Law means more opportunities for foreigners
As mentioned in the last Legal Side column, certain parts of the recently enacted Law on Commercial Activities (the Act) came into force on Jan. 1, 2000. Having carefully read my last article (and duly taken the multiple choice quiz at the end), you may recall that most of the provisions of the Act, or, if you prefer, the new "Constitution for Doing Business in Poland," will be effective as of Jan. 1, 2001. The provisions that are already binding relate to the ability of foreign persons and foreign entrepreneurs to do business in Poland, including through branch offices and agencies. Throw away any materials that you may have on this subject from years past as the Act regulates these matters in a different way.
Foreign entities are now divided into three groups. Each of them has a different status under Polish law. One important thing to remember is that a Polish corporation (limited liability or joint-stock company) with foreign shareholding is not considered a foreign entity under the Act. Thus, these groups refer to activities by foreign entities that have not established some sort of subsidiary in Poland for purposes of doing business here.
Foreign citizens are individuals who are citizens of another country, but who have been granted a permit to reside in Poland, enjoy full rights. Their right to establish a business and conduct commercial activity in Poland is the same as that granted to Polish citizens.
The second group, foreign persons, encompasses individuals and legal entities whose domicile is located outside of Poland, as well as partnerships whose seat and partners' seats are located outside of Poland. Foreign persons may establish a business and conduct commercial activity on the same basis as entrepreneurs whose seat or domicile is in Poland, provided that the principle of reciprocity exists between Poland and the foreign person's home country, unless international agreements ratified by Poland stipulate otherwise.
If no reciprocity exists between Poland and the home country of a foreign person, it doesn't mean that this person may not do business in Poland. It does mean business will have to be conducted through a Polish subsidiary, such as a limited partnership, limited liability company or joint-stock company.
Foreign entrepreneurs are defined as foreign persons conducting their commercial activity outside Poland. In addition to any rights they may enjoy under the Act as foreign persons or foreign citizens resident in Poland, foreign entrepreneurs may establish branch offices or agencies to conduct commercial activity in Poland provided that the principle of reciprocity exists between Poland and the home company of the foreign entrepreneur, unless international agreements ratified by Poland stipulate otherwise. The primary change brought about by the Act is that a foreign entrepreneur no longer needs to obtain a permit to operate a branch office or an agency, but merely needs to register.
Branch offices can provide a relatively easy way to get activities started in Poland, but there are limitations on what branch offices may do. A foreign entrepreneur who established a branch in Poland may conduct commercial activity only within the scope of the activities of its foreign business. In other words, if your business abroad consists of manufacturing dollhouses, you may not use your Polish branch office to repair televisions. Getting your branch started requires that you register it. Beginning Jan. 1, 2001, a new institution, the National Court Register, will be the entity with which the registration of a branch office of a foreign entrepreneur should be made. In the meantime, branch offices must be registered with the appropriate district commercial court in section C.
A number of other formal restrictions exist on branch offices. For example, a branch office must use the same name as the foreign entrepreneur, but its legal form must be translated into Polish (for example, "Inc." into an appropriate Polish equivalent) and the description "oddzial w Polsce" (branch office in Poland) in Polish must be tagged on at the end. A branch office also must keep separate accounts in Poland and in accordance with Polish regulations.
Foreign entrepreneurs are also allowed to establish agencies in Poland. An agency may only serve to advertise and promote a foreign entrepreneur. Agencies are registered in the record of foreign entrepreneurs' agencies, which is kept by the minister responsible for the type of business conducted by the foreign entrepreneur. The record is open to the public.
Formalities similar to those of branch offices are required of agencies. An agency must use the same name as the foreigner entrepreneur, but its legal form must be translated into Polish (for example, "Inc." into an appropriate Polish equivalent) and the description "przedstawicielstwo w Polsce" (agency in Poland) in Polish must be tagged on at the end. It is also required that separate accounts be kept in Poland and in accordance with Polish regulations.
As a final note, agencies that were set up pursuant to an ordinance of the Council of Ministers from 1976 may continue to conduct activities on the basis of their existing permits until the permits expire.
This article was prepared by Lejb Fogelman, managing partner of Hunton & Williams Poland, with the assistance of Izabela Klaus, an associate attorney.
