Types of companies in PolandThe definition of a micro-entrepreneur is set out precisely in Article 104 of the Freedom of Economic Activity Act. It defines a micro-entrepreneur as a person who employs less than 10 people and does not exceed EUR 2,000,000 or its equivalent in PLN in terms of annual net turnover. The net annual turnover refers to financial operations, sale of products, goods and providing services. It is important to note that in order to be considered a microentrepreneur, both of these conditions must be met in at least one of the last two financial years.
Similar conditions on the same basis are also imposed on small, medium and large Polish companies, differing only in numbers. A small Polish company may not hire more than 50 employees and may not exceed a net annual turnover of EUR 10,000,000, while in the case of a medium-sized Polish company the maximum number of employees is 250 and the maximum net annual turnover is EUR 50,000,000. A large Polish company is considered to be one that exceeds the conditions set for medium-sized companies.
Polish companies can also be divided according to their legal forms. Among legal forms available in Polish business we can distinguish General Partnership, Limited Partnership (LP), Partnership limited by shares, Limited Liability Partnership (LLP), Limited Liability Company (LLC), Joint-stock company/Public Limited Company (PLC) and Sole Proprietorship. In the following section, each legal form is characterized.
Sole ProprietorshipThe least complicated legal form is Sole Proprietorship. It is a convenient option primarily for micro-entrepreneurs, in fact, and it is almost always chosen by them. The reason is mainly that Sole Proprietorship involves unlimited liability, which is highly risky for companies exposed to unexpected costs or whose annual net turnover is high.
Civil PartnershipAnother option most often chosen by smaller companies is Civil Partnership. The legal form is established by the agreement of two parties - it can be either two individuals or two legal entities. An important issue is that Civil Partnership has no legal personality. This civil agreement is not too commonly used by non-Polish entrepreneurs deciding to establish a company in Poland, however it is worth knowing about its existence.
General PartnershipIn order to create a General Partnership, it is necessary to gather at least two partners. If this condition is fulfilled, the partners may create a company according to the rules of the legal form. Regardless of the total number of partners forming the General Partnership, each partner is responsible for the company's debts which may possibly occur. Detailed rules, the partners' obligations and also their rights are regulated individually by the Partnership Agreement
Limited Partnership (LP)Limited Partnership is a legal form that also requires having partners. However, the same liability does not apply to all partners of a Limited Partnership. Among the partners of a Limited Partnership we can distinguish limited partners with limited liability and general partners with unlimited liability. As the name suggests, limited partners bear only partial liability, while in case of general partners the liability has no limits.
Partnership limited by sharesA partnership limited by shares requires a minimum of two partners with varying degrees of liability. One of the partners must necessarily be a shareholder, while the other partner must be a general partner with unlimited liability, so it is necessary that they differ in the degree of liability. Once this condition is met, the number of general partners versus shareholders does not matter for multiple partners, as long as there is at least one from both groups. Partnership limited by shares is not as popular a legal form used in Poland as the rest.
Limited Liability Partnership (LLP)Limited liability partnership is the most commonly chosen legal form by professionals from such fields as medicine and law, gathering specialists from the same discipline together in one place. Limited Liability Partnership is formed to provide access to services that can be delivered only by highly qualified experts. A great advantage of this legal form is the lack of responsibility of partners for their mutual obligations. In practice, it means that each partner is liable only for their personal actions, not jeopardizing in any way the rest of the partnership members.
Limited Liability Company (LLC)There are no specific criteria as to the number of persons or entities required to establish a Limited Liability Company - establishment can be done by one person as well as by a group. Analogically, the situation is similar in the case of shares ownership, since one shareholder is allowed to hold all the shares of a Limited Liability Company. This legal form is characterized by the fact that it provides its shareholders with separateness, the company is treated in the eyes of the law as a separate legal entity, independent of the shareholders. Shareholders who are part of a Limited Liability Company are in no way obliged to pay any debts of the company. The minimum share capital to be contributed when establishing this type of company is 5 000 PLN. The nominal value of a single share in the case of Limited Liability Company should be at least 50 PLN. Limited Liability Company has plenty of advantages. First of all, the process of registration of this legal form in the National Court Register is relatively fast. Moreover, if the company is already registered in the National Court, REGON and NIP numbers are obtained within just a few working days. Starting business activity is possible as soon as the articles of association are drawn up and signed. Limited Liability Company is also associated with low costs in many areas of business. The very low amount of minimum capital required to establish this legal form is definitely encouraging. Operating costs are also quite low, and having at least one shareholder by virtue of the shares held exempts from paying Social Security contributions. A Limited Liability Company requires full legal accounting, but it ensures that all information regarding financial inflows and outflows is very clear and detailed. All necessary specifics about the transactions carried out can be easily distinguished. Another major advantage is the absence of risk associated with incurring debts by the company. If debts do arise, shareholders can only lose their contribution to the Limited Liability Company. The personal assets of the shareholders are not exposed in any way. Thanks to limited economic risk many entrepreneurs, both foreign and Polish, decide to use this legal form.
Limited Liability Company also has less favorable aspects. The registration procedure, yes, is quite efficient and fast, but it consists of several stages, such as entry in the register of entrepreneurs, registration at the Tax Office and ZUS, preparation of a notarial contract and formation of the company's bodies. Only after completing these formalities can the company start operating. Also, accounting in Limited Liability Company is a very complicated and time-consuming process, therefore it requires hiring experienced accountants, which may entail significant costs. It should also be taken into account that this type of legal form is connected with the necessity of double taxation. In the case of an entrepreneur, they must necessarily account for income tax (CIT), while shareholders are also obliged to pay personal income tax (PIT).
Joint-stock company/Public Limited Company (PLC)If an entrepreneur decides to set up a Public Limited Company, they must be prepared to contribute a relatively high amount of capital, as the minimum capital required for a joint-stock company is PLN 100,000. The minimum value of a share in this case is 0.01 PLN, but it can be any value as long as it is higher than this amount. Shareholders of the company are in no way obligated to pay the debts of the company, so it remains the same as in the case of Limited Liability Company. The only thing that is at risk of being lost is the value of the investment in shares. With this legal form we are also dealing with such company bodies as Management Board, General Meeting of Shareholders and Supervisory Board, their functions are exactly the same. The legal form of a Public Limited Company is most often chosen for activities such as various financial institutions, for example banks or pension funds. It is also often considered when looking for Private Equity or Venture Capital investors and planning an IPO business.
Company registrationOf all the legal forms available, limited liability companies and Public limited companies are the most popular among foreign investors. Registration of these types of companies looks very similar. Below is presented exactly how the process of registration of a company based on these legal forms looks like. If a company requires only a standard association agreement and does not demand any customized solutions, then it is worth considering online registration. The Ministry of Justice has made available a standard form of association agreement, which requires applicants to fill in information about the company to be established. On average, applications submitted in this manner are processed in no more than a few business days. This method not only saves time, but also costs, as an agreement concluded in this manner does not require the presence of a notary. The cost of the notary's services varies depending on the location and other factors, but usually it is between PLN 5,000 and PLN 25,000. If, however, the agreement is made for a specific company, it is necessary to ensure that a notary is present during the preparation and signing of all incorporation documents. Another necessary condition that must be met is the citizenship of the notary, as it must be a notary with Polish citizenship. The maximum amount for the notarial fee is PLN 10,000 and VAT and tax on civil law transactions must also be added.
All companies operating on the territory of Poland are required to have a company bank account. The key matter in this case is the payment of the initial capital. Depending on whether we are dealing with a Limited liability company or a Public limited company, the necessary amount differs. For a Public limited company a minimum of 25% of the initial capital has to be paid whereas for a Limited Liability Company the whole initial capital has to be paid.
The next step is to apply for registration of the company in the National Court Register. In order to do that the applicant needs to prepare an application form (KRW-W3), but also such attachments as documents appointing the company's governing body (the management board), the list of shareholders, the number and nominal value of shares held (KRS-WE), the articles of association, consent to appoint representatives of the company (KRS-WK), and a statement by all members of the management board that the share capital contributions have been paid in full by the shareholders. All these documents should be submitted to the relevant branch, but one can also register online. The NIP and REGON are received a few working days after the application is submitted. The total costs incurred at this stage is PLN 600, i.e. PLN 100 for an announcement in the official journal of the court and PLN 500 for an entry in the register.
Certain types of activity in Poland require registration as a VAT payer. A company must find out in advance whether the type of activity it wants to carry out falls into this group, as it is obliged to register no later than the day on which the company carries out this type of activity for the first time. To register as a VAT payer, it is necessary to go to the tax office. It is necessary to bring prepared attachments, i.e. VAT-R, information about the address of the company's registered office and confirmation of the company's registration with the National Court Register. The cost of VAT registration is 170 PLN. For companies that plan to expand their business outside Poland and offer their products or services to other European Union countries, another necessity is to register as an EU VAT taxpayer. As in the previous case, it must be done no later than on the first day of such activity. In order to register as an EU VAT payer, it is first necessary to have a regular VAT payer status.
The next formality that needs to be fulfilled is the registration with the Social Insurance Institution and the National Labour Inspectorate. However, this stage is necessary only if the company wants to employ workers. Both the registration with the Social Insurance Institution and the National Labour Inspectorate is free of charge.
TaxationThe percentage of taxation of income on general terms is 17% or 32%, depending on whether a revenue and expense ledger is kept for the entity. This form of taxation is most beneficial for companies whose annual income does not exceed PLN 85 000 per year or which incur high costs. Thanks to taxation on general terms one may also settle accounts with a spouse or take advantage of tax allowances.
Another favorable form of taxation for Polish enterprises not exceeding PLN 85,000 per year is a flat tax rate. The tax rate is 19%, regardless of any factors. This is an option for those companies that use a revenue and expense ledger. Unfortunately, in this case it is not possible to take advantage of such options as tax allowances or joint settlement.
A flat rate on registered income is characterized by the fact that the percentage of taxation depends on the type of business, and it ranges from 2% to 20%. This is the most favorable taxation option for Polish businesses that deal exclusively with the sale of their own products, because then the tax rate is 2%. A tax rate of 3% covers the service business of trading, the catering business and the provision of services related to animal production. Income from manufacturing, construction work or freight with a vehicle fleet of more than 2 tons is subject to a 5.5% tax rate. An 8.5% tax is paid for rental income. A 10% rate applies to the disposal of property rights or real estate. The largest number of activities is in the group of activities covered by 17%, as this category includes car rental and leasing, wholesale agency, photographic and telecommunication services, work performed by temporary employment agencies, related to the provision of personnel to a third party, counseling for children in the field of education and social assistance, related to consultancy in computer equipment and data processing, work performed by travel agencies and related to accommodation or property management on behalf of a third party. The highest 20% tax rate applies to income earned by individuals in the provision of professional services. Unfortunately, expenses cannot be deducted when using this form of taxation.
The last form of taxation a company can choose is the tax card. Entrepreneurs decide on this solution relatively rarely. This form of taxation takes into account the type and scope of activity, the number of employees and whether the locality in which the activity is carried out is sparsely or heavily populated. These factors determine the amount of tax that the company is obliged to pay every month.
Costs associated with hiring employeesThe costs associated with hiring employees depend primarily on the type of contract under which the employee is hired by the Polish enterprise. An employment contract is one of the options for a Polish business to hire an employee. In case of employment contract, along with the employee's salary, other costs have to be taken into account. In the gross employee salary almost 40% of this amount are the costs associated with the obligations arising from the employment contract. The employer is obliged to pay the advance income tax (17%) and various insurance premiums, including pension contribution (9.76%), benefits contribution (6.5%), sickness contribution (2.45%), accident fund contribution (1.67%) and guaranteed employee benefits fund contribution (0.10%). In addition to the costs mentioned above, depending on the activity and work performed by the employee, the employer may also be obliged to incur costs such as equipment for the employee's workplace, safety training, medical examinations of the employee carried out by a medical doctor and safety measures or work clothes. It should also be borne in mind that the more employees are employed by a given employer, the higher the administrative costs will be.
When hiring an employee under a fee-for-task agreement, an important consideration is whether the employee has other employment under an employment contract in addition to the contract with the company. If the employee has only a contract of mandate and does not perform work connected with any other contract, for the employer it means exactly the same costs as if the employee had an employment contract. It is advantageous for the employer to employ, for example, students under the age of 26 on a fee-for-task agreement because then there is no need to pay social security contributions, and the only cost the company incurs in this situation is the salary of the employee. It may also occur that the person employed by the company is employed under a contract of employment in another company. In this case the key issue is whether the salary of the employee in the other company is lower than the minimum wage or higher. If it is lower, the employer must also bear the costs associated with all contributions, while if it is higher, he pays only health care contributions.
The last possible way to hire an employee is through a work contract. Here the employer usually does not have to worry about any additional costs except for providing the employee with salary, because this type of contract does not enforce it. Of course, there are two situations that constitute exceptions to this rule. The obligation to pay various types of contributions for the benefit of an employee arises when the employer who hires the employee becomes a party to the employment contract under which the employee is hired. The second exception is the exact opposite situation.
Obligations of the employerHiring employees is connected with numerous obligations which the employer is obliged to fulfill. All detailed information on this subject can be found primarily in the Labor Code, which primarily sets out the rules for wages, working hours, health and safety at work and vacation leave. The Civil Code, the Act on the Social Security System and the Income Tax Act are other sources that the employer has to be familiar with. Here are the main responsibilities of the employer:
- The employer must necessarily report the employee to social security. The enrollment must take place within seven days of the signing of the contract between the employer and the employee. In order to report an employee for social insurance, the employer must prepare and submit a ZUA form, which includes documents such as social insurance (i.e., including pension, disability, accident and sickness insurance), health insurance, the Labor Fund and the Guaranteed Employee Benefits Fund.
- Providing medical examinations for employees so that they have an up-to-date medical certificate confirming that there are no contraindications to specific work. Such examinations must be at the expense of the company.
- Another health-related matter is to ensure that employees are provided with working conditions that do not jeopardize their safety in any way. The employer is obliged to provide, at his own expense, the necessary work clothing, footwear and personal protective equipment if required. In addition to this, every employee starting work must undergo mandatory occupational health and safety training. This type of training may also additionally include necessary elements related specifically to the particular position which will be held by the employee.
- The work itself is also an important aspect. The employee's working hours must be well organized and at the same time allow the employee to perform at the highest possible level. All skills and talents of the employee should also be taken into account. The work performed by the employee should not in any way undermine the employee's dignity, personal freedom or any other interests. The employer should also take strong measures in case of any discrimination or abuse among employees. In addition, employees should be given the opportunity to develop and improve their skills in the work environment.
- Financial aspects cannot be overlooked either. The employer is required to pay the employee on time. Also, the employer has to make sure that the accounting and employment records are maintained as well as the personnel files of any employed workers. It is also the employer's responsibility to ensure that the employee's income is accounted for and taxed on a monthly basis.
The employer also has different responsibilities when it comes to dismissing an employee due to various circumstances. According to the Labor Code, termination of employment can take place in five different ways. The contract may be terminated by mutual agreement of the parties, by the expiration of the period for which the contract was concluded, by the termination of the work to which the contract related, or by a statement of one of the parties, the employee or the employer, with or without a notice period.
First of all, the employer should deregister the employee from the Social Security because if the employee no longer continues to work for the company, the employer does not have to make contributions for that reason. The employer must also provide the employee with employment certificates, preferably as soon as possible. In addition, if the employee has not used up his leave, it is also necessary to pay the equivalent. An exception is if the contract has been terminated by notice. In that case, both the employer may grant such leave to the employee without the employee's consent or the employee may use it voluntarily.
An employee who loses their job when it is the employer's decision to terminate the contract has certain privileges. The employee may take a voluntary leave of absence to look for a new job. The length of these leaves depends on the period of notice. For a notice period of two weeks or one month the leave will be two working days and for a notice period of three months it will be three working days.
Suspension and termination of the businessAdverse events are unpredictable and can also happen to a company. A worse financial situation does not have to mean that the Polish enterprise must be permanently closed. Polish law provides a less radical solution to such a situation, and that is the suspension of activity. This is a temporary fix and in many cases proves to be very useful. Some companies operate only in specific months, or it may happen that the company unexpectedly begins to generate more costs than profits. The reason to suspend the company may also be personal matters of the entrepreneur, such as going abroad or illness. In such situations it is not necessary to put the whole future of the company in jeopardy, but only to temporarily stop its operation. An entrepreneur who runs a sole proprietorship or who has no employees is entitled to suspend the business, so it may be necessary to lay off staff. Regarding partnerships, the suspension of the company is possible if other partners are also responsible for running the business.
To temporarily suspend one' s business activity, an application must be submitted to the Central Registration and Information on Business Activity (Centralna Ewidencja i Informacja o Działalności Gospodarczej). This is exactly the same application that is submitted to register the company, but with the difference that in this case it is necessary to check the box 01.3. The period of time for which an entrepreneur may suspend their company ranges from 1 to 24 months. The date of commencement of the suspension of the company is the date of submission of the required application and the date of termination of the suspension is the moment when the entrepreneur decides to resume the activity of their company or the expiration of 24 months. Unfortunately, you cannot extend the suspension of your business, but there is a solution for that as well. All the entrepreneur has to do is to resume the activity of their company and after some time they can suspend it again. Among the things prohibited during the suspension period of the company is, of course, not ceasing its activities and deriving income from them, but also depreciating fixed assets.
Suspension of company activity has its good and bad sides. The entrepreneur who has suspended his company no longer has to pay insurance premiums and advance payments for income tax, but on the other hand, the possible time of suspension is not taken into account in the working time, which is then considered when calculating the pension, and also loses the right to health benefits after 30 days from paying the last contribution, and thus is discharged from the ZUS. An entrepreneur can also choose to close the business completely. This will happen automatically after 24 months of filing a motion to suspend the business, but if the entrepreneur wishes to do so immediately, they can also file such a request.
The importance of accounting in a companyIt is essential to realize how important selecting the right accountant is. While looking for a person who will be responsible for monitoring as well as accounting for the company's financial results, special care must be taken to make sure that the candidate for the job is properly qualified. An expert accountant not only has an excellent knowledge of tax law, but also knows how to put it into practice in such a way that the company's profits reach the highest possible level. In this case, it is not sufficient just to perform one's duties correctly - rather, you should look for an outstanding accountant who not only takes care of all obligations in an exemplary manner, but also sees the opportunities available for the company and knows how to make the best use of them. A good accountant is first of all a trustworthy person who can be relied on. An entrepreneur puts the fate of their company in the hands of an accountant, therefore this is why it is so important that the accountant is a highly competent one. It is very important to have a really competent one. Any mistakes that can be made by an accountant can have very serious consequences, sometimes even irreversible. For this reason, you should provide your company with tax services of the highest quality. A good choice will be a solid tax firm. By choosing a trusted and recommended tax firm, not only can you enjoy excellent accounting, but also a personalized approach to your company depending on its activities. An accounting firm provides access to specialists in their field and the assurance that your company's finances are in the best possible hands.