Legal Eye: Who SEZ zones are illegal?

SEZs ABCs

SEZs were designed to bring investment into areas of chronic unemployment and underemployment in Poland. The original incentives were a decade-long full income and real-estate tax break, with a possibility for a further 50 percent income tax break in later years.  Back in 1994 when the SEZs were established the corporate income tax rate was 40 percent, and this spelled major relief.

What the EU says

In Poland's efforts to join the EU, SEZs proved to be a thorny problem. Poland had granted numerous companies tax relief that would continue after Poland's anticipated accession into the EU, but the bloc frowned on Poland's full tax breaks. The difficulties in resolving this dilemma probably spawned the various legends on the demise of SEZs. In the end, Poland negotiated a have-and-eat-cake compromise in which the SEZs could continue, but the calculation of the incentives was recalibrated.

Land limits

As part of this compromise, Poland also arranged for the limited growth of SEZs and flexibility to re-configure them. Poland agreed to limit the maximum land area of all SEZs to just over 6,300 hectares (63 square kilometers). However, Poland may change the borders and even establish new SEZs as long as the total land area of all SEZs does not exceed this maximum size. Poland also built in some room to attract very large investments, in other words investments worth over EUR 40 (zł.154) million or those that created over 500 new jobs. For new large investments, the overall size of the SEZs may be increased by another 1,500 hectares.

Savings and subsidies

Currently, companies operating in SEZs receive state funding in the form of an exemption of part of their earnings from their corporate income tax base. As a general rule, this exemption may be up to a maximum of 50 percent of costs of the new investment and/or the two-year costs of creating new jobs. Small- and medium-sized companies may be eligible for an exemption of up to 65 percent of these costs.

Before you run out to find a spot in an SEZ, please keep in mind that the minimum investment for eligibility to receive this state funding is EUR 100,000 (zł.385,000), 25 percent of which must come out of your own pocket.

So what about those companies that were already in SEZs on May 1, 2004? Companies that held permits before 2001 received a limited grandfathering. But even they must agree to changes in their permits before the end of 2007.

SEZ permits

Convinced? Well, you first need to consider moving to a different part of Poland. None of the existing 14 SEZs are located in or around Warsaw. Kraków, though, offers the Technology Park SEZ. 

After choosing a site, you need to obtain a permit. Merely having a business address within the boundaries of an SEZ is not sufficient to allow you to exempt your earnings. Each SEZ has its own managing authority, and this institution issues permits. Also, your business must fall into a specific category. Attempting to obtain a permit to open a bakery in the Kraków Technology Park SEZ will likely prove futile.

Judith Gliniecki is the managing partner of Rymar and Partners