SSE rules to be released this week
By : Juliet D. Golden
Rules related to Poland's special economic zones (SSE) are due to be released this week, which government officials and zone managers say will spark new interest in a controversial program that has already spawned more than zl. 11 billion ($2.68 billion) in investments in hard-hit areas across the country.
Bowing to pressure from the European Union (EU), Poland introduced new legislation this year that significantly curtailed the incentives offered to zone investors while bringing Polish law in line with EU norms. However, the absence of specific legal rules outlining how zones can function under the new law has meant that since December no new investors have been enlisted in any of the 15 zones around the country. According to the Economy Ministry, those rules, which are intended to outline what kind of incentives can be offered to investors, are due to be published this week in Poland's journal of laws. By the end of April, zone managers will be able to officially open negotiations with new investors looking to set up shop in the SSEs. "The rules will be published (this) week, which means that they will come into effect the week of April 23," said Teresa Koryczynska, deputy director of the regional development office in the Economy Ministry. "Zone managers have put pressure on us because a lot of companies are waiting for these rules, which means that there is still a lot of interest in SSEs."
Since the start of the year, talks with potential investors in Poland's most lucrative zone, the Katowice SSE, have been put on hold until the new rules are released. "We have had a lot of inquiries from companies that are interested to enter the Katowice SSE," said Igor Jelonek, responsible for promotion at the Katowice SSE. "But today all we can do is just collect company names and addresses and when the new rules are released, we will be able to talk to them directly." Since its founding in 1996, the Katowice SSE has pulled in more than $1.5 billion in declared investments, which are expected to create at least 18,000 jobs.
This recent lull follows a rush on the zones at the end of last year by investors eager to get in before tax breaks were slashed in January. By 2001, investors in the zones were offered an initial 10-year tax holiday and a 50% tax exemption for the following decade. The SSEs were set up to stimulate economic growth in regions especially hard hit by the economic transformations following the fall of communism. The Katowice and Walbrzych SSEs, for example, were established in coal mining basins hurt by the scaling back of industry over the past decade.
Unemployment in counties surrounding Legnica's SSE, Poland's copper mining basin, has soared to almost 30%, according to Roland Kacperski, development director at the Legnica SSE. "The zones aren't the main prescription for unemployment, but they help," Kacperski said.
Poland has been under increasing pressure from the EU to close the zones, charging that they create unfair advantages for companies located within them and are against the laws that Poland will have to adhere to when it joins the trading bloc in the next decade. For the EU, at issue is not just the amount of tax exemption permitted by Polish law, but the rules associated with the investment. While in the EU an investor can receive up to a 50-75% return on the original investment in the form of a subsidy or tax exemption, Poland's zones permit returns over an extended period of 10-20 years without regard to original investment levels. The new rules on SSEs are likely to grant investors tax breaks of up to 50% of the initial capital investment or half of employment costs until 2017.
While the new rules will put Poland in line with EU standards, SSEs are still expected to loom large in negotiations over EU expansion. The EU is pressuring Poland to revoke the promised tax holidays by the time the country becomes a member of the trade bloc. The controversy has become the main sticking point blocking the closure of the negotiation chapter on competition policy, which Poland wants to conclude this spring.
For their part, Polish officials maintain that they do not intend to back down on incentives promised to investors during the past five years. As such, they have formally requested a transition period, which would permit the incentives to be granted until 2017, more than a decade beyond Poland's anticipated entry into the EU.
Government officials said that any change in Poland's position could undercut the country's credibility as a foreign investment haven. "The government is standing firmly in its position, firstly because a change would mean enormous compensation would have to be paid out to companies that decided to invest (in the zones)," Koryczynska said. "The second issue is that any changes would undercut Poland's credibility in terms of the permanence of its laws."
