Transparency of the Regulatory System
As a member of the EU, Poland complies with EU directives by harmonizing rules or transposing them into national legislation. Rule-making and regulatory authority exist 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 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. 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 and other documents sent for consultation to 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.
Bills can be submitted to Parliament for debate as “citizens’ bills” if authors collect 100,000 signatures in support of 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 2016 reduced the requirements for regulatory impact assessments 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 budget implementation and preparation of new budgets, citizens’ complaints, and reports from 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, RPL Strona Główna (rcl.gov.pl) and the Parliament’s webpage: https://www.sejm.gov.pl/sejm9.nsf/proces.xsp
Currently, there are no specific local law regulations that would impose an obligation of considering ESG factors when making investment decisions. However, the Sustainable Finance Disclosure Regulation (SFDR), Non-Financial Reporting Directive (NFRD) and amended MiFID II regulations apply to Polish financial market participants and financial advisers, as well as to other, non-finance, market participants. Under those acts, the obliged entities are required to report on whether they consider the sustainability risks in their investment decisions and advice.
All other market participants are encouraged to disclose their ESG strategies, policies, and other ways of implementing ESG considerations in line with the UN Sustainable Development Goals (SDGs) in their businesses on a voluntary basis. It should be underlined however that in 2023, the NFRD will be replaced by the Corporate Sustainability Reporting Directive (CSRD), meaning the number of entities that are obliged to take into account ESG considerations and to disclose will rise in the following years.
The government promotes and encourages companies’ environmental, social, and governance (ESG) disclosure. For example, the Strategic Investments Program launched by Bank Gospodarstwa Krajowego (BGK) offers co-financing, up to 95 percent of the value, for investments by local governments. As part of the assessment of applications, implementation of innovative technologies and compliance with sustainable development goals are taken into account. Tax relief for corporate charities, intended for all entrepreneurs, came into force in 2022. Companies are able to deduct an additional 50 percent from the tax base for costs incurred on charitable activities such as sports, culture, higher education, and science. Corporate donations relief may be deducted up to the amount of income obtained in the tax year. The government also organizes or supports conferences and campaigns such as “Our Climate” and “TOGETAIR” with the aim of raising awareness of ways to transition to a climate-neutral, green, competitive, and inclusive economy. In mid-2022, the Ministry of Finance initiated work on a roadmap for the development of sustainable finance in Poland.
Poland’s budget and information on debt obligations are widely and easily accessible to the general public, including online. The budget is substantially complete and considered generally reliable. NIK (Polish SAI) audits 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. In March 2023, Polish government announced that it will prepare a bill consolidating public finances.
International Regulatory Considerations
Since its EU accession in May 2004, Poland has been transposing European legislation and reforming its own regulations in compliance with the EU system. Poland sometimes disagrees with EU regulations related to renewable energy and emissions due to its significant 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 addressed, 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 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 positions 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. https://www.pkn.pl/en/about-pkn/international-cooperation/cooperation-international-standards-organizations
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 and remnants of communist legal theory. Poland accepts the obligatory jurisdiction of the European Court of Justice (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 handle the majority of disputes in the first instance. When the monetary value of a dispute exceeds a certain amount or the subject matter requires more expertise (such as those regarding intellectual property rights), Circuit Courts serve as first instance courts. Circuit Courts also handle appeals from District Court verdicts. Courts of Appeal handle 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-led government has pursued far-reaching changes to Poland’s judicial system. The changes have led to legal disputes with the European Commission over threats to judicial independence. The changes have also drawn criticism from legal experts, NGOs, and international organizations. Poland’s government contends the changes are needed to purge Communist influence from an unreformed structure and increase efficiency and democratic oversight of the judiciary.
Observers have noted, in particular, the introduction of an extraordinary appeal mechanism in the 2017 Supreme Court Law. The extraordinary appeal mechanism states that final judgments issued since 1997 can be challenged and overturned in whole or in part during a three-year period starting from the day the legislation entered into force, April 3, 2018, later extended to April 3, 2024. During 2022, the Extraordinary Appeals Chamber received 1,523 new complaints of which 1,478 were recognized and accepted for examination.
On April 29, 2020, the European Commission launched an 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 for questioning another judge’s professional status or the effectiveness of his or her appointment. The Commission 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.” Poland is required to address this issue as a precondition of Poland’s National Recovery Plan and to access EU pandemic recovery funds. The dispute is ongoing.
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. 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, including national security screening, foreign investors are guaranteed national treatment. Companies that establish an EU subsidiary 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. The Civil Code is the law applicable to contracts.
Links to useful websites (in English) to help navigate laws, rules and reporting requirements for foreign investors:
Polish Investment and Trade Agency (PAIH): 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.
In 2022, the Polish Government introduced a new measure – an investment agreement – for strategic investors who would like to obtain clarity and certainty regarding the tax consequences of a given investment. The agreement (commonly referred to as “Interpretation 590”) is concluded with the Ministry of Finance and is binding on tax administration.
Interpretation 590 includes the following features:
- Its objective is to provide flexibility, completeness, and comprehensiveness in determining the tax consequences of an investment project.
- It is available to investors planning an investment in Poland worth at least PLN 100 million (approximately $22 million) and, from 2025 onward, PLN 50 million (approximately $11 million).
- An agreement is valid for a defined period, limited to five tax years (with the possibility to extend).
- Separate applications to various tax authorities are not required as all matters are covered with one investment agreement.
- The scope of information provided in the agreement should not be limited by the provisions of the Tax Code governing individual tax rulings. One agreement could cover all potential tax consequences of an investment.
- The agreement is subject to a fee of PLN 50,000 (approximately $11,200) for the initial application and PLN 100,000 to 500,000 (approximately $22,400 to $112,000) after concluding the agreement, with the exact fee depending on the volume of the investment and scope of the investment agreement).
The above changes reflect an increasing focus of the Polish Government to attract significant investments into Poland.
A special tax unit, the “Investor Desk” has been established, at the Finance Ministry, to handle tax matters of strategic investors. This unit, along with other agencies focused on foreign investments in Poland, will support significant investors in undertaking particular administrative requirements.
The tax authorities are often open to discussing strategic investments and providing support in applying formal measures which, with new measures in place, should be even more common and accessible to investors.
Competition and Antitrust Laws
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. While the intention to conform with EU norms has been expressed, as of April 2023, the Prime Minister was still exercising his right to remove and nominate UOKiK’s presidents.
In 2022, the President of UOKiK issued over 950 decisions regarding practices restricting competition and infringing on collective interests of consumers, imposing nearly $100 million (PLN 430 million) in fines.
In May 2022, the President of the Republic of Poland signed an amending act, extending the Polish Competition Authority’s responsibilities regarding foreign investment control of acquisitions of Polish companies relevant to the public order, security, or health for another 36 months, i.e., until July 24, 2025.
In 2023, UOKiK intends to update its investment control guidelines, supplementing them with clarification of uncertainties in application of the Control of Certain Investments Act. This should make it easier for businesses to assess whether a case is notifiable to the President of UOKiK under that act.
Beginning July 2023, the UOKiK takes over the ICPEN Presidency from the Australian Competition and Consumer Commission (ACCC) for one year.
Expropriation and Compensation
Article 21 of the Polish Constitution states that “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 for the Central Communication Port (CPK) and the Vistula Spit projects, has been liberalized and simplified to accelerate property acquisition through a special legislative act.
Post is not aware of any recent expropriation actions against U.S. investors, companies, or representatives.
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 (ICSID, or Washington Convention), but is a party to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).
Investor-State Dispute Settlement
Poland and the United States share a bilateral investment treaty. The United Nations Conference on Trade and Development ( UNCTAD) database for treaty-based disputes lists two 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, Poland has had 18 known disputes with foreign investors.
International Commercial Arbitration and Foreign Courts
Poland is party to the following international agreements on commercial 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; and the 1972 Moscow Convention on Arbitration Resolution of Civil Law Disputes in Economic and Scientific Cooperation.
Poland does not have an arbitration law, but provisions in the Polish Code of Civil Procedure 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 ($1.12 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.
A Civil Procedures Code amendment in January 2016, with further amendments in July 2019, implements internationally recognized commercial 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, a 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 is possible to file an appeal to a different panel of the Court of Appeal.
In September 2022, the Polish parliament began work on revision of the Code of Civil Procedure. With regard to the arbitration rules, the draft changes introduce the possibility for the parties to submit a dispute already pending before a court to arbitration until the court renders its final judgment. Therefore, the parties will also be able to conclude a compromissory arbitration clause after the dispute has been brought before the court, including in many cases, in appellate proceedings.
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. Arbitral awards are likely to be set aside only in rare cases. An arbitration-friendly approach is also visible in other areas of Poland’s legal system, such as in the broad interpretation of arbitration clauses.
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.
In order to reduce the risk of overwhelming the bankruptcy courts with an excess of cases resulting from the COVID-19 pandemic, changes were introduced in the bankruptcy process, shifting part of the duties to a trustee. A second significant change was 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. These changes were originally intended to remain in force only until June 30, 2021, however, the popularity of simplified restructurings among distressed entrepreneurs led the Polish Parliament to retain them for an indefinite period of time.