergone significant change and modernization in recent years. There is now a bankruptcy law and a separate, distinct restructuring law. Poland ranks 25th for ease of resolving insolvency in the World Bank’s Doing Business report 2020. Bankruptcy in Poland is criminalized if a company’s management does not file a petition to declare bankruptcy when a company becomes illiquid for an extended period of time or if a company ceases to pay its liabilities. https://www.paih.gov.pl/polish_law/bankruptcy_law_and_restructuring_proceedings 

In order to reduce the risk of overwhelming the bankruptcy courts with an excess of cases resulting from the pandemic, changes have been introduced in the bankruptcy process for consumers, shifting part of the duties to a trustee. A second significant change is the introduction of simplified restructuring proceedings. During restructuring proceedings, a company appoints an interim supervisor and is guaranteed protection against debt collection while seeking approval for specific restructuring plans from creditors. The simplified proceedings enjoy great support among entities at risk of insolvency, but are limited in time until June 30, 2021. Some of the solutions provided in the simplified restructuring procedure are the implementation of recommendations from Directive 2019/1023 of the European Parliament and of the Council (EU) of June 20, 2019. It is likely that, taking advantage of the state of the epidemic, the government is testing new solutions, which may continue to be applied after the economic situation has returned to normal.

Investment Incentives

Poland’s Plan for Responsible Development identified eight industries for development and incentives: aviation, defense, automotive parts manufacturing, ship building, information technology, chemicals, furniture manufacturing and food processing.  More information about the plan can be found at this link:  https://www.gov.pl/web/fundusze-regiony/plan-na-rzecz-odpowiedzialnego-rozwoju.  Poland encourages energy sector development through its energy policy, outlined in the November 2018 published draft report “Energy Policy of Poland until 2040” (PEP2040) and finally adopted by the government in February 2021.  The policy can be found at:  https://www.gov.pl/web/klimat/polityka-energetyczna-polski.

The policy foresees a primary role for fossil fuels until 2040 as well as strong growth in electricity production.  The government will continue to pursue developing nuclear energy and offshore wind power generation, as well as distributed generation.  The policy remains skeptical of onshore wind.  Poland’s National Energy and Climate Plan for years 2021-2030 (NECP PL) developed in line with the EU Regulation on the Governance of the Energy and Climate Action, together with PEP2040, pave the road to the new European Green Deal.  Poland may spend approximately $420 billion on the transformation of its energy sector in 2021-2040, according to the energy policy.  These investments would include about $230 billion in the fuel and energy sectors and about $90 billion in the generation segment, of which 80 percent will be spent on nuclear energy and renewables investments.

A new economic program called the “New Deal” (Nowy Lad), still awaiting public presentation as of March 2020, is likely to include proposals of significant changes to the tax system including incentives to attract capital to Poland.  The government claims the program consists of support schemes for domestic enterprises, new investment and development projects, as well as reforms of the healthcare system, social welfare, education, environmental, and energy policies.

A government strategy aims for a commercial 5G network to be operational in all cities by 2025.

The Ministry of Development has finished public consultations on its Industry Development White Paper, which identifies the government’s views on its most significant barriers to industrial activity.  This document will serve as a foundation for Poland’s Industrial Policy (PIP). The majority of public comments received focused on issues related to the education system not being tailored to the needs of industry, a workforce deficit, difficulties in obtaining funding, for R&D, environmental regulations, complex administrative procedures and legislation, labor regulations, and high energy prices.  The PIP is slated to become a strategic document, setting the direction for long-term industrial development.  The PIP will focus on five areas:  digitization, security, industrial production location, the Green Deal, and modern society.  The Ministry expects to finalize this strategic plan during the second quarter of 2021.  The government has not yet clarified how Poland’s Industrial Policy will align with other strategic documents, including the National Recovery Plan and the New Deal.

A company investing in Poland, either foreign or domestic, may receive assistance from the Polish government.  Foreign investors have the potential to access certain incentives such as:  income tax and real estate tax exemptions; investment grants of up to 50 percent of investment costs (70 percent for small and medium-sized enterprises); grants for research and development; grants for other activities such as environmental protection, training, logistics, or use of renewable energy sources.

Large priority-sector investments may qualify for the “Program for Supporting Investment of Considerable Importance for the Polish Economy for 2011-2030.”  The program, amended in October 2019, is one of the instruments enabling support for new investment projects, particularly relevant for the Polish economy.  Its main goal is to increase innovation and the competitiveness of the Polish economy.  Under the amended program, it is possible to co-finance large strategic investments as well as medium-sized innovative projects.  Projects that adapt modern technologies and provide for research and development activities are awarded.  The program is also conducive to establishing cooperation between the economic sector and academic centers.  The support is granted in the form of a subsidy, based on an agreement concluded between the Minister of Development and the investor.  The agreement regulates the conditions for the payment of subsidies and the investment implementation schedule.  Under the program, investment support may be granted in two categories: eligible costs for creating new jobs and investment costs in tangible and intangible assets.  Companies can learn more at: https://www.paih.gov.pl/why_poland/investment_incentives/programme_for_supporting_investments_of_major_importance_to_the_polish_economy_for_2011_-_2030

https://www.gov.pl/web/rozwoj/program-wspierania-inwestycji-o-istotnym-znaczeniu-dla-gospodarki-polskiej-na-lata-2011-2030

The Polish Investment Zone (PSI), the new system of tax incentives for investors which replaced the previous system of special economic zones (SEZ), was launched September 5, 2018.  Under the new law on the PSI, companies can apply for a corporate income tax (CIT) exemption for a new investment to be placed anywhere in Poland.  The CIT exemption is calculated based on the value of the investment multiplied by the percentage of public aid allocated for a given region based on its level of development (set percentage).  The CIT exemption is for 10-15 years, depending on the location of the investment.  Special treatment is available for investment in new business services and research and development (R&D).  A point system determines eligibility for the incentives.  Entities operating in special economic zones will not be entitled to change the depreciation rates for new assets starting 2021.

The deadline for utilizing available tax credits from the previous SEZ system is the end of 2026 (extended from 2020).  The new regulations also contain important changes for entities already operating in SEZs, even if they do not plan new investment projects.  This includes the possibility of losing the right to tax incentives in the event of fraud or tax evasion.  Investors should consider carefully the potential benefits of the CIT exemption in assessing new investments or expansion of existing investments in Poland.

More information on government financial support:  https://www.paih.gov.pl/why_poland/investment_incentives

The Polish government is seeking to increase Poland’s economic competitiveness by shifting toward a knowledge-based economy.  Public and private sector investment in R&D has been steadily growing since 2016, supported by EU funds dedicated to R&D and innovation.  Businesses may also take advantage of the EU primary research funding program, Horizon 2020 and its successor Horizon Europe.  The EU institutions set the 2021–2027 budget for Horizon Europe at EUR 95.5 billion (including EUR 5.4 billion from the Next Generation of the EU  Recovery Fund).  The first Horizon Europe Strategic Plan (2021-2024), which sets out key strategic orientations for the support of research and innovation, was adopted on March 15, 2021.  According to the European Commission, the program will start “as soon as possible in 2021.”  A few months’ delay in the start should not have a big impact on potential grantees because the Commission had already been making contingency plans and will still be spending money left over from Horizon 2020 over the next few years.  The conditions for participation, funding and other related formalities remain unchanged.

More information is available at:

Ministry of Funds and Regional Development:  https://www.gov.pl/web/fundusze-regiony/otwarte-konkursy-nabory-dotacje-i-dofinansowania

Ministry of Economic Development: https://www.gov.pl/web/rozwoj/programy-i-projekty

Horizon Europe 2021-2027:  https://ec.europa.eu/info/horizon-europe_en#proposal

As of January 1, 2019, the Innovation Box, or IP Box, reduces the tax rate applicable to income derived from intellectual property rights to 5 percent.  Taxpayers applying the IP Box shall be entitled to benefit from the tax preference until a given right expires (in case of a patented invention – 20 years).  In order to benefit from the program, taxpayers will be obliged to separately account for the relevant income.  Foreign investors may take advantage of this benefit as long as the relevant IP is registered in Poland.

The update of the National Reform Program (NRP) heralds the introduction of a new incentive measure for enterprises in the form of tax relief related to investments in automation and robotization (robotization relief).  According to an announcement from the Ministry of Finance, robotization relief should apply as of the first half of 2021.  Robotization relief is intended as a tax incentive available to all entities subject to income tax.  At the same time, eligibility for the relief will not depend on the business sector in which the enterprise operates or business size, making this solution available to all.  The new tax relief will operate in a similar manner as the existing research & development tax relief enabling taxpayers to make an additional deduction of eligible costs (expenses detailed in an exhaustive list) from the tax base.  Within the framework of robotization relief, it will be possible to deduct 50 percent of the eligible costs. According to the draft, the relief will apply within a specific time frame.  It has been announced that robotization relief will apply to expenses incurred on business robotization and automation in the years 2021-2025.  The deductions can be made in these years and in the six consecutive years thereafter.  It means that the last deductions of eligible expenses can be made in 2031.

There are numerous grants, preferential loans, and other financial instruments to encourage investment that protects the environment by increasing energy efficiency and to promote renewable energy sources and cogeneration systems.  Incentives are available mostly from EU funds and national funds and can cover up to 85 percent of eligible costs.

The Polish government does not issue sovereign guarantees for FDI projects.  Co-financing may be possible for partnering on large FDI projects, such as the planned central airport project or a nuclear power plant project.

Foreign Trade Zones/Free Ports/Trade Facilitation

Foreign-owned firms have the same opportunities as Polish firms to benefit from foreign trade zones (FTZs), free ports, and special economic zones (since January 2019, they make up the Polish Investment Zone).  The 2004 Customs Law (with later amendments) regulates operation of FTZs in Poland.  The Minister of Finance establishes duty-free zones.  The Ministers designate the zone’s managing authorities, usually provincial governors, who issue operating permits to interested companies for a given zone.

Most activity in FTZs involves storage, packaging, and repackaging.  As of April 2019, there were seven FTZs:  Gliwice, near Poland’s southern border; Terespol, near Poland’s border with Belarus; Mszczonow, near Warsaw; Warsaw’s Frederic Chopin International Airport; Szczecin; Swinoujscie; and Gdansk.  Duty-free shops are available only for travelers to non-EU countries.

There are bonded warehouses in:  Bydgoszcz-Szwederowo; Krakow-Balice; Wroclaw-Strachowice; Katowice-Pyrzowice; Gdansk-Trojmiasto; Lodz -Lublinek; Poznan-Lawica; Rzeszow-Jasionka, Warszawa-Modlin, Lublin, Szczecin-Goleniow; Radom-Sadkow, Olsztyn-Mazury.  Commercial companies can operate bonded warehouses.  Customs and storage facilities must operate pursuant to custom authorities’ permission.  Only legal persons established in the EU can receive authorization to operate a customs warehouse.

Performance and Data Localization Requirements

Poland has no policy of “forced localization” designed to force foreign investors to use domestic content in goods or technology.  Investment incentives apply equally to foreign and domestic firms.  Over 40 percent of firms in Special Economic Zones are Polish.  There is little data on localization requirements in Poland and there are no requirements for foreign information technology (IT) providers to turn over source code and/or provide access to surveillance (backdoors into hardware and software or turn over keys for encryption).  Exceptions exist in sectors where data are important for national security such as critical telecommunications infrastructure and in gambling.  The cross-border transfer rules in Poland are reasonable and follow international best practices, although some companies have criticized registration requirements as cumbersome.  In Poland, the Telecommunications Law (Act of 16 July 2004 – unified text, Journal of Laws 2018, item 1954) includes data retention provisions.  The data retention period is 12 months.

In the telecommunication sector, the Office of Electronic Communication (UKE) ensures telecommunication operators fulfill their obligations.  In radio and television, the National Broadcasting Council (KRRiT) acts as the regulator.  Polish regulations protect an individual’s personal data that are collected in Poland regardless of where the data are physically stored.  The Personal Data Protection Office (UODO) enforces personal data regulations.

Work is underway at the national level on the draft of a new Act on Open Data and Re-use of Public Sector Information.  This work follows adoption of the new Open Data Directive (Directive (EU) 2019/1024 on open data and the re-use of public sector information), which should be implemented into Polish law by July 17, 2021.

Post is not aware of excessively onerous visa, residence permit or similar requirements inhibiting mobility of foreign investors and their employees, though investors regularly note long processing times due to understaffing at regional employment offices.  U.S. companies have reported difficulties obtaining work permits for their non-EU citizen employees.  Both regulatory challenges and administrative delays result in permit processing times of 3 to 12 months.  This affects the hiring of new employees as well as the transfer of existing employees from outside Poland.  U.S. companies have complained they are losing highly-qualified employees to other destinations, such as Germany, where labor markets are more accessible.  The problem is especially acute in southern Poland.

Generally, Poland does not mandate local employment, but there are a few regulations that place de facto restrictions e.g., a certain number of board members of insurance companies must speak Polish.

Polish law limits non-EU citizens to 49 percent ownership of a company’s capital shares in the air transport, radio and television broadcasting sectors as well as airport and seaport operations.  There are also legal limits on foreign ownership of farm and forest lands as outlined in Section 2 of this report under Limits on Foreign Control and Right to Private Ownership and Establishment.  Pursuant to the Broadcasting Law, a TV broadcasting company may only receive a license if the voting share of its foreign owners does not exceed 49 percent and if they hold permanent residence in Poland.  In the insurance sector, at least two members of management boards, including the chair, must speak Polish.

Real Property

Poland recognizes and enforces secured interests in property, movable and real. The concept of a mortgage exists in Poland, and there is a recognized system of recording such secured interests. There are two types of publicly available land registers in Poland: the land and mortgage register (ksiegi wieczyste), the purpose of which is to register titles to land and encumbrances thereon; and the land and buildings register (ewidencja gruntow i budynkow), the function of which is more technical as it contains information concerning physical features of the land, class of land and its use. Generally, real estate in Poland is registered and legal title can be identified on the basis of entries in the land and mortgage registers which are maintained by relevant district courts. Each register is accessible to the public and excerpts are available on application, subject to a nominal fee. The registers are available online.

Poland has a non-discriminatory legal system accessible to foreign investors that protects and facilitates acquisition and disposition of all property rights, including land, buildings, and mortgages. However, foreigners (both individuals and entities) must obtain a permit to acquire property (See Section 1 Limits on Foreign Control and Right to Private Ownership and Establishment). Many investors, foreign and domestic, complain the judicial system is slow in adjudicating property rights cases. Under the Polish Civil Code, a contract to buy real property must be made in the form of a notary deed. Foreign companies and individuals may lease real property in Poland without having to obtain a permit.

Widespread nationalization of property during and after World War II has complicated the ability to establish clear title to land in Poland, especially in major municipalities.  While the Polish government has an administrative system for reviewing claims for the restitution of communal property, former individual property owners must file and pursue claims in the Polish court system in order to receive restitution.  There is no general statute of limitations regarding the filing or litigation of private property restitution claims, but there are exceptions for specific cases.  For example, in cases involving the communist-era nationalization of Warsaw under the Bierut Decree, there were claims deadlines that have now passed, and under current law, those who did not meet the deadlines would no longer be able to make a claim for either restitution or compensation.  During 2020, Warsaw city authorities continued implementing a 2015 Law dubbed the Small Reprivatization Act.  This Law aimed to stop the problem of speculators purchasing Warsaw property claims for low values from the original owners or their heirs and then applying for a perpetual usufruct or compensation as the new legal owner.  On September 17, 2020, Parliament adopted further amendments to the 2015 law.  The revised legislation established new grounds on which the City of Warsaw must refuse the return of properties, for reasons outside claimants’ control. The president signed the legislation on September 29. NGOs and advocacy groups expressed serious concerns that the 2015 law fell short of providing just compensation to former owners who lost property as a result of the nationalization of properties by the communist-era government, and also properties taken during the Holocaust era. Legal experts expressed concern that the law limited the ability of petitioners to reclaim property unjustly taken from their lawful owners. The World Jewish Restitution Organization asserted that the time limits included in the law were insufficient for potential claimants, particularly Holocaust survivors and their heirs, to meet difficult documentary requirements.

Critics state the law might extinguish potential claims by private individuals of properties seized during World War II or the communist era, if no one comes forward to pursue a restitution claim within the time limit.  Any potential claimants who come forward within six months after publication of the affected property by the City of Warsaw will have an additional three months to establish their claim.  The city began publishing lists in 2017 and continued to do so during 2021.  The city’s website contains further information on these cases and the process to pursue a claim:  https://bip.warszawa.pl/Menu_podmiotowe/biura_urzedu/SD/ogloszenia/default.htm 

It is sometimes difficult to establish clear title to properties.  There are no comprehensive estimates of land without clear title in Poland.

The 2016 Agricultural Land Law banned the sale of state-owned farmland under the administration of the National Center for Support of Agriculture (NCSA) for five years.  Long-term state-owned farmland leases are available for farmers looking to expand their operations up to 300 hectares.  Foreign investors can (and do) lease agricultural land.  The 2016 Agricultural Land Law also imposed restrictions on sales of privately-owned farmland, giving the NCSA preemptive right of purchase.

The 2011 amendment to the law of Management of Farmland Administered by NCSA and 2016 Agricultural Land Law adversely affected tenants with long-term state-owned land leases.  According to the law, renters who did not return 30 percent of the land under lease to NCSA would not be eligible to have their leases extended beyond the current terms of the contract.  Currently, several entities, including U.S. companies, face the prospect of returning some currently leased land to the Polish government over the coming years.  Three of these entities appealed to the Ombudsman, who requested the Constitutional Tribunal (CT) to verify the law’s compliance with the constitution, but the cases were dismissed by the CT in the fall of 2020.  In June 2019, the Polish Parliament amended the Agricultural Land Law to loosen land sale requirements.  The amendment increased the size of private agricultural land, from 0.3 to 1.0 hectare that could be sold without the approval of the NCSA.  The new owner is not allowed to sell the land for five years.  The 2019 amendment did not change the land lease situation for larger operators, many of whom continue to remain ineligible to have their land leases extended.  The Law on Forest Land similarly prevents Polish and foreign investors from purchasing privately-held forests and gives state-owned entities (Lasy Panstwowe) preemptive right to buy privately-held forest land.

On March 9, 2021, the Council of Ministers approved a draft law amending the 2016 Agricultural Land Law. The amendment extends the ban on selling state-owned farmland under the administration of the NCSA for another five years, until May 1, 2026. If the draft amendment of the Agricultural Land Law is approved by Parliament, it will enter into force on May 1, 2021. The 2021 amendment will not change the land lease situation for larger operators, who will remain ineligible to have their land leases extended.

Intellectual Property Rights

Polish intellectual property rights (IPR) law is more strict than European Commission directives require.  Poland is a member of the World Intellectual Property Organization (WIPO) and a party to many of its treaties, including the Berne Convention, the Paris Convention, the Patent Cooperation Treaty, the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty. Enforcement is improving across all sectors of Poland’s IPR regime.  Physical piracy (e.g., optical discs) is not a significant problem in Poland.  However, despite progress in enforcement, online piracy continues to be widespread as site blocking is still not possible in Poland due to lack of implementation of relevant EU legislation. A popular Polish cyberlocker platform is included on the 2020 Notorious Markets List. Poland does not appear in the U.S. Trade Representative’s Special 301 Report.

Polish law requires a rights holder to start the prosecution process.  In Poland, authors’ and creators’ organizations and associations track violations and share these with prosecutors.  Rights holders express concern that penalties for digital IPR infringement are not high enough to deter violators.

In March 2019, amendments to the Act on Industrial Property Law came into force which are intended to implement EU Trademark Directive 2015/2436. The legislation introduced, inter alia, the abandonment of the graphical representation requirement, a new mechanism for trademark protection renewals, extended licensee’s rights, as well as remedies against counterfeit goods in transit and against infringing preparatory acts. The changes provide new tools to fight against infringement of trademark rights.

In April 2019, the EU adopted two directives on copyright, including: 2019/790 on copyright and related rights in the digital single market and 2019/789 regarding online broadcasting and re-broadcasting. Member states are required to transpose the reforms into national legislation by June 2021. The Ministry of Culture and National Heritage is responsible for drafting and implementing the legislation which has not yet been made available for public consultations.

In February 2020, additional amendments to the Act on Industrial Property entered into force which adapt Polish standards on inventions to those of the EU so as to streamline and speed up proceedings before the Polish Patent Office. The amendments to the Act also extend the exemption from patent and trademark renewal fees to support start-up entrepreneurs. The legislation complies with relevant provisions of the European Patent Convention and the WIPO Patent Cooperation Treaty.

In July 2020, amendments to the Code of Civil Procedure entered into force which, among other things, creates and operationalizes specialized IPR courts.  Poland’s new specialized courts will oversee cases related to all types of IPR, including copyright, and trademarks, industrial property rights, and unfair competition. New departments for IPR matters will be created at the District Courts in Gdansk, Katowice, Poznan, and Warsaw, and specialized departments will be established in the Courts of Appeal in Warsaw and Katowice. This will replace the current system in which IPR matters, including those relating to highly specialized issues such as patents, plant varieties, and trademarks, are examined by commercial departments of common courts.

A specialized court that was previously established within the 22nd Department of the District Court in Warsaw for cases involving EU trademarks and community designs will lose the exclusive competence to deal with those cases and will consider IPR claims regarding computer programs, inventions, designs utility, topography of integrated circuits, plant varieties, and trade secrets of a technical nature (i.e., matters of advanced complexity).  In order to conduct proceedings in these cases, it will be necessary to have highly trained judges who are familiar with IPR/IT issues. The new rules also require parties in IPR cases to be represented by professional lawyers, legal advisers, and patent attorneys. The changes represent a positive step for the court system, further contributing to the speed and efficiency of proceedings.

Tax incentives for IPR known collectively as “IP Box” or “Innovation Box,” included in the November 2018 tax amendment, have been applicable since January 2019. See Section 4 – Investment Incentives.

Polish customs tracks seizures of counterfeit goods but statistics for the reporting period are currently unavailable.

General information on copyright in Poland: http://www.copyright.gov.pl/pages/main-page/copyright-in-poland/general-information.php 

Polish Patent Office: http://www.uprp.pl/o-urzedzie/Lead03,14,56,1,index,pl,text/ 

Chancellery of the Prime Minister: https://www.gov.pl/cyfryzacja/co-robimy 

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/details.jsp?country_code=PL 

Capital Markets and Portfolio Investment

The Polish regulatory system is effective in encouraging and facilitating portfolio investment.  Both foreign and domestic investors may place funds in demand and time deposits, stocks, bonds, futures, and derivatives.  Poland’s equity markets facilitate the free flow of financial resources.  Poland’s stock market is the largest and most developed in Central Europe.  In September 2018, it was reclassified as developed market status by FTSE Russell’s country classification report.  The stock market’s capitalization amounts to less than 40 percent of GDP.  Although the Warsaw Stock Exchange (WSE) is itself a publicly traded company with shares listed on its own exchange after its partial privatization in 2010, the state retains a significant percentage of shares which allows it to control the company.  WSE has become a hub for foreign institutional investors targeting equity investments in the region.  It has also become an increasingly significant source of capital.

In addition to the equity market, Poland has a wholesale market dedicated to the trading of treasury bills and bonds (Treasury BondSpot Poland).  This treasury market is an integral part of the Primary Dealers System organized by the Finance Ministry and part of the pan-European bond platform.  Wholesale treasury bonds and bills denominated in zlotys and some securities denominated in euros are traded on the Treasury BondSpot market.  Non-government bonds are traded on Catalyst, a WSE managed platform.  The capital market is a source of funding for Polish companies.  While securities markets continue to play a subordinate role to banks in the provision of finance, the need for medium-term financial support for the modernization of the electricity and gas sectors is likely to lead to an increase in the importance of the corporate bond market.  The Polish government acknowledges the capital market’s role in the economy in its development plan.  Foreigners may invest in listed Polish shares, but they are subject to some restrictions in buying large packages of shares.  Liquidity remains tight on the exchange.

The Capital Markets Development Strategy, published in 2018, identifies 20 key barriers and offers 60 solutions.  Some key challenges include low levels of savings and investment, insufficient efficiency, transparency and liquidity of many market segments, and lack of taxation incentives for issuers and investors.  The primary aim of the strategy is to improve access of Polish enterprises to financing.  The strategy focuses on strengthening trust in the market, improving the protection of individual investors, the stabilization of the regulatory and supervisory environment and the use of competitive new technologies.  The strategy is not a law, but sets the direction for further regulatory proposals.  The Ministry of Finance assumes in its development directions for 2021-2024, the liquidation of approximately 50 percent of barriers to the development of the financial market identified in the strategy and an increase in the capitalization of companies listed on the WSE to 50 percent of GDP.  The WSE has signed an agreement with the European Bank for Reconstruction and Development (EBRD) on cooperation in the promotion of advanced environmental reporting by listed companies in Poland and the region of Central and Southeast Europe.  Poland is one of the most rigorously supervised capital markets in Europe according to the European Commission.

The Employee Capital Plans program (PPK)—which is designed to increase household saving to augment individual incomes in retirement—could provide a boost to Poland’s capital markets and reduce dependence on foreign saving as a source for investment financing.  The program has been delayed due to the outbreak of the COVID-19 pandemic.

High-risk venture capital funds are becoming an increasingly important segment of the capital market.  The market is still shallow, however, and one major transaction may affect the value of the market in a given year.  The funds remain active and Poland is a leader in this respect in Central and Eastern Europe.

In 2020, Poland saw an almost 70 percent increase in venture capital (VC) funding, with around $500 million flowing into Polish startups throughout the year, according to a report by PFR Ventures and Inovo Venture Partners.  This marks a new record for Poland, which is increasingly emerging as an important startup hub.  According to the report, a quarter of Polish startups that received VC funding in 2020 were involved in or around healthcare.

In 2020, WSE strengthened its position as the global leader when it comes to the number of listed companies from the game developers sector.  The WSE’s main and start-up markets list a total of 58 game development companies.

Poland provides full IMF Article VIII convertibility for current transactions.  Banks can and do lend to foreign and domestic companies.  Companies can and do borrow abroad and issue commercial paper, but the market is less robust than in Western European countries or the United States.  The Act on Investment Funds allows for open-end, closed-end, and mixed investment funds, and the development of securitization instruments in Poland.  In general, no special restrictions apply to foreign investors purchasing Polish securities.

Credit allocation is on market terms.  The government maintains some programs offering below-market rate loans to certain domestic groups, such as farmers and homeowners.  Foreign investors and domestic investors have equal access to Polish financial markets.  Private Polish investment is usually financed from retained earnings and credits, while foreign investors utilize funds obtained outside of Poland as well as retained earnings.  Polish firms raise capital in Poland and abroad.

Recent changes in the governance structure of the Polish Financial Supervisory Authority (KNF) are aimed at increasing cross governmental coordination and a better-targeted response in case of financial shocks, while achieving greater institutional effectiveness through enhanced resource allocation.  KNF’s supplementary powers have increased, allowing it to authorize the swift acquisition of a failing or likely to fail lender by a stronger financial institution.

Money and Banking System

The Polish financial sector entered the pandemic with strong capital and liquidity buffers and without significant imbalances.  The COVID-19 pandemic presents risks for the Polish financial sector resulting from a sharp economic slowdown and an increase in the number of business failures.  Loosening of reserve requirements, government-provided loan guarantees, and fiscal support measures should help to mitigate losses faced by financial sector firms including banks.

The banking sector plays a dominant role in the financial system, accounting for about 70 percent of financial sector assets.  The sector is mostly privately owned, with the state controlling about 40 percent of the banking sector and the biggest insurance company.  Poland had 30 locally incorporated commercial banks at the end of August 2020, according to KNF.  The number of locally-incorporated banks has been declining over the last five years.  Poland’s 533 cooperative banks play a secondary role in the financial system, but are widespread.  The state owns eight banks.  Over the last few years, growing capital requirements, lower prospects for profit generation and uncertainty about legislation addressing foreign currency mortgages has pushed banks towards mergers and acquisitions.  KNF welcomes this consolidation process, seeing it as a “natural” way to create an efficient banking sector.

The Polish National Bank (NBP) is Poland’s central bank.  At the end of 2020, the banking sector was overall well capitalized and solid.  Poland’s banking sector meets European Banking Authority regulatory requirements.  The share of non-performing loans is close to the EU average and recently has been rising, but modestly.  In December 2020, non-performing loans were 6.8 percent of portfolios.  Poland’s central bank is willing and able to provide liquidity support to the banking sector, in local and foreign currencies, if needed.  The NBP responded swiftly to the COVID-19 pandemic.  It cut rates in early 2020 to 0.1 percent from 1.5 percent over the previous five years and started buying government bonds.  To support liquidity in the banking sector, the central bank has lowered reserve requirements, introduced repo operations, and offered bill discount credit aimed at refinancing loans granted to enterprises by banks.

The banking sector is liquid, still profitable, and major banks are well capitalized, although disparities exist among banks.  This was confirmed by NBP’s Financial Stability Report and stress tests conducted by the central bank.  In 2020, the net profit of the banking sector amounted to PLN 7.8 billion ($2 billion), decreasing on an annual basis by around 44 percent – according to the data of the Polish Financial Supervision Authority.  Returns on equity fell to around 3 percent in 2020 vs 6.7 percent in 2019.  The level of write-offs and provisions as well as the net commission income increased significantly.  The need to make allowances to cover the costs of the pandemic and loans in Swiss francs had a significant impact on the decline in business profitability – the result from impairment losses and provisions increased by 33 percent up to PLN 12.7 billion ($3.2 billion).  Profits remain under pressure due to low interest rates, the issue of conversion of Swiss francs mortgage portfolios into Polish zlotys, and a special levy on financial institutions (0.44 percent of the value of assets excluding equity and Polish sovereign bonds).

The ECJ issued a judgement in October 2019 on mortgages in Swiss francs, taking the side of borrowers.  The ECJ annulled the loan agreements, noting an imbalance between the parties and the use of prohibited clauses.  The legal risk arising from the portfolio of foreign exchange mortgage loans has risen and is substantial.  The number of borrowers who have filed lawsuits against banks and the percentage of court rulings in favor of borrowers has increased.  In December 2020, the head of Poland’s financial market regulator KNF proposed a plan for banks to convert foreign currency loans into zlotys as if they had been taken out in the local currency originally.  This solution could cost the banking sector PLN 34.5 billion ($8.8 billion).  While some observers initially expected banks to finalize a plan for such out-of-court settlements before the Supreme Court sitting, scheduled for April 2021, lenders appear to be waiting for guidelines that could prove crucial to clients trying to decide whether they should go to court.  An additional financial burden for banks resulted from the necessity to return any additional fees they charged customers who repaid loans ahead of schedule.

Since 2015, the Polish government established an active campaign aiming to increase the market share of national financial institutions.  Since 2017, Polish investors’ share in the banking sector’s total assets exceeds the foreign share in the sector.  The State controls around 40 percent of total assets, including the two largest banks in Poland.  These two lenders control about one third of the market.  Rating agencies warn that an increasing state share in the banking sector might impact competitiveness and profits in the entire financial sector.  There is concern that lending decisions at state-owned banks could come under political pressure.  Nevertheless, Poland’s strong fundamentals and the size of its internal market mean that many foreign banks will want to retain their positions.

The financial regulator has restricted the availability of loans in euros or Swiss francs in order to minimize the banking system’s exposure to exchange risk resulting from fluctuations.  Only individuals who earn salaries denominated in these currencies continue to enjoy easy access to loans in foreign currencies.

In 2020, NBP had relationships with 27 commercial and central banks and was not concerned about losing any of them.

The coronavirus-driven recession will likely depress business volumes and increase loan losses, but Polish banks seem to have strong enough capital and liquidity positions to persevere.

Foreign Exchange and Remittances

Foreign Exchange

Poland is not a member of the Eurozone; its currency is the Polish zloty.  The current government has shown little desire to adopt the euro (EUR).  The Polish zloty (PLN) is a floating currency; it has largely tracked the EUR at approximately PLN 4.2-4.3 to EUR 1 in recent years and PLN 3.7 – 3.8 to $1.  Foreign exchange is available through commercial banks and exchange offices.  Payments and remittances in convertible currency may be made and received through a bank authorized to engage in foreign exchange transactions, and most banks have authorization.  Foreign investors have not complained of significant difficulties or delays in remitting investment returns such as dividends, return of capital, interest and principal on private foreign debt, lease payments, royalties, or management fees.  Foreign currencies can be freely used for settling accounts.

Poland provides full IMF Article VIII convertibility for currency transactions.  The Polish Foreign Exchange Law, as amended, fully conforms to OECD Codes of Liberalization of Capital Movements and Current Invisible Operations.  In general, foreign exchange transactions with the EU, OECD, and European Economic Area (EEA) are accorded equal treatment and are not restricted.

Except in limited cases which require a permit, foreigners may convert or transfer currency to make payments abroad for goods or services and may transfer abroad their shares of after-tax profit from operations in Poland.  In general, foreign investors may freely withdraw their capital from Poland, however, the November 2018 tax bill included an exit tax.  Full repatriation of profits and dividend payments is allowed without obtaining a permit.  A Polish company (including a Polish subsidiary of a foreign company), however, must pay withholding taxes to Polish tax authorities on distributable dividends unless a double taxation treaty is in effect, which is the case for the United States.  Changes to the withholding tax in the 2018 tax bill increased the bureaucratic burden for some foreign investors (see Section 2).  The United States and Poland signed an updated bilateral tax treaty in February 2013 that the United States has not yet ratified.  As a rule, a company headquartered outside of Poland is subject to corporate income tax on income earned in Poland, under the same rules as Polish companies.

Foreign exchange regulations require non-bank entities dealing in foreign exchange or acting as a currency exchange bureau to submit reports electronically to NBP at: http://sprawozdawczosc.nbp.pl.

An exporter may open foreign exchange accounts in the currency the exporter chooses.

Remittance Policies

Poland does not prohibit remittance through legal parallel markets utilizing convertible negotiable instruments (such as dollar-denominated Polish bonds in lieu of immediate payment in dollars).  As a practical matter, such payment methods are rarely, if ever, used.

Sovereign Wealth Funds

The Polish Development Fund (PFR) is often referred to as Poland’s Sovereign Wealth Fund.   PFR is an umbrella organization pooling resources of several governmental agencies and departments, including EU funds.  A strategy for the Fund was adopted in September 2016, and it was registered in February 2017.  PFR supports the implementation of the Responsible Development Strategy.  The PFR operates as a group of state-owned banks and insurers, investment bodies, and promotion agencies.  The budget of the PFR Group initially reached PLN 14 billion ($3.6 billion), which managers estimate is sufficient to raise capital worth PLN 90-100 billion ($23-25 billion).  Various actors within the organization can invest through acquisition of shares, through direct financing, seed funding, and co-financing venture capital.  Depending on the instruments, PFR expects different rates of return.

In July 2019, the President of Poland signed the Act on the System of Development Institutions.  Its main goal is to formalize and improve the cooperation of institutions that make up the PFR Group, strengthen the position of the Fund’s president and secure additional funding from the Finance Ministry.  The group will have one common strategy.  The introduction of new legal solutions will increase the efficiency and availability of financial and consulting instruments.  An almost four-fold increase in the share capital will enable PFR to significantly increase the scale of investment in innovation and infrastructure and will help Polish companies expand into foreign markets.  While supportive of overseas expansion by Polish companies, the Fund’s mission is domestic.

PFR plans to invest PLN 2.2 billion ($560 million) jointly with private-equity and venture-capital firms and PLN 600 million ($153 million) into a so-called fund of funds intended to kickstart investment in midsize companies.

Since its inception, PFR has carried out over 30 capital transactions, investing a total of PLN 8.3 billion ($2.1 billion) directly or through managed funds.  PFR, together with the support of other partners, has implemented investment projects with a total value of PLN 26.2 billion ($6.7 billion).  The most significant transactions carried out together with state-controlled insurance company PZU S.A. include the acquisition of 32.8 percent of the shares of Bank Pekao S.A. (PFR’s share is 12.8 percent); the acquisition of 100 percent of the shares in PESA Bydgoszcz S.A. (a rolling stock producer); and the acquisition of 99.77 percent of the shares of Polskie Koleje Linowe S.A.  PFR has also completed the purchase, together with PSA International Ptd Ltd and IFM Investors, of DCT Gdansk, the largest container terminal in Poland (PFR’s share is 30 percent).  Also, 59 funds supported by PFR Ventures have invested almost PLN 3.5 billion ($1.0 billion) () in nearly 400 companies.  Over one third of this sum went to innovative, young start-ups and the rest for financing mature companies.  In April 2020, the President of Poland signed into law an amendment to the law on development institution systems, expanding the competencies of PFR as part of the government’s Anti-Crisis Shield.  The Act assumes that, in the years 2020-2029, the maximum limit of government budget expenditures resulting from the financial effects of the amendment will be PLN 11.7 billion ($3.0 billion).

The amendment expands the competencies of PFR so that it can more efficiently support businesses in the face of the coronavirus epidemic.  The fund has been charged with management of the Financial Shield, a loan and subsidies government scheme worth approximately PLN 100 billion ($25.0 billion) for firms to maintain liquidity and protect jobs.  The scheme is accessible to small, medium and large firms.

State-owned enterprises (SOEs) exist mainly in the defense, energy, transport, banking and insurance sectors.  The main Warsaw stock index (WIG) is dominated by state-controlled companies. The government intends to keep majority share ownership and/or state-control of economically and strategically important firms and is expanding the role of the state in the economy, particularly in the banking and energy sectors.  Some U.S. investors have expressed concern that the government favors SOEs by offering loans from the national budget as a capital injection and unfairly favoring SOEs in investment disputes.  Since Poland’s EU accession, government activity favoring state-owned firms has received careful scrutiny from Brussels.  Since the Law and Justice government came to power in 2015, there has been a considerable increase in turnover in managerial positions of state-owned companies (although this has also occurred in previous changes of government, but to a lesser degree) and increased focus on building national champions in strategic industries to be able to compete internationally.  There have also been cases of takeovers of foreign private companies by state-controlled companies the viability of which has raised doubts.  SOEs are governed by a board of directors and most pay an annual dividend to the government, as well as prepare and disclose annual reports.

A list of companies classified as “important for the economy” is at this link:  https://nadzor.kprm.gov.pl/spolki-z-udzialem-skarbu-panstwa

Among them are companies of “strategic importance” whose shares cannot be sold, including:  Grupa Azoty S.A., Grupa LOTOS S.A., KGHM Polska Miedz S.A., Energa S.A, and the Central Communication Port.

The government sees SOEs as drivers and leaders of its innovation policy agenda.  For example, several energy SOEs established a company to develop electro mobility.  The performance of SOEs has remained strong overall and broadly similar to that of private companies.  International evidence suggests, however, that a dominant role of SOEs can pose fiscal, financial, and macro-stability risks.

As of June 2020, there were over 349 companies in partnership with state authorities.  Among them there are companies under bankruptcy proceedings and in liquidation and in which the State Treasury held residual shares.  Here is a link to the list of companies, including under the control of which ministry they fall:  http://nadzor.kprm.gov.pl/spolki-z-udzialem-skarbu-panstwa.

The Ministry of State Assets, established after the October 2019 post-election cabinet reshuffle, has control over almost 180 enterprises.  Their aggregate value reaches several dozens of billions of Polish zlotys.  Among these companies are the largest chemical, energy, and mining groups; firms in the banking and insurance sectors; and transport companies.  This list does not include state-controlled public media, which are under the supervision of the Ministry of Culture or the State Securities Printing Company (PWPW) supervised by the Interior Ministry.  Supervision over defense industry companies has been shifted from the Ministry of Defense to the Ministry of State Assets.

According to the latest data from the National Bank of Poland, at the end of September 2019. stocks and shares held by state (and local government) institutions amounted to just over PLN 261 billion ($66 billion).

The same standards are generally applied to private and public companies with respect to access to markets, credit, and other business operations such as licenses and supplies.  Government officials occasionally exercise discretionary authority to assist SOEs.  In general, SOEs are expected to pay their own way, finance their operations, and fund further expansion through profits generated from their own operations.

On February 21, 2019, an amendment to the Act on the principles of management of state-owned property was adopted, which provides for the establishment of a new public special-purpose fund – the Capital Investment Fund.  The Fund is a source of financing for the purchase and subscription of shares in companies.  The Fund is managed by the Prime Minister’s office and financed by dividends from state-controlled companies.

A commission for the reform of corporate governance was established on February 10, 2020, by the Minister of State Assets.  The commission developed recommendations regarding the introduction of a law on consortia/holdings; changes in the powers of supervisory boards and their members, with particular emphasis on the rights and obligations of parent companies’ supervisory boards; changes in the scope of information obligations of companies towards partners or shareholders; and other changes, including in the Commercial Companies Code.  The Ministry of State Assets plans to introduce the regulations of the holding law into the Polish legal system in 2021, which is a part of a draft reform of commercial law prepared by the commission.  Some law offices expressed concerns that the solutions provided for in the amendment may impose new obligations on entrepreneurs conducting business activity in this form. Since coming to power in 2015, the governing Law and Justice party (PiS) has increased control over Poland’s banking and energy sectors

Proposed legislation to “deconcentrate” and “repolonize” Poland’s media landscape, including through the possible forced sale of existing investments, has met with domestic and international protest.  Critical observers allege that PiS and its allies are running a pressure campaign against foreign and independent media outlets aimed at destabilizing and undermining their businesses.  These efforts include blocking mergers through antimonopoly decisions, changes to licensing requirements, and the proposed new advertising tax.  Increasing government control over state regulatory bodies, advertising agencies and infrastructure such as printing presses and newsstands, are other possible avenues.  Since 2015, state institutions and state-owned and controlled companies have ceased to subscribe to or place advertising in independent media, cutting off an important source of funding for those media companies.  At the same time, public media has received generous support from the state budget.

In December 2020, state-controlled energy firm PKN Orlen, headed by PiS appointees, acquired control of Polska Press in a deal that gives the governing party indirect control over 20 of Poland’s 24 regional newspapers.  Because this acquisition was achieved without legislative changes, it has not provoked diplomatic repercussions with other EU member states or a head-on collision with Brussels over the rule of law.  Having successfully taken over a foreign-owned media company with this model, there are concerns PKN Orlen will continue to be used for capturing independent media not supportive of the government.

OECD Guidelines on Corporate Governance of SOEs

In Poland, the same rules apply to SOEs and publicly-listed companies unless statutes provide otherwise.  The state exercises its influence through its rights as a shareholder in proportion to the number of voting shares it holds (or through shareholder proxies).  In some cases, an SOE is afforded special rights as specified in the company’s articles, and in compliance with Polish and EU laws.  In some non-strategic companies, the state exercises special rights as a result of its majority ownership but not as a result of any specific strategic interest.  Despite some of these specific rights, the state’s aim is to create long-term value for shareholders of its listed companies by adhering to the OECD’s SOE Guidelines.  State representatives who sit on supervisory boards must comply with the Commercial Companies Code and are expected to act in the best interests of the company and its shareholders.  The European Commission noted that “Polska Fundacja Narodowa” (an organization established to promote Polish culture worldwide and funded by Polish SOEs) was involved in the organization and financing of a campaign supporting the controversial judiciary changes by the government.  The commission stated this was broadly against OECD recommendations on SOE involvement in financing political activities.

SOE employees can designate two fifths of the SOE’s Supervisory Board’s members.  In addition, according to Poland’s privatization law, in wholly state-owned enterprises with more than 500 employees, the employees are allowed to elect one member of the Management Board.  SOEs are subject to a series of additional disclosure requirements above those set forth in the Company Law.  The supervising ministry prepares specific guidelines on annual financial reporting to explain and clarify these requirements.  SOEs must prepare detailed reports on management board activity, plus a report on the previous financial year’s activity, and a report on the result of the examination of financial reports.  In practice, detailed reporting data for non-listed SOEs is not easily accessible.  State representatives to supervisory boards must go through examinations to be able to apply for a board position.  Many major state-controlled companies are listed on the Warsaw Stock Exchange and are subject to the “Code of Best Practice for WSE Listed Companies.”

On September 30, 2015, the Act on Control of Certain Investments entered into force.  The law creates mechanisms to protect against hostile takeovers of companies operating in strategic sectors (gas, power generation, chemical, copper mining, petrochemical and telecoms) of the Polish economy (see Section 2 on Investment Screening), most of which are SOEs or state-controlled.  In 2020, the government amended the legislation preventing hostile take overs.  The amendments will be in force for 24 months.  They are a part of the pandemic-related measures introduced by the Polish government. The SOE governance law of 2017 (with subsequent amendments) is being implemented gradually.  The framework formally keeps the oversight of SOEs centralized.  The Ministry of State Assets exercises ownership functions for the majority of SOEs.  A few sector-specific ministries (e.g., Culture and Infrastructure) also exercise ownership for SOEs with public policy objectives.  The Prime Minister’s Office oversees development agencies such as the Polish Development Fund and the Industry Development Agency.

Privatization Program

The Polish government has completed the privatization of most of the SOEs it deems not to be of national strategic importance.  With few exceptions, the Polish government has invited foreign investors to participate in major privatization projects.  In general, privatization bidding criteria have been clear and the process transparent.

The majority of SOEs classified as “economically important” or “strategically important” is in the energy, mining, media, telecommunications, and financial sectors.  The government intends to keep majority share ownership of these firms, or to sell tranches of shares in a manner that maintains state control.  The government is currently focused on consolidating and improving the efficiency of the remaining SOEs.

The results of the study “CSR in practice – a barometer of the French-Polish Chamber of Commerce” show that the pandemic mobilized not only state institutions, but also businesses which actively joined the fight against COVID-19.  Activities focused to a great extent on companies own employees and clients, and every third enterprise was involved in helping hospitals and nursing homes.  Fifty-seven percent of companies donated money to fight the pandemic, 59 percent material resources and services, and 67 percent the time and skills of employees.  Sixty-one percent of adult Poles expect an active attitude of businesses towards the epidemic.

Poland’s Ministry of Funds and Regional Development supports implementation of responsible business conduct (RBC) and corporate social responsibility (CSR) programs.  The Ordinance of the Minister of Investment and Development of May 10, 2018, established working groups responsible for sustainable development and corporate social responsibility.  The chief function of the working groups is to create space for dialogue and exchange of experiences between the public administration, social partners, NGOs, and the academic environment in CSR/RBC.  Experts cooperate within 5 working groups:  1) Innovation for CSR and sustainable development; 2) Business and human rights; 3) Sustainable production and consumption; 4) Socially responsible administration, and 5) Socially responsible universities.  The greater team issues recommendations concerning implementation of the CSR/RBC policy, in particular the objectives of the Strategy for Responsible Development.  More information on recent developments in the CSR area and future events is available under this link: https://www.gov.pl/web/fundusze-regiony/spoleczna-odpowiedzialnosc-przedsiebiorstw-csr2

In 2017, on the initiative of the then existent Ministry of Economic Development, a partnership was established for the translation into Polish of the Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector.  The parties involved included representatives of the business sector, industry organizations and NGOs.  The Polish version of the Guidelines was announced on June 29, 2018.  The document, available on the OECD NCP website, is a practical tool explaining how to implement the principles of due diligence, taking into account risks related to child labor, forced labor, water use, hazardous waste, etc.

In May 2017, the Council of Ministers adopted the National Action Plan (NAP) for the Implementation of the United Nations Guiding Principles on Business and Human Rights 2017-2020 (UNBHR-GPs).  In December 2018, the Midterm report from the implementation of National Action Plan for UN Business and Human Rights Guidelines was adopted by the Council of Ministers.  Here is the link to this document: https://www.gov.pl/documents/1149181/1150183/Raport_ percentC5 percent9Ar percentC3 percentB3dokresowy_z_realizacji_KPD.pdf/029a9586-2f1a-e655-4d18-00b6abe4a5a1

The mission is not aware of reports of human or labor rights concerns relating to RBC in Poland.

An increasing number of Polish enterprises are implementing the principles of CSR/RBC in their activities.  One of these principles is to openly inform the public, employees, and local communities about the company’s activities by publishing non-financial reports.  Sharing experience in the field of integration of social and environmental factors in everyday business activities helps build credibility and transparency of the Polish market.

The attitude of Poles to environmental issues is changing, and so are their expectations regarding business.  According to a recent study by ARC Rynek i Opinia for the Warsaw School of Economics, 59 percent of Poles consciously choose domestic products more often and 57 percent avoid products that harm the environment.  In Poland, provisions relating to responsible business conduct are contained within the Public Procurement law and are the result of transposition of very similar provisions contained in the EU directives.  For example, there is a provision for reserved contracts, where the contracting authority may limit competition for sheltered workshops and other economic operators whose activities include social and professional integration of people belonging to socially marginalized groups.

Independent organizations including NGOs, business and employee associations promote CSR in Poland.  The Responsible Business Forum (RBF), founded in 2000, is the oldest and largest NGO in Poland focusing on corporate social responsibility:  http://odpowiedzialnybiznes.pl/english/.  CSR Watch Coalition Poland, part of the OECD Watch international network aims to advance respect for human rights in the context of business activity in Poland in line with the spirit of the UNBHR-GPs and the OECD Guidelines for Multinational Enterprises (MNEs):  http://pihrb.org/koalicja/

Research shows that sustainability and CSR are increasingly translating into consumer choices in Poland.  According to SW Research for Stena Recycling, nearly 70 percent of Poles would like their favorite products to come from sustainable production and are willing to switch to more sustainably produced products.  More than half believe that the circular economy can have a direct, positive impact on the environment.  Starting in 2018, approximately 300 Polish companies were required to publish a non-financial information statement alongside their business activity report.  This requirement is tied to the January 26, 2017, amendment of the Act on Accounting, which implements the directive 2014/95/UE into Polish law.  The rules of the act concern companies that fulfill two out of the three of the following criteria: the average annual number of employed persons numbers over 500; the company’s balance sheet totals over PLN 85 million ($22 million), or gross earnings from the sale of commodities and products for the fiscal year amount to at least PLN 170 million ($43 million).  Directive 2014/95/EU will soon be amended and will introduce a uniform European standard of reporting on sustainable development issues.  Many companies voluntarily compile CSR activity reports based on international reporting standards.

The European Bank for Reconstruction and Development (EBRD) and the Warsaw Stock Exchange (WSE) have partnered to support Polish and Central and Eastern European listed companies with environmental, social, and governance (ESG) reporting.  The EBRD and WSE hope to facilitate engagement with policy makers, regulators, and other stakeholders to ensure development of a coherent, robust, and transparent framework in compliance with legislation and in line with the EU Green Deal for ESG disclosure.  The framework will also provide investors with comparability in terms of monitoring different companies.

In February 2020, the Responsible Business Forum presented its 2019 “Responsible Business in Poland. Good Practices” report, which is the most comprehensive CSR review in Poland, with a record number of responsible business activities featured.  (The 2020 report is expected to be presented in mid-April 2021.)  In total, the 2019 report contains 1,696 practices reported by 214 companies.  Environmental practices are the most dynamically growing area – an increase of over 35 percent in relation to the previous report.  Examples of activities include activities related to reducing the consumption of plastic, a circular economy, conservation of biodiversity, environmental education, and counteracting the climate crisis.  Poland maintains a National Contact Point (NCP) for OECD Guidelines for Multinational Enterprises: https://www.gov.pl/web/fundusze-regiony/krajowy-punkt-kontaktowy-oecd

Starting in March 2021, the EU regulation SFDR 2019/2088 on disclosure of information related to sustainable development (environmental, labor, human rights, and anti-corruption) in the financial services sector will apply in Poland and other EU countries.

The NCP promotes the OECD MNE Guidelines through seminars and workshops.  Investors can obtain information about the Guidelines and their implementation through Regional Investor Assistance Centers.

Information on the OECD NCP activities is under this link: https://www.gov.pl/web/fundusze-regiony/oecd-national-contact-point Poland is not a member of the Extractive Industries Transparency Initiative (EITI) or the Voluntary Principles on Security and Human Rights.  The primary extractive industries in Poland are coal and copper mining.  Onshore, there is also hydrocarbon extraction, primarily conventional natural gas, with limited exploration for shale gas.  The Polish government exercises legal authority and receives revenues from the extraction of natural resources and from infrastructure related to extractive industries such as oil and gas pipelines through a concessions-granting system, and in most cases through shareholder rights in state-owned enterprises.  The Polish government has two revenue streams from natural resources: 1) from concession licenses; and 2) from corporate taxes on the concession holders.  License and tax requirements apply equally to both state-owned and private companies.  Natural resources are brought to market through market-based mechanisms by both state-owned enterprises and private companies. Poland was among the original ratifiers of the Montreux Document on Private Military and Security Companies in 2008.  One company from Poland is a member of the International Code of Conduct for Private Security Service Providers’ Association (ICoCA).

Additional Resources

Department of State

• Country Reports on Human Rights Practices (https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/);
• Trafficking in Persons Report (https://www.state.gov/trafficking-in-persons-report/);
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities (https://www.state.gov/key-topics-bureau-of-democracy-human-rights-and-labor/due-diligence-guidance/) and;
• North Korea Sanctions & Enforcement Actions Advisory (https://home.treasury.gov/system/files/126/dprk_supplychain_advisory_07232018.pdf).

Department of Labor

• Findings on the Worst forms of Child Labor Report (https://www.dol.gov/agencies/ilab/resources/reports/child-labor/findings );
• List of Goods Produced by Child Labor or Forced Labor (https://www.dol.gov/agencies/ilab/reports/child-labor/list-of-goods);
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World (https://www.dol.gov/general/apps/ilab) and;
• Comply Chain (https://www.dol.gov/ilab/complychain/).

Poland has laws, regulations, and penalties aimed at combating corruption of public officials and counteracting conflicts of interest.  Anti-corruption laws extend to family members of officials and to members of political parties who are members of parliament.  There are also anti-corruption laws regulating the finances of political parties.  According to a local NGO, an increasing number of companies are implementing voluntary internal codes of ethics.  In 2020, the Transparency International (TI) index of perceived public corruption ranked Poland as the 45th  (four places lower than in 2019 TI index) least corrupt among 180 countries/territories.

UN Anticorruption Convention, OECD Convention on Combatting Bribery 

The Polish Central Anti-Corruption Bureau (CBA) and national police investigate public corruption.  The Justice Ministry and the police are responsible for enforcing Poland’s anti-corruption criminal laws.  The Finance Ministry administers tax collection and is responsible for denying the tax deductibility of bribes.  Reports of alleged corruption most frequently appear in connection with government contracting and the issuance of a regulation or permit that benefits a particular company.  Allegations of corruption by customs and border guard officials, tax authorities, and local government officials show a decreasing trend.  If such corruption is proven, it is usually punished.

Overall, U.S. firms have found that maintaining policies of full compliance with the U.S. Foreign Corrupt Practices Act (FCPA) is effective in building a reputation for good corporate governance and that doing so is not an impediment to profitable operations in Poland.  Poland ratified the UN Anticorruption Convention in 2006 and the OECD Convention on Combating Bribery in 2000.  Polish law classifies the payment of a bribe to a foreign official as a criminal offense, the same as if it were a bribe to a Polish official.

On November 9-10, 2020, a high-level mission of the OECD Working Group on Bribery met with senior Polish officials in virtual meetings to urge Poland to reform its laws to ensure it can effectively investigate and prosecute foreign bribery.

For more information on the implementation of the OECD Anti-Bribery Convention in Poland, please visit:  http://www.oecd.org/daf/anti-bribery/poland-oecdanti-briberyconvention.htm

Resources to Report Corruption 

Centralne Biuro Antykorupcyjne (Central Anti-Corruption Bureau – CBA)
al. Ujazdowskie 9, 00-583 Warszawa
+48 800 808 808
kontakt@cba.gov.pl

www.cba.gov.pl; link: https://www.cba.gov.pl/pl/zglos-korupcje/445,Zglos-korupcje-osobiscie-lub-pisemnie.html  (report corruption)

The Batory Foundation, as part of a broader operational program (ForumIdei), continues to monitor public corruption, carries out research into this area and publishes reports on various aspects of the government’s transparency.  Contact information for Batory Foundation is: batory@batory.org.pl; 22 536 02 00.

Poland is a politically stable country.  Constitutional transfers of power are orderly.  The last presidential elections took place in June 2020 and parliamentary elections took place in October 2019; observers considered both elections free and fair.  The Organization for Security and Cooperation in Europe, which conducted the election observation during June 2020 presidential elections, found the presidential elections were administered professionally, despite legal uncertainty during the electoral process due to the outbreak of the COVID-19 epidemic.  Prime Minister Morawiecki’s government was re-appointed in November 2019.  Local elections took place in October 2018.  Elections to the European Parliament took place in May 2019.  The next parliamentary elections are scheduled for the fall of 2023.  There have been no confirmed incidents of politically motivated violence toward foreign investment projects in recent years.  Poland has neither insurgent groups nor belligerent neighbors.  The U.S. International Development Finance Corporation (DFC) provides political risk insurance for Poland but it is not frequently used, as competitive private sector financing and insurance are readily available.

Poland has a well-educated, skilled labor force.  Productivity, however, remains below OECD averages but is rising rapidly and unit costs are competitive.  In the last quarter of 2020, according to the Polish Central Statistical Office (GUS), the average gross wage in Poland was PLN 5,458 ($1,390 per month) compared to 5,198 ($1,324) in the last quarter of 2019.  Poland’s economy employed roughly 16.512 million people in the third quarter of 2020.  Eurostat measured total Polish unemployment at 3.3 percent, with youth unemployment at 11.5 percent in December 2020.  GUS reports unemployment rates differently and tends to be higher than Eurostat figures.  Unemployment varied substantially among regions:  the highest rate was 10.1 percent (according to GUS) in the north-eastern part of Poland (Warmia and Mazury), and the lowest was 3.7 percent (GUS) in the western province of Wielkopolska, at the end of the fourth quarter of 2020.  Unemployment was lowest in major urban areas.  Polish workers are usually eager to work for foreign companies, in Poland and abroad.  Since Poland joined the EU, up to two million Poles have sought work in other EU member states.

According to the Ministry of Development, Labor, and Technology, 1.5 million “simplified procedure” work declarations were registered in 2020, of which 1.3 million were for Ukrainian workers (compared to 1.5 million a year earlier).  Under the revised procedure, local authorities may verify if potential employers have actual job positions for potential foreign workers.  The law also authorizes local authorities to refuse declarations from employers with a history of abuse, as well as to ban employers previously convicted of human trafficking from hiring foreign workers.  The January 2018 revision also introduced a new type of work permit for foreign workers, the so-called seasonal work permit, which allow for legal work up to nine months in agriculture, horticulture, tourism and similar industries.  Ministry of Development, Labor, and Technology statistics show that during by August 2020, 137,403 seasonal work permits of this type were issued, of which 135,482 went to Ukrainians.  Ministry of Development, Labor, and Technology statistics also show that in 2020, 295,272 thousand Ukrainians received work permits, compared with 330,495 in 2019.

Polish companies suffer from a shortage of qualified workers.  According to a 2021 report, “Barometer of Professions,” commissioned by the Ministry of Development, Labor, and Technology, several industries suffer shortages, including the construction, manufacturing, -healthcare, and transportation industries.  The most sought-after workers in the construction industry include concrete workers, steel fixers, carpenters, and bricklayers.  Manufacturing companies seek electricians, electromechanical engineers, tailors, welders, woodworkers, machinery operators, and locksmiths.  Employment has expanded in service industries such as information technology, manufacturing, and administrative and support service activities.  The business process outsourcing industry in Poland has experienced dynamic growth.  The state-owned sector employs about a quarter of the work force, although employment in coal mining and steel are declining.

Since 2017, the minimum retirement age for men has been 65 and 60 for women.  Labor laws differentiate between layoffs and dismissal for cause (firing).  In the case of layoffs (when workers are dismissed for economic reasons in companies which employ more than 20 employees), employers are required to offer severance pay.  In the case of dismissal for cause, the labor law does not require severance pay.

Most workers hired under labor contracts have the legal right to establish and join independent trade unions and to bargain collectively.  Since 2020, the revised law on trade unions has expanded the right to form a union to persons who entered into an employment relationship based on a civil law contract and to persons who were self-employed.  Trade union influence is declining, though unions remain powerful among miners, shipyard workers, government employees, and teachers.  The Polish labor code outlines employee and employer rights in all sectors, both public and private, and has been gradually revised to adapt to EU standards.  However, employers tend to use temporary and contract workers for jobs that are not temporary in nature.  Employers have used short-term contracts because they allow firing with two weeks’ notice and without consulting trade unions.  Employers also tend to use civil instead of labor contracts because of ease of hiring and firing, even in situations where work performed meets all the requirements of a regular labor contract.

Polish law requires equal pay for equal work and equal treatment with respect to signing labor contracts, employment conditions, promotion, and access to training.  The law defines equal treatment as nondiscrimination in any way, directly or indirectly on the grounds of gender, age, disability, race, religion, nationality, political opinion, ethnic origin, denomination, sexual orientation, whether or not the person is employed temporarily or permanently, full time or part time.

The 1991 Law on Conflict Resolution defines the mechanism for labor dispute resolution.  It consists of four stages: first, the employer is obliged to conduct negotiations with employees; the second stage is a mediation process, including an independent mediator; if an agreement is not reached through mediation, the third stage is arbitration, which takes place at the regional court; the fourth stage of conflict resolution is a strike.

The Polish government adheres to the International Labor Organization’s (ILO) core conventions and generally complies with international labor standards.  However, there are several gaps in enforcing these standards, including legal restrictions on the rights of workers to form and join independent unions.  Cumbersome procedures make it difficult for workers to meet all of the technical requirements for a legal strike.  The law prohibits collective bargaining for key civil servants, appointed or elected employees of state and municipal bodies, court judges, and prosecutors.  There were some limitations with respect to identification of victims of forced labor.  Despite prohibitions against discrimination with respect to employment or occupation, such discrimination occurs.  Authorities do not consistently enforce minimum wage, hours of work, and occupational health and safety, either in the formal or informal sectors.

The National Labor Inspectorate (NLI) is responsible for identifying possible labor violations; it may issue fines and notify the prosecutor’s office in cases of severe violations.  According to labor unions, however, the NLI does not have adequate tools to hold violators accountable and the small fines imposed as punishment are an ineffective deterrent to most employers.

The United States has no FTA or preference program (such as GSP) with Poland that includes labor standards.

In 2020, the provisions on the posting of workers were significantly modified and Poland implemented the EU Posted Workers Directive (2018/957/EU).

In 2020, Poland was among the top 10 countries in the Mastercard Index of Women Entrepreneurs (MIWE) ranking offering women good conditions for running a business. According to the Mastercard report, 28 percent of companies in Poland are run by women.  At the end of 2019, however, the share of women on the boards of the 140 largest companies on the Warsaw Stock Exchange was less than 14 percent.

The COVID-19 pandemic dominated 2020, affecting the business world and forcing employers and employees to adapt to new working conditions.  Due to the growing popularity of remote work, the Ministry of Development, Labor, and Technology has commenced works aimed at introducing remote work to the provisions of the Labor Code for good.  New solutions will be introduced in 2021.

* Source for Host Country Data: In Poland, the National Bank of Poland (NBP) collects data on FDI. An annual FDI report and data are published at the end of the following year. GDP data are published by the Central Statistical Office. Final annual data are available at the end of May of the following year.

D/ Suppressed to avoid disclosure of data of individual companies.

Results of table are consistent with the data of the National Bank of Poland (NBP).  NBP publishes FDI data in October/November.

A number of foreign countries register businesses in the Netherlands, Luxemburg and Cyprus, hence results for these countries include investments from other countries/economies.

* In Poland, the National Bank of Poland (NBP) collects data on FDI. An annual FDI report and data are published at the end of the following year. GDP data are published by the Central Statistical Office. Final annual data are available at the end of May of the following year.

Tisha Loeper-Viti
Trade and Investment Officer
U.S. Embassy Warsaw
Al Ujazdowskie 29/31War
saw, Poland 00-540 +48 22 504 2522
+48 22 504 2522
Loeper-VitiTR@state.gov