Private Wealth 2020

Last Updated August 12, 2020

Poland

Law and Practice

Author



PATH Augustyniak, Hatylak and Partners is a market-leading team of more than ten lawyers and other professionals, specialising in comprehensive legal and tax matters, particularly for high net worth individuals, entrepreneurs, family businesses and other organisations. The practice provides ongoing legal and tax advice in the areas of asset protection, tax compliance, succession planning and corporate transactions, as well as maintaining relationships with banks and corporate administrators in foreign jurisdictions, and providing effective support for the organisation of private life, both in Poland and abroad, including changes of residence. Clients include some of Poland’s wealthiest and most influential individuals, who trust PATH lawyers with their most important and high-value affairs. PATH provides legal services in English, French, German, Italian, Polish, Portuguese, Russian, Spanish and Ukrainian. In 2019 the firm opened PATH Family Office (Suisse) Sarl in Geneva.

Poland’s tax system is complex and divided into personal income tax, corporate income tax, inheritance and gift tax. It is important to note that there are no purely private foundations recognised by Polish law and that Polish law does not allow the setting up of trusts. However, private foundations and trusts are well recognised by Polish ant-abuse rules, namely as controlled foreign companies (CFCs).

Generational Wealth Transfer

Poland today is at a moment of generational transition, which means that the first generation of successful entrepreneurs is preparing for retirement and the younger generation is taking over management of their businesses. However, the inheritance and gift tax rules have not been changed for many years. Taxation of inheritance and gifts depends on the family ties between the donor and the donee. Gifts and inheritance between close family members are tax-exempt, on condition that the inheritance or donation is declared to the tax office within six months from the moment of legal act. This is still privileged taxation; however, this may not relate to distributions from private foundations and/or trusts. In such situations, distributions may be treated by the law, as donations between third parties and may be taxed at up to 20% of their value. Poland has started discussions on a privileged system of private foundations, called family foundations, however this is still at a very early stage of drafting.

Charity

For charitable foundations, the Corporate Income Tax Law gives a full exemption on corporate income tax on the condition that the foundations use the income for charitable purposes. If not, regular corporate tax rate of 19% will be applicable. Donors have the opportunity to decrease their taxable base with the amount of money donated to charitable foundations (by up to 10% of their taxable income per year). Another possibility, very popular among taxpayers, is the so-called 1% – this is the possibility of indicating 1% of the total tax due, which is transferred directly to the charitable institution.

Polish legislation, however, requires significant improvements in the area of intergenerational wealth transfer.

As indicated above, Polish regulations on inheritance and gift tax are not new. There have been, however some discussions around changes to the taxation of inheritance and gifts. One of the ideas is to limit the exemption on tax free wealth transfers to those of up to PLN1 million. The surplus may be taxed at a 20% rate. There is no official draft law on this idea, however the risk of it being implemented may be increased due to the lower revenues caused by the current situation with COVID-19. One of the arguments used was that the above limit would be enough to transfer the wealth of most citizens without any further taxation. This idea may be potentially dangerous for wealth management and potential restructuring may be necessary. Most wealth in Poland consists of real estate and businesses, with limited liquidity. Therefore, the situation could be similar to some other countries, where beneficiaries are not able to pay taxes on high value fortunes with small cash liquidity.

Poland implemented the Common Reporting Standard (CRS) in 2017 through the act on Exchange of Tax Information with Other Countries. It reflects OECD standards and, as a consequence, Polish financial institutions are required to implement due diligence and reporting procedures to identify reportable accounts and report them to the Chief of the National Tax Administration. Financial institutions are also required to identify customers who are non-Polish tax residents and report certain information to Polish tax authorities, which may then be shared with the tax authorities where those customers are tax residents.

Additionally, clients are required to declare their countries of tax residency to Polish financial institutions and any data related to tax residency status must be updated.

Clients subject to the United States Foreign Account Tax Compliance Act (FATCA) must provide additional information for the CRS as these are different regulations with different requirements.

Disclosure Requirements

To comply with the CRS Act and provide the financial institutions with the required data, individuals should undertake the following activities:

  • establish their tax residency status based on internal law and double tax treaties;
  • complete the forms and declarations required by the financial institutions; and
  • where necessary, provide the financial institution with a certificate of tax residency.

Additionally, this year, new obligations were levied on companies incorporated in Poland. Each company has the obligation to register its ultimate beneficial owner in the publicly accessible register. There are huge fines, which may be levied on board members of companies that do not fulfil these obligations. Transparency is now one of the key factors that entrepreneurs and wealthy families must consider in their relations with financial institutions. Implemented for fighting against money laundering and tax evasion, these regulations expose families to the risk of public access to their sensitive private information. Furthermore, it is sometimes difficult to meet the requirements of financial institutions in the case of complicated multi–jurisdictional structures, which increases the risk of termination of banking relationships with clients.

The modern, Western-style Polish economy has just celebrated its 30th anniversary. A number of businesses set up in the early 1990s have now grown and matured. Poland has a long-lasting tradition of entrepreneurship, which survived even communism as well as nationalisation. As a result, family-owned businesses are the cornerstone of the Polish economy. A significant number of family-owned enterprises are expanding abroad; this requires the implementation of proper family governance. Moreover, the transfer of power from an older generation (usually founders) to younger, internationally educated one has just started. This transfer generates multiple issues, from different visions to the legal set-up that will keep businesses growing and avoid their fragmentation and depreciation.

In recent years, Poland has implemented a number of anti-avoidance rules. A general anti-avoidance rule (GAAR), a CFC rule and a principal purpose test (PPT), to name a few. Unfortunately, these rules also affect proper inheritance planning. One of the biggest challenges is the safe implementation of private foundations/trusts into the international structures of clients. From a Polish perspective, such structures may be found to be aggressive tax planning vehicles, whereas they are mostly implemented for asset protection and family governance. 

Another important issue is difficult multi-jurisdictional taxation of inheritance. In Poland, the rule is that a Polish citizen is taxed with inheritance tax regardless of his or her current tax residency. Lack of a double tax agreement on this matter leads to the problem of double taxation. Polish families currently live in different countries, there are lot of Polish citizens who are simultaneously citizens of multiple countries, as well as owners of wealth located in these other countries. From this perspective, wealthy Polish families face the same problems as families from other, more wealthy jurisdictions. In the light of the above, implementation of last wills as well as succession planning vehicles, such as private foundations and/or trusts, becomes essential.

In Poland there is no specific forced heirship regime, as the heirship can be avoided by anybody who does not wish to inherit. The primary form of inheritance is testamentary succession. However, if the deceased left no last will, the Polish law provides for a succession regime as follows:

  • The deceased's children and spouse are, by law, called to the succession first.
  • If the testator did not have any descendants, his or her spouse and his or her parents are appointed to the inheritance.
  • If one of the parents did not live up to the moment of opening the inheritance proceedings, the siblings of the testator are appointed to the inheritance.
  • If one of the siblings is dead at the time of the opening of the inheritance proceedings, its descendants are entitled to inheritance.
  • If the deceased has no parents or siblings, or his or her siblings are deceased, the spouse of the deceased inherits all the assets.
  • If none of the above lives up to the moment of opening the inheritance proceedings, grandparents of the deceased are appointed to the inheritance.
  • Finally, the commune of the last place of residence of the deceased is appointed to the inheritance, if such place cannot be established, the national treasury inherits all.

Legitimate Portion

Another important issue in the Polish heirship regime is that of "legitimate portion". The legitimate portion is the institution of inheritance law, aimed at protecting the testator's closest relatives from any exercise of the freedom to draft his or her will and dispose of his or her property during his or her lifetime through donations. As a rule, the legitimate portion amounts to half the value of a share in the estate that would fall to a person under statutory succession. The legitimate portion amounts to two thirds of the value of a share in the case of minors.

The statutory matrimonial property regime is the community of property, which takes effect upon conclusion of the marriage. It includes assets acquired by the spouses, both individually and jointly, during the regime (community property). Assets excluded from the community property belong to the personal property of each spouse.

Community property includes, in particular:

  • remuneration received for work and income from other profit-oriented activities;
  • income from the community property as well as from each of the spouses’ personal property; and
  • financial benefits from an open or employee pension fund;

The personal property of each spouse includes (but is not limited to) the following:

  • assets acquired before the community of property regime took effect, assets acquired by inheritance or donation unless the testator or donor stipulated otherwise, assets which exclusively serve one spouse’s personal needs, assets obtained as a reward for a spouse’s personal achievements, and assets acquired in exchange for personal assets unless particular provisions provide otherwise;
  • property rights resulting from a joint ownership of property subject to separate regulations (eg, joint ownership in a civil law partnership or commercial partnership);
  • inalienable rights, to which only one person may be entitled;
  • assets received as damages for bodily injury or a health disorder or as a compensation for harm suffered (this does not, however, include disability benefits received due to the partial or total loss of earning ability of a spouse or due to his or her increased needs or decreased prospects for future);
  • claims for remuneration for work or for income from other profit-oriented activities; and
  • copyrights and related rights, intellectual property rights or other rights of a creator.

Either spouse may individually possess and use the assets that form part of the community property. Neither spouse may dispose of, or undertake to dispose of, a share of the community property or of a particular asset thereof that would fall to him or her when the statutory regime ceased. Spouses are obliged to co-operate in the management of their community property.

Secondary market trade (transfers between individuals) is generally not subject to VAT and is taxed with transfer tax (tax on civil law transactions). The tax rate is 2% in the case of tangible property and 1% in the case of intangible property. The tax base is the fair market value of the acquired subject. The tax is payable by the purchaser and is non-refundable.

Transfer of property at death is exempted from this tax, it may, however, be subject to inheritance tax. Also, the donation of property is not subject to tax on civil law transactions.

Currently, Poland still has a favourable tax regime; one where an acquisition of the ownership title to tangible property or property rights by a spouse, descendants, ascendants, stepchildren, siblings, or step-parents will be exempt from tax where:

  • the acquirer reports the acquisition of ownership of the tangible property or property rights to the competent head of the tax office within six months from the day on which the tax liability arose, or on which the court ruling confirming the acquisition of succession became final; or
  • the acquirer acquired the cash by gift or donor's instruction, and he or she presents a confirmation that the amount acquired was transferred to the acquirer's bank account or was received by a postal money order.

Digital assets – along with other assets inheritable under Polish law – can also be subject to autonomous disposition in the will of the user's account. The latter requires the sharing of the inheritance (by an agreement between the heirs or by court ruling) and can take place only after the account user has passed away.

As mentioned in 1.1 Tax Regimes, Poland still does not have any special regime for private foundations. Polish practitioners have tried to underline that domestic regulations for private foundations are necessary, however, the legislature continues to treat this kind of structure as tax evasive and, consequently is not eager to speed up work on its implementation. Poland has good experience with private foundations for its citizens in other countries, and can easily implement the best solutions. Succession planning with the use of private foundations is very popular among wealthy families, who would be happy to find these solutions in the country.

Poland is a continental law jurisdiction, which does not recognise trusts and has not done so historically. However, in recent years, trusts have appeared in Polish tax regulation, as structures which may generate tax obligations for their stakeholders (mainly beneficiaries). 

Poland does not recognise trusts so their tax treatment is not completely clear and straightforward. However, it may be pointed out that distributions to beneficiaries will be taxed with inheritance tax of up to 20%. It may also be problematic, with regard to CFC rules, if a foundations’ beneficiaries keep control over a private foundation with its seat abroad.

There are no irrevocable planning vehicles in Poland. However, the problem of irrevocability, as well as control over foreign vehicles of this type, may expose Polish residents to tax liabilities if they are the founders and/or beneficiaries of private foundations.

Poland does not have any dedicated vehicle for asset protection domestically. Therefore, in recent years, the number of private foundations for Polish citizens in other jurisdictions have increased significantly. Polish citizens and successful entrepreneurs understand that keeping their wealth may be as important as its growth. This also increases the pressure for new legislation in Poland, which would allow foundations to be created and regulated domestically, not only internationally.

The easiest succession planning strategy is to pass the wealth directly to the younger generation, using a last will with more detailed description. This however may lead to fragmentation of a business and, as a consequence, less efficient management. Therefore, wealthy Poles have started to write family constitutions which are usually combined with private foundations set up in jurisdiction such as Liechtenstein, the Netherlands and Malta.

Polish tax law always refers to fair market value. It is the responsibility of the taxpayer to declare it properly. Tax authorities have the right to verify it during a tax audit. All relevant factors should be taken into consideration during the value determination. Therefore, it is always recommendable to appoint an independent valuator, who will be able to determine the value with, for example, an appropriate discount for lack of marketability and control. Obviously, this valuation is not binding for tax authorities, but may be persuasive evidence during any potential tax dispute.

As Poland recognises neither private foundations nor trusts, wealth disputes are usually limited to question surrounding wills under Polish law. Such disputes may be long-lasting and their results are difficult to predict. The potential disadvantage of litigation in this area is the risk of a significant decrease in the value of the businesses being subject to that dispute. It sometimes blocks the governance as well as the normal exercise of shareholders rights.

As mentioned in 5.1 Trends Driving Disputes, litigation cases may last for a long period of time, partly due to the fact that fair shares and/or compensation shall be decided by the judge. In practice, to reach a final verdict that satisfies all the parties is lengthy and almost impossible process.

Due to the current state of legislation in Poland, this issue does not arise for most Polish families. This may, however, have importance when trust structures in commonwealth countries have been implemented during the inheritance planning process.

This issue does not arise due to the specifics of the legal system in Poland. Any fiduciary relationships in Poland are regulated by the Civil Code, and therefore liability arises on general rules – no specific provisions appear.

No special regime for fiduciary regulation exists in Poland.

No special regime for regulation of a fiduciary's investment of assets exists in Poland.

There is no concept of domicile in Poland. Only the concept of residency is recognised. An individual may be treated as a resident of Poland if he or she has a centre of vital interest in the territory of Poland or stays in Poland for over 183 days in any given tax year.

Polish Citizenship

Polish citizenship may be acquired in several ways.

Pursuant to the law, a child acquires Polish citizenship by birth to parents, at least one of whom is a holder of Polish citizenship, irrespective of whether the child was born in Poland or abroad.

A child adopted by a holder or holders of Polish citizenship acquires citizenship if the full adoption had been completed before the child turns 16. In this case, the child is considered as possessing Polish citizenship from the moment of his or her birth.

The President of the Republic of Poland can grant a foreigner, at his or her request, Polish citizenship. No conditions limit the constitutional competence of the Republic of Poland; the President can grant Polish citizenship to any foreigner. Granting Polish citizenship to both parents applies to children under their custody. Granting Polish citizenship to one of the parents, applies to a minor under his or her parental custody, in the event that the other parent has no parental custody, or he or she has given consent to the minor acquiring Polish citizenship. When the child has turned 16, only his or her consent is required.

Foreigners are eligible to be recognised as Polish citizens administratively. To apply for Polish citizenship through recognition of citizenship an applicant must be a foreigner living on the territory of Poland, pursuant to applicable permissions, who, in the course of many years’ residence in Poland:

  • has become integrated into Polish society;
  • knows the Polish language;
  • has means of support and housing;
  • respects the Polish legal order; and
  • does not pose a threat to national defence or security.

See 7.1 Requirements for Domicile, Residency and Citizenship.

Poland does not recognise any special vehicle for the purpose of providing for minors or adults with disabilities.

Appointment of a guardian requires a court proceeding in Poland.

Unfortunately, Polish legislation does not have any special regulations related to preparing financially for long retirements. The only additional governmental support is the so-called 13th pension, which is paid to every pensioner. In most cases, helping older family members is the duty of the younger generation. The good point is that access to top quality medical treatment is possible, especially within the private healthcare system.

According to the law, a mother of a child is the woman who gave birth to the child. Therefore, surrogacy agreements, according to prevailing jurisprudence, are void and unenforceable. This also applies to agreements where a surrogate mother gives her consent for the future adoption of the child by genetic parents, because consent to the adoption of the child cannot take place earlier than six weeks after birth. A person can adopt a child only if it is in that child's best interests. The child must be a minor at the moment the adoption application is submitted. The adoptive parent must have full legal capacity and have personal qualifications justifying the belief that he or she will properly carry out the obligations of a parent. There must also be an appropriate age difference between the adopter and adoptee. The adopter must complete training organised by a specialised adoption centre and obtain the formal opinion of such a centre.

Only spouses can jointly adopt a child. Joint adoption is not available to cohabiting couples, either heterosexual or same sex. Adoption is available for individuals. Generally, an adoption by only one of the spouses is possible only after the consent of the other spouse.

In Polish law, there is no regulation concerning civil partnership or same-sex marriages.

Charitable foundations are recognised by the Polish law and are more and more popular. Polish tax law foresees tax incentives for donations to public-benefit foundations. The donor can deduct the amount of the donation in his or her tax declaration (tax deduction), as set out below.

Taxpayers of personal income tax can deduct the amount of certain donations from their taxable basis up to 6% of the taxable income (no limits for support to the Roman Catholic Church). A donation is deductible if the recipient organisation conducts public-benefit activities and is a non-governmental organisation or a corporate entity operating under provisions on relations between the State and the Catholic Church in the Republic of Poland, on the State position on other churches and religious unions, and on the guaranteed freedom of conscience and religion (should their statutory objectives encompass public-benefit work or local authority organisation unions). There are no strict limitations regarding the type of organisation to which donations may be made. The only restriction is that a donation, in order to qualify for a tax exemption, may not be made to individuals; entities engaged in the production of alcoholic beverages, fuels, tobacco, electronic devices, or precious metals; or entities engaged in the trade in precious metals. Corporate donors can deduct the amount of their gifts from their taxable income by up to 10% (no limits for support to the Roman Catholic Church).

As a consequence of the factors discussed in 10.1 Charitable Giving, charitable foundations set up under Polish domestic law are the most popular for charitable activity. There are lot of successful families making donations to foundations they have set-up, and who have delegated, to one family member, the responsibility to develop that foundation's activities and to collect money from third parties with which to grow it.

PATH Augustyniak, Hatylak and Partners

ul. Moniuszki 1A
00-014
Warsaw
Poland

+48 22 212 04 50

+48 22 202 66 79

kancelaria@pathlaw.pl www.pathlaw.pl
Author Business Card

Trends and Developments


Author



PATH Augustyniak, Hatylak and Partners is a market-leading team of more than ten lawyers and other professionals, specialising in comprehensive legal and tax matters, particularly for high net worth individuals, entrepreneurs, family businesses and other organisations. The practice provides ongoing legal and tax advice in the areas of asset protection, tax compliance, succession planning and corporate transactions, as well as maintaining relationships with banks and corporate administrators in foreign jurisdictions, and providing effective support for the organisation of private life, both in Poland and abroad, including changes of residence. Clients include some of Poland’s wealthiest and most influential individuals, who trust PATH lawyers with their most important and high-value affairs. PATH provides legal services in English, French, German, Italian, Polish, Portuguese, Russian, Spanish and Ukrainian. In 2019 the firm opened PATH Family Office (Suisse) Sarl in Geneva.

The main factor recently influencing Poland and Polish legal practice is the COVID-19 pandemic. Poland, like many other countries, has taken a range of supportive measures to tackle the devastating economic and social effects of the COVID-19 pandemic. Below is an insight into a selection of key measures taken by the Polish government, as well as Polish agencies and banks to support and protect business.

Polish Anti-crisis Shields

The new pandemic laws implemented various subsidies for enterprises suffering due to the lockdown because of the standstill or reduced working hours. Subsidies were also offered for the salaries of those employees not eligible for the standstill or reduced working hours. In general, State support was given for a period of three months. In addition, financial support was offered to entrepreneurs in the event of a decrease of turnover of at least 30%. Also, tax and social security reliefs – such as postponement of tax payments or social security contributions, postponement of the deadline for income tax filings and payment, postponement of the entry into force of a number of significant tax changes, extension of the deadline for employers to make advance payments of income tax on salaries, and the ability to offset losses for 2020 against 2019 income – have been introduced to reduce the negative impact of COVID -19. Furthermore, the deadline for drawing up annual financial statements was postponed.

Polish banks have applied relief measures such as repayment and interest holidays for borrowers under loan agreements, lease instalment holidays for debtors under leasing agreements, holidays for debtors under factoring agreements, and renewal of credit lines and facilitated access to short-term liquidity loans. Most of these measures have lasted for up to three months.

These measures have been introduced so that enterprise can avoid abrupt bankruptcy caused solely by the COVID-19 outbreak. Also, a new simplified restructuring procedure to conclude an arrangement with creditors was implemented. It allows the debtor to be protected against enforcement and enjoy a moratorium on repayment of debts for four months solely on the basis of an announcement in the Court and Commercial Journal and without a decision being made by a restructuring court.

The core element of the State aid packages offered by the Polish government is the financial support for crisis-affected micro-enterprises, SMEs and large enterprises. The total value of the financial support plan for micro-enterprises amounts to PLN25 billion, while the support plan for SMEs is PLN 50 billion. The total financing for large enterprises amounts to PLN 25 billion. Only those enterprises that are registered in Poland, have tax residency in the EEA, and whose ultimate beneficial owner is based outside so-called tax heavens are eligible for State financial support.

The liquidity support for micro-enterprises and SMEs was available until the end of July 2020, while large enterprises may benefit from liquidity programmes until the end of 2020.

The global spread of COVID-19 is also strongly affecting foreign investment, which requires a closer look from an EU and a Polish perspective.

Restrictive Admission Procedures for Foreign Investment

EU-level foreign investment regulation

The EU is regarded as the leading source and destination of foreign direct investment. Historically, the EU has had one of the world’s most open investment regimes, as acknowledged by the OECD. However, new investment trends have caused some concern in Europe regarding the impact of certain foreign investments on security and public order. Analysis of foreign direct investment in the EU revealed, among other things, a rise in foreign ownerships of EU companies in the last ten years, the increase in investment from emerging economies such as China and India and growing presence of “offshore investors”. In response to these trends, for the first time legislation was put in place to protect Europe’s strategic interests while keeping the EU open for business. The new EU-level framework for the screening of foreign direct investment, set forth by Foreign Direct Investment (FDI) Screening Regulation (EU) 2019/452, entered into force on 10 April 2019 with full application from 11 October 2020. The new Regulation sets up an EU-wide mechanism for co-operation, enabling member states and the Commission to exchange information and raise concerns related to a specific investment, while confirming that individual member states will retain the final word over whether a specific investment transaction should be allowed or not in their territory.

The Regulation does not require member states to introduce investment screening mechanisms. Member states may maintain their existing screening mechanisms, adopt new ones or remain without such national mechanisms. However, before the Regulation entered into force, fourteen EU members states, including Poland, already had specific foreign direct investment screening mechanisms in place.

The outbreak of the pandemic encouraged numerous countries, not only in the EU but around the globe, to take additional measures not only to support investment but also to strengthen protection of critical domestic industries during the crisis.

At the European level increased foreign direct investment controls for “strategic industries” were recently recommended by the European Commission. Ahead of the Regulation, in March 2020, as part of measures taken in response to the COVID-19 pandemic, guidance was issued to member states indicating some key requirements for national screening mechanisms in a time of public health crisis and economic vulnerability. The Commission called upon member states to make full use of existing FDI review mechanisms in their national law to prevent the risk of losing control of healthcare capacities or related industries – or to set up a screening mechanism, if a member state did not already have one in place. The guidance has already impacted the foreign investment regimes in several European countries. Similarly, to France, Spain and Italy, Poland has just introduced additional protective regulation which tightens its foreign investment screening mechanism to protect those of its industries considered as particularly important in the crisis. The new regime entered into force on 24 July 2020.

Already existing national-level regulation of foreign investment

Mechanisms for control of foreign investment are not new on the Polish market. So far, national legislation has provided for an exhaustive list of entities of strategic importance – mostly State-owned enterprises active in sectors such as energy, oil and gas, military and telecommunications – protected against foreign acquisitions with special screening procedures implemented by the Minister of State Assets. The new investment control measures, intensified due to the COVID-19 pandemic, significantly broaden the catalogue of sectors considered to be of strategic interest. New regulations cover entities that hold assets recognised to be “critical infrastructure”, as well as those operating in the IT, energy, oil and gas, chemicals, metal ores extraction, transhipment in ports, telecommunication, military, medical and pharmaceutical, and food processing industries. Furthermore, the new protection extends to all listed companies regardless of the sector in which they operate. The revenue threshold of protected entities, generated in the territory of Poland, cannot be lower than EUR10 million in any of the last two financial years.

New national-level regulation of foreign investment

Under the additional investment policy a transaction resulting in the acquisition of a a dominant or substantial (ie, above 20%) shareholding, or share of voting rights or profits by an individual or an entity from outside the EU, EEA or OECD requires prior notification to the President of the Office of Competition and Consumer Protection (OCCP).

New screening procedures will therefore affect investors from all African countries, Asian countries (with the exception of Japan and Korea), the majority of South America (with the exception of Colombia, Chile and Mexico) and the Middle East (with the exception of Israel and Turkey). The screening procedures also extend to indirect investments as well as foreign restructuring operations which trigger changes of control. Subsidiaries of investors from outside of the EU, EEA and OECD fall under the same scrutiny, even if these subsidiaries are registered in Poland or other permitted countries.

However, due to a non-circumvention clause contained in the new policy, authorities have five years to ex officio control any transaction of an EU/EEA/OECD entity that raises suspicions as to such entity's origin.

The actual type of foreign investment is irrelevant as notification to the OCCP is triggered by share deals, assets deals, profit sharing agreements as well as corporate restructuring (mergers, de-mergers, share redemptions, etc). The new regime will apply also to intra-group transactions (no-exemptions so far).

The President of the OCCP may raise an objection to a transaction in the event that a given investment poses a potential threat to public order, public security or public health; or in the event that the investment has an adverse impact on projects or programmes of EU interest. The decision whether foreign direct investment undergoes screening should be issued by the President of the OCCP within 30 business days from the commencement of the initial check. The final decision whether the OCCP undertakes the screening should be issued within the next 120 days. According to the FDI Screening Regulation, during this time, the OCCP should notify the European Commission and the other member states of the foreign investment that is undergoing screening and follow co-operation mechanism provided therein.

Depending on its type, a transaction made without ex ante governmental control shall either be null and void or in consequence the acquiring entity will be deprived from exercising its voting and other corporate rights, except for shares’ sale. Moreover, the registry courts have been equipped with the power to delete from the corporate registers, entries of invalid transactions. Finally, the new Polish FDI regime imposes severe penalties, including multimillion Polish złoty fines as well as imprisonment for non-compliance both on investors and their representatives. 

This pandemic regulation will clearly have a lasting effect on investment policy making. It strengthens and solidifies the ongoing trend towards more restrictive admission policies for foreign investment in industries considered as being of critical importance for Poland. Given the very broad and open catalogue of sectors identified as strategic for Poland, direct or indirect M&A transactions by investors from restricted regions carry additional risks as they require careful examination of the targets to eliminate breach of investment screening mechanism. Due to this additional administrative burden the number of foreign investments in Poland may temporarily decline. 

The new foreign investment screening policy will apply for two years.

Potential New Structure in Family Business Planning

Apart from Poland's response to the COVID-19 pandemic, another topic that should be noted by private wealth clients doing business in Poland is the potential for change in the structures available for family business planning.

At present in Poland, there is no framework for trusts or foundations other than public or charitable foundation. The elimination of domestic foundations from family business planning inclines Polish families looking for asset protection to use limited local structures such as matrimonial contracts or donation contracts or to create such structures under foreign jurisdictions. In their planning endeavours, wealthy Polish families often use private foundations from Austria, Liechtenstein, the Netherlands or Malta, where this vehicle is established and well recognised. 

However, recently the Polish government has put forward a legislative initiative to support Polish private businesses in asset protection efforts and succession planning. In response to the demands of entrepreneurs and legal practitioners, the Polish Ministry of Development has commenced work on a draft law on family foundations. These works have not yet been finalised and, clearly, the COVID-19 pandemic has delayed the process, yet it appears to be on a good track. The newly construed family foundation shall receive its own legal personality and exist separate from the assets of the founder(s). The construed family foundation shall serve a specific purpose, as defined by the founder(s), by using, administering and exploiting the assets endowed by the founder(s). The two main issues being still debated in relation to the new law are whether the foundation should be allowed to engage in a commercial activity and whether, by operation of family foundation, the Polish succession law will be excluded entirely. According to the initial declarations of the Ministry of Development, the new foundation will be precluded from commercial activity. Furthermore, descendants, spouses and parents may keep a forced heirship right to the family foundation according to the Polish general rules of intestate succession.

Hopefully, the new legislation will be completed soon and will allow for a flexible and attractive structure for family business planning in Poland.

PATH Augustyniak, Hatylak and Partners

ul. Moniuszki 1A
00-014
Warsaw
Poland

+48 22 212 04 50

+48 22 202 66 79

kancelaria@pathlaw.pl www.pathlaw.pl
Author Business Card

Law and Practice

Author



PATH Augustyniak, Hatylak and Partners is a market-leading team of more than ten lawyers and other professionals, specialising in comprehensive legal and tax matters, particularly for high net worth individuals, entrepreneurs, family businesses and other organisations. The practice provides ongoing legal and tax advice in the areas of asset protection, tax compliance, succession planning and corporate transactions, as well as maintaining relationships with banks and corporate administrators in foreign jurisdictions, and providing effective support for the organisation of private life, both in Poland and abroad, including changes of residence. Clients include some of Poland’s wealthiest and most influential individuals, who trust PATH lawyers with their most important and high-value affairs. PATH provides legal services in English, French, German, Italian, Polish, Portuguese, Russian, Spanish and Ukrainian. In 2019 the firm opened PATH Family Office (Suisse) Sarl in Geneva.

Trends and Development

Author



PATH Augustyniak, Hatylak and Partners is a market-leading team of more than ten lawyers and other professionals, specialising in comprehensive legal and tax matters, particularly for high net worth individuals, entrepreneurs, family businesses and other organisations. The practice provides ongoing legal and tax advice in the areas of asset protection, tax compliance, succession planning and corporate transactions, as well as maintaining relationships with banks and corporate administrators in foreign jurisdictions, and providing effective support for the organisation of private life, both in Poland and abroad, including changes of residence. Clients include some of Poland’s wealthiest and most influential individuals, who trust PATH lawyers with their most important and high-value affairs. PATH provides legal services in English, French, German, Italian, Polish, Portuguese, Russian, Spanish and Ukrainian. In 2019 the firm opened PATH Family Office (Suisse) Sarl in Geneva.

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