Days to invest in special economic zones are numbered
Corporations wanting to obtain licenses to operate in one of Poland's 16 special economic zones will have to act before the end of the year to have their tax exemptions guaranteed, according to a June Economy Ministry statement.
"The bottom line (for) any investor who wants to invest in a special economic zone in Poland: It would be in his best interest to invest before the legislation changes," said a representative of the Euro-Park Mielec special economic zone who asked not to be named.
The European Union (EU) has told Poland to do away with the zones, which offer an initial 10-year tax holiday and a 50% tax rate for the following 10 years. Europe's elite league has its own ideas about what incentives are appropriate as corporate bait. These include 50-75% in return on an original investment in the form of a tax exemption or subsidy. The EU objects to Poland's style of tax exemptions in the zones because they allow returns over an extended period and create what some say are unfair advantages for companies located there. To date, $2 billion has been invested in the zones.
The special economic zones and tax-aid laws are currently in the amendment process and sources affiliated with the zones expect new legislation in early 2001, in line with government statements. Although it can only be speculated as to what kinds of investment incentives the zones will be left with once the laws change, they're expected to be more compliant with EU mandates and will probably allow more quantifiable exemptions, sources said. Economy Ministry officials were unavailable for comment.
In light of an uncertain future, some special economic zones are beginning to accelerate their marketing campaigns. "We're speeding up our activities to get as many investors as we can," said the representative of the Lodz special economic zone, citing ads placed in magazines and a recent Lodz conference for thousands of potential investors.
The zone in central Poland caters to medium-sized firms and is represented by such companies as Spain's Cebul Tuba packaging company, Holland's Steijn Paper and Chemico Poland, a manufacturer of adhesives. It recently handed out several new licenses, the source said, and looks set to sign several more contracts in the coming weeks.
The Lodz zone, the representative said, has issued 20 licenses since it was established in 1997. About 50% of its land, or 100 hectares, is still available for investment.
And that's why some of the zones are getting nervous. "Eventually, we (could) be limited to just administering the land," the source said.
With 85-90% of its hecterage occupied, the Euro-Park Mielec zone is less worried. It opened in 1995 as Poland's first special economic zone and hosts mainly automotive, electronics, food and packaging companies.
One of those firms is Kirkham Motorsports Polska, which builds 427 Cobra roadster clones at a fraction of what the cost would be in the United States. The Utah-based parent company runs its Polish operation out of an old Soviet MIG aircraft factory. The vehicles are then sent to the United States for finishing.
Mary Kirkham, the company's vice president, said the firm has never enjoyed any tax benefits because it never met the zone's capital investment threshold. The company, she said, chose the region for its educated workforce and relatively cheap labor rates.
A Euro-Park Mielec spokesman said Kirkham Motorsports, which applied for special economic zone benefits in March, received a license on April 1, though Kirkham was not aware of it. To qualify for tax exemptions, a company has to invest a minimum of E2 million or employ at least 100 people. Even companies employing fewer than 100 get pro-rated benefits, the spokesman said, also claiming that Kirkham Motorsports had been eligible for some benefits for years but chose not to apply.
Kirkham Motorsports has spent several years trying to purchase its facility, a task Kirkham claims is nearly impossible for foreigners. Not until the landlord filed for bankruptcy several months ago did the opportunity to buy the building open up, she said. "There's a lot of bureaucracy over there and that's been difficult," she said.
But other international companies are opting to invest in the Euro-Park Mielec zone, some undoubtedly for the tax breaks. A handful of glass, wire and light industrial firms just received licenses.
