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 decision, 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 Economic Development. 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 complain 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 substantially improved its regulatory policy system over the last years. The government introduced a central online system to provide access to the general public to regulatory impact assessment (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 time period allotted for them 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. For example, minimum periods for consultation with stakeholders are not always respected. 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, but considers steps taken to introduce ex post evaluation of regulations are encouraging.
Bills can be submitted to the parliament for debate as “citizen’s bills” if authors can collect 100,000 signatures. 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, the Office of the Ombudsman, special commissions (e.g., Supreme Audit Chamber – NIK), 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 external audit agency (NIK). reports. In addition, courts and prosecutors’ offices sometimes bring cases to parliament’s attention. The Ombudsman’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, http://legislacja.rcl.gov.pl/ . and Parliament’s webpage: http://www.sejm.gov.pl/Sejm8.nsf/proces.xsp
International Regulatory Considerations
Since Poland’s EU accession (May 2004) Poland has been transposing European legislation and reforming its regulations in compliance with the EU regulatory 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 the European normalization the Polish Committee for Standardization (PKN) introduces norms identical with international norms i.e., PN-ISO i PN-IEC. PKN actively cooperates with international and European standards organizations and with standards bodies from other countries. PKN is a member-founder of International Organization for Standardization (ISO) and a member of International Electro-technical Commission (IEC) since 1923.
PKN also cooperates with ASTM International (American Society for Testing and Materials) (ASTM) International and the World Trade Organization’s WTO Agreement on Technical Barriers to Trade (WTO/TBT). Poland has been a member of WTO since 1 July 1, 1995 and was a member of GATT since 18 October 18, 1967. As of 1 May 1, 2004 it is a member state of the European Union . 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 at almost all WTO meetings and in almost all WTO affairs. PKN runs the WTO/TBT National Information Point in order to apply the provisions of the Agreement on Technical Barriers to Trade with respect to information exchange concerning national standardization.
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 International Court of Justice (ICJ), 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 in intellectual property right matters), 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 judiciary acts independently. 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. However, there are many foreign court judgments which Polish courts do not accept or accept partially. One of the reasons for delays in the recognition of judgments of foreign courts is 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.
Laws and Regulations on Foreign Direct Investment
Poland is a constitutional State and a member of the European Union. 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 Area (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 and 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, enable an investor to avoid future disputes. Civil Code is the law applicable to contracts. Post is not aware of executive or other interference in the court system that could affect foreign investors.
Useful websites (in English) to help navigate laws, rules, procedures and reporting requirements for foreign investors:
Competition and Anti-Trust Laws
Poland’s anti-trust authority, the Office of Competition and Consumer Protection (UOKiK), reviews investment and merger transactions for competition-related concerns. Its mandate covers transactions of a magnitude which could influence the Polish market. The Act on Competition and Consumer Protection empowers UOKiK to block any merger that would capture of 40 percent or more of market share. It does not oppose vertical mergers that would not have monopolistic consequences. UOKiK also imposes reporting requirements for acquisitions of existing companies. Participants in planned transactions must obtain UOKiK’s advance clearance if their turnover in the year preceding the application exceeded either EUR 1 billion globally or EUR 50 million in Poland. The law provides for a waiver of obligation to notify UOKiK in certain situations, if the annual turnover in Poland of the target enterprise was less than EUR 10 million in the two previous years, or if parties to the merger already belong to the same capital group. No merger filing is required if the target company’s sales in Poland were less than EUR 10 million during the previous two years. All multinational companies must notify UOKiK of a proposed merger if any party to it has subsidiaries, distribution networks or permanent sales in Poland. UOKiK’s website: https://uokik.gov.pl/ .
Examples of competition cases can be found under this link:
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 provides 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 has been liberalized and simplified to accelerate property acquisition. Most acquisitions for road construction are resolved without problems. However, there have been a few cases in which inability to reach agreement on remuneration has resulted in expropriation and compensation protests/disputes. Post is not aware of expropriation actions against U.S. investors, companies, or representatives. New laws regulating wind farm construction caused sharp valuation drops in wind energy sector assets – more than half of which are owned by foreign investors—and curbed new investments in wind energy infrastructure.
ICSID Convention and New York Convention
Poland is not a party to the International 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 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention); 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).
Post is aware of seven U.S. investment disputes (eight claimants) within the past 10 years. Some details of past disputes may be found on the UNCTAD database . The majority of Poland’s investment disputes are with other EU-member states. According to the UNCTAD database, over the last 10 years, there were 14 disputes with other than U.S. foreign investors.
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, which is 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 is also at the Confederation Lewiatan in Warsaw.
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, however, in practice; the acceptance of foreign court decisions varies.
A Civil Procedures Code amendment in January 2016 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 introduces one-instance proceedings to repeal an arbitration award (instead of two-instance proceedings). This change encourages mediation and arbitration to solve business disputes and aims to strengthen expeditious proceedings. The Courts of Appeal (instead of District Courts) will handle complaints. In cases of foreign arbitral awards, the court of appeal will be 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.
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.
Poland’s bankruptcy law underwent significant change and modernization in recent years. There is now a bankruptcy law and a separate, distinct restructuring law. Poland ranks 27 for ease of resolving insolvency in the World Bank’s Doing Business report 2017. Bankruptcy in Poland is criminalized if a company’s management does not file a petition to declare bankruptcy when company becomes illiquid for an extended period of time, or if a company ceases to pay its liabilities.
The Bankruptcy Law entered into force January 1, 2016 and changed conditions for declaring bankruptcy, including statutory grounds for insolvency (i.e. financial liquidity and indebtedness). The law is more favorable to creditors in terms of asset determination, and introduces a new bankruptcy procedure known as “pre-packaged” liquidation dividing creditors into five classes in order of priority in satisfying their claims. If an amount to be distributed is not sufficient to fully satisfy all outstanding claims, claims falling under consecutive categories are satisfied after the full satisfaction of claims falling under the preceding category. If an estate is insufficient to fully satisfy all claims within the same category, claims are satisfied proportionally to the amount of respective claims in the category.
The Restructuring Law came into force as of January 1, 2016. The law promotes restructuring as a measure to prevent insolvency and reflects a policy of second chance, similar to United States’ Chapter 11 measures. The law allows earlier institution of court proceedings at a financially-distressed company to limit further indebtedness and prevent “harmful” disposal of assets by a debtor (e.g. to benefit one creditor at the expense of others).