Branch of a foreign entrepreneur and taxes

Branch of a foreign entrepreneur and taxes
Marek Cieślak

Marek Cieślak

CEO CGO Finance

Establishing a branch by a foreign entrepreneur in Poland is not only associated with economic benefits but also with tax obligations. In this article, we discuss the issue of a branch of a foreign entrepreneur and taxes.

Table of Contents

What is a foreign entrepreneur’s branch in Poland?

A foreign entrepreneur’s branch is an organizational unit conducting business in Poland that is dependent on a foreign entrepreneur. The branch does not have a legal personality. Yet, it may have the capacity to perform legal actions on behalf of the foreign entrepreneur.

If you have a company in the European Union or the European Economic Area, you can open a branch in Poland. Individuals from other countries may also have such a possibility. However, their country of origin must have mutual agreements with Poland.

Opening a branch comes with lower costs than establishing a new company. The branch does not have to fulfil the same obligations as a company, such as having its own capital.

Before starting a business as a branch, it is necessary to obtain an entry in the National Court Register. You must also appoint a person authorized to represent the foreign entrepreneur. It is important to remember that the branch can conduct business only within the same scope as the company that operates abroad.

A foreign entrepreneur’s branch can operate in Poland after registration in the National Court Register (Polish: KRS). To obtain entry in the register, a foreign entrepreneur must submit an application. Moreover, he needs to provide copies of certain documents. Among them, there is an act of incorporation, the company’s agreement or statutes and an excerpt from the register. The last one is required if the entity acts on the basis of an existing entry.

If a foreign entrepreneur wants to have a branch in Poland, he must use the original name of the company along with Polish translation and the additional phrase “oddział w Polsce” – which means “branch in Poland”. The branch must maintain separate accounting records in Polish language. They must be kept in compliance with Polish accounting regulations. If there is a change in the factual or legal status of the branch, the entrepreneur must report these changes to the Minister for Economy. This concerns for example opening liquidation proceedings against the foreign entrepreneur or the loss of right to conduct business. It should be remembered that the minister may prohibit a branch from operating. This can happen if the branch fails to comply with Polish law.

What is the difference between a foreign entrepreneur’s branch and a representative office? You can find answers to this question in our article.

Branch of a foreign entrepreneur and taxes

1. Income Tax

To determine whether a foreign entrepreneur conducting business in Poland must pay income tax, it is necessary to verify whether the required conditions for recognizing his enterprise as a foreign establishment are met. If so, the income earned by the branch is subject to income tax in Poland.

According to art.4a (11) of the Corporate Income Tax Act, the term “foreign  establishment” means:

  • a permanent agency used by an entity whose registered office or management is located in the territory of one state to perform all or part of its activities in the territory of another state, in particular a branch, representation, office, factory, workshop or a natural resource extraction site,
  • a construction site, construction, assembly or system operated in the territory of one state by an entity that has its registered office or management in the territory of another state,
  • a person who acts in the territory of one state for and on behalf of an entity that has its management in the territory of another state, if he is authorised to conclude agreements on behalf of that entity and actually exercises that authority

 – unless otherwise provided for in a double taxation agreement to which the Republic of Poland is a party.

In other words, according to this provision, the term “foreign establishment” applies only when there is no double taxation agreement with a given country, or when such an agreement does not contain a definition of a “foreign establishment”.

2. CIT

There is no specific registration procedure for CIT taxpayers in tax law. Therefore, it seems sufficient to report the establishment of a branch in writing (in accordance with the double taxation agreement) to the relevant tax office. It will be also necessary to provide a copy of the tax identification number (NIP). This is to confirm previous registration for VAT purposes with the relevant office.

According to Polish tax law, a branch of a foreign entrepreneur is a separate taxpayer of CIT. This means that the branch is obligated to settle its corporate income tax and file tax returns on the same terms as Polish entrepreneurs.

It is worth noting that in the case of a branch of a foreign entrepreneur, there is no double taxation. This means that the branch will not be taxed both in Poland and in the country where the foreign entrepreneur is based.

The VAT-R registration – foreign entrepreneur’s branch in Poland

A foreign entrepreneur who wants to conduct business in Poland by establishing a branch must remember that he will be recognized as VAT taxpayer in Poland. This concerns both the parent company and the branch. If you decide to register the branch for VAT purposes, it means that your company will become a VAT taxpayer in Poland.

To register as a VAT taxpayer, you must submit a registration application to the head of the tax office competent for the address of the registered office or permanent place of business. If you don’t have a registered office or place of business in Poland, you must apply to the head of the Second Tax Office in Warsaw-Śródmieście.

Registration for VAT purposes is free. However, you must pay 170 PLN to the account of the city/municipality/district office where the head of the tax office is located. This is for issuing the registration confirmation.

If you plan to conduct intra-Community transactions, you must notify the head of the tax office about it. This can be done in Section C.3. of the VAT-R form.

Are you getting lost in the maze of tax law changes and regulations?

Don’t expose yourself to unnecessary legal and financial consequences. Our experts will advise you on how to conduct your business in compliance with the law.

A foreign entrepreneur’s branch in Poland – tax obligations

A foreign entrepreneur’s branch in Poland has the same obligations as Polish companies. This means that the branch has to:

  • keep accounting books in accordance with Polish regulations,
  • settle accounts with the tax office in Poland,
  • pay taxes and social and health insurance contributions,
  • file tax returns and annual financial statements.

Consequences of non-compliance with regulations

Failure to comply with the tax rules of a foreign entrepreneur’s branch may have financial consequences. If you don’t pay your taxes or have problems with correct settlements with the tax office, the branch may be subject to fines or other sanctions.

Summary

To sum up, you should know that a foreign entrepreneur’s branch in Poland has the same tax obligations as Polish companies. Failure to comply with the regulations may result in financial sanctions. Therefore, it is worth remembering that running a branch of a foreign entrepreneur in Poland requires knowledge of Polish tax law.

If you find this article interesting and want to know more about the topic, we invite you to cooperate with us. Experts from our accounting firm in Warsaw are at your disposal. Contact us today and let us help you.

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Marek Cieślak

CEO CGO Finance