Doing Business in Poland as an EU Company: Branch or Subsidiary?

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Table of Contents

• Introduction: Poland’s Business Landscape
• Branch vs. Subsidiary: Understanding the Fundamentals
• Legal Framework and Regulatory Considerations
• Tax Implications and Financial Considerations
• Operational Aspects and Business Flexibility
• Real-World Applications: Case Studies
• Strategic Decision-Making Guide
• Conclusion: Making the Right Choice
• Frequently Asked Questions

Introduction: Poland’s Business Landscape

Ever felt overwhelmed when considering expanding your EU business into Poland? You’re certainly not alone. With its strategic location, growing economy, and EU membership, Poland represents an attractive market for companies looking to expand eastward—but the entry method can significantly impact your success.

Poland’s GDP growth has consistently outpaced the EU average, reaching 4.7% in 2019 and showing remarkable resilience with a modest 2.5% contraction during the pandemic year of 2020—considerably better than the EU average of -6.4%. In 2022, despite global challenges, Poland’s economy grew by 4.9%, making it one of Europe’s most dynamic markets.

Let’s be clear: The choice between establishing a branch or forming a subsidiary isn’t merely an administrative decision—it’s a strategic one that affects everything from your tax liability to operational flexibility and market perception. This article delves deep into both options to help you navigate this crucial business decision with confidence and clarity.

Branch vs. Subsidiary: Understanding the Fundamentals

Before diving into the strategic implications, let’s establish the foundational differences between these two business structures in the Polish context.

What Is a Branch Office (Oddział)?

A branch office in Poland represents an extension of your foreign company rather than a separate legal entity. It operates under the name of the parent company with the addition of “Oddział w Polsce” (Branch in Poland). The parent company bears full legal responsibility for all activities and liabilities of the branch.

The branch can conduct the same business activities as the parent company but cannot expand beyond the parent’s scope. Think of it as your company’s arm reaching into the Polish market—connected to and controlled by the main body.

What Is a Subsidiary (Spółka-córka)?

A subsidiary in Poland is a separate legal entity with its own legal personality under Polish law. While owned by the parent company, it operates as an independent business with its own rights and obligations. The most common forms for subsidiaries are limited liability companies (Sp. z o.o.) and joint-stock companies (S.A.).

The parent company’s liability is typically limited to its capital contribution, creating a protective barrier between the Polish operations and the parent company’s assets. This entity can engage in a broader scope of activities than its parent if desired.

Well, here’s the straight talk: Neither option is inherently superior; your optimal choice hinges on your specific business objectives, risk tolerance, and long-term plans for the Polish market.

Legal Framework and Regulatory Considerations

Establishment Requirements and Timeline

Setting up a branch in Poland requires registration with the National Court Register (KRS), but the process is generally less complex than establishing a subsidiary. A branch typically takes 4-6 weeks to establish once all documentation is prepared. Key requirements include:

• Appointing a branch representative
• Providing certified copies of the parent company’s articles of association
• Securing a registered office address in Poland
• Obtaining a REGON (statistical number) and NIP (tax identification number)

Establishing a subsidiary, particularly an Sp. z o.o. (limited liability company), involves more steps but offers greater protection and flexibility. The timeline typically runs 6-8 weeks and requires:

• Drafting and notarizing the articles of association
• Minimum share capital of PLN 5,000 (approximately €1,100)
• Appointment of a management board
• Registration with the KRS, tax office, and statistical office
• Opening a Polish bank account before registration

Governance and Compliance Obligations

Branch offices must maintain separate accounting records according to Polish accounting standards and file annual financial statements with the tax office. They must also submit copies of the parent company’s financial statements. The branch representative bears significant responsibility but has limited autonomy compared to a subsidiary’s management board.

Subsidiaries face more comprehensive governance requirements, including:

• Maintaining a management board (and potentially a supervisory board for larger entities)
• Holding annual shareholders’ meetings
• Preparing and filing annual financial statements
• More extensive record-keeping obligations

Quick Scenario: Imagine you’re launching a software development center in Krakow. If you establish a branch, your Polish operations would be directly tied to your EU headquarters, with limited local decision-making authority and full parent company liability. Conversely, a subsidiary would operate as a Polish company owned by your EU business, with local management empowered to make decisions and limited liability protecting your parent company.

Tax Implications and Financial Considerations

The tax implications of your business structure choice can significantly impact your overall profitability in Poland.

Corporate Taxation Differences

Both branches and subsidiaries are subject to Poland’s corporate income tax (CIT) rate of 19% (or 9% for small taxpayers with revenues under €2 million). However, significant differences exist in how these entities are taxed:

Branches are considered permanent establishments of the foreign company. Their profits are taxable in Poland, but losses can potentially be offset against the parent company’s profits in some circumstances (depending on the parent’s country and applicable tax treaties). The branch must apply transfer pricing rules to transactions with its parent company.

Subsidiaries are fully separate taxpayers under Polish law. They can benefit from various local tax incentives, including those in Special Economic Zones (SEZs) where CIT exemptions may apply. Dividends paid by a Polish subsidiary to its EU parent company can be exempt from withholding tax under the EU Parent-Subsidiary Directive, provided certain conditions are met.

VAT and Cross-Border Transactions

Poland’s standard VAT rate is 23%, with reduced rates of 8%, 5%, and 0% for certain goods and services. Both branches and subsidiaries can register as VAT payers, but their treatment differs in some key aspects:

Branches generally cannot be treated as separate entities for VAT purposes from their parent companies. This can complicate transactions between the branch and parent, as they’re effectively the same entity.

Subsidiaries are independent VAT entities and can engage in intra-community transactions with the parent company, potentially simplifying certain aspects of cross-border operations while adding complexity to others.

According to a 2022 study by PwC Poland, companies operating through subsidiaries reported 15% lower compliance costs related to tax reporting compared to those operating through branches, primarily due to clearer separation of tax obligations.

Operational Aspects and Business Flexibility

Market Perception and Business Relationships

Your chosen business structure can significantly impact how your company is perceived in the Polish market:

Branches may be viewed as temporary or limited commitments to the Polish market, which can affect relationships with potential clients, particularly in B2B sectors. Some Polish companies and government entities may prefer to contract with Polish legal entities rather than foreign branches.

Subsidiaries typically signal a stronger commitment to the market and can inspire greater confidence among Polish business partners. They’re often perceived as more stable and integrated into the local business environment, which can be advantageous when building long-term client relationships.

As Marek Kowalski, Chairman of the Polish Entrepreneurs’ Association, notes: “Polish businesses often prefer to establish partnerships with locally registered companies rather than branches, as they perceive them as more committed to the market and less likely to withdraw during economic downturns.”

Staffing and Employment Considerations

Both structures can employ staff directly in Poland, but several differences exist:

Branches hire employees under the name of the foreign company. This can sometimes create complexity with employment contracts and social security arrangements, particularly for expatriate employees.

Subsidiaries employ staff as a Polish employer, which often simplifies payroll administration and compliance with local labor regulations. They may have greater flexibility in establishing local compensation and benefit systems tailored to the Polish market.

Pro Tip: The right structure isn’t just about minimizing taxes—it’s about creating a foundation that supports your specific business objectives while managing risk appropriately. Many successful companies have started with a branch to test the market before converting to a subsidiary once their Polish operations reach a certain scale.

Real-World Applications: Case Studies

Case Study 1: TechSolutions GmbH — From Branch to Subsidiary

TechSolutions, a German software company, initially entered Poland in 2018 through a branch office in Warsaw to provide technical support to its existing EU customers. With minimal initial investment of €50,000, the branch allowed them to test the market while maintaining tight control from headquarters.

After 18 months of operations, they discovered significant potential for selling their solutions directly to Polish businesses. However, they faced challenges:

• Polish corporate clients were hesitant to sign long-term contracts with a branch
• Decision-making delays occurred due to headquarters approval requirements
• Limited ability to participate in certain public tenders that favored local entities

In 2020, they converted to a Polish subsidiary (Sp. z o.o.) with €100,000 in capital. Within two years, their Polish revenue increased by 170%, and they expanded their local team from 7 to 32 employees. The subsidiary structure allowed them to make quicker local decisions and build stronger relationships with Polish clients who perceived them as a committed local market participant.

Case Study 2: MediSupply S.A — Maintaining Branch Status

MediSupply, a Belgian medical supply company, established a branch in Łódź in 2019 primarily as a distribution center for Eastern European markets. Their operations remained focused on logistics rather than direct sales to Polish clients.

For their specific needs, the branch structure proved ideal because:

• They could integrate the branch’s operations directly into their EU-wide ERP system
• Simplified reporting to headquarters improved supply chain management
• Tax efficiency for their primarily cross-border operations outweighed the benefits of a subsidiary

Three years later, they maintained the branch structure while expanding their warehouse capacity by 200%. The CEO commented: “For our distribution-focused model, the branch structure provides the perfect balance of local presence and integrated operations with our European network.”

Strategic Decision-Making Guide

When deciding between a branch and subsidiary, consider these key factors against your business objectives:

Practical Roadmap to Decision-Making:

1. Define Your Market Entry Objectives – Be clear about whether you’re testing the market or making a long-term commitment
2. Assess Your Risk Tolerance – Consider how comfortable you are with the parent company bearing direct liability
3. Evaluate Your Timeline – Factor in the additional time required to establish a subsidiary
4. Consult with Local Experts – Engage Polish legal and tax advisors familiar with your industry
5. Consider Future Scalability – Plan for how your chosen structure will accommodate growth

Ready to transform this business structure complexity into a competitive advantage? Remember that your choice should align with your specific business model and goals rather than following generic advice.

Conclusion: Making the Right Choice

The decision between establishing a branch or subsidiary in Poland represents a pivotal strategic choice that extends far beyond mere legal formalities. Your selection will influence everything from your tax position and liability exposure to market perception and operational flexibility.

For companies primarily focused on supporting existing EU clients, testing the market with minimal investment, or maintaining tight headquarters control, a branch may offer the ideal balance of simplicity and functionality. The lower setup costs and streamlined administration can make this an attractive option for initial market entry.

Conversely, businesses committed to establishing a long-term Polish presence, developing local client relationships, and building a substantial local operation will typically benefit from a subsidiary’s advantages. The limited liability protection, enhanced market credibility, and greater business flexibility can justify the additional setup complexity and costs.

Perhaps the most pragmatic approach for many EU companies is to view these options as evolutionary stages rather than mutually exclusive choices. Starting with a branch allows you to gain market insights and establish initial operations with minimal investment, while converting to a subsidiary when your Polish business reaches critical mass can provide the structure needed for sustained growth.

Whichever path you choose, success in the Polish market ultimately depends on thorough preparation, quality execution, and willingness to adapt your approach based on market realities. By making an informed choice aligned with your specific business objectives, you’ll create a solid foundation for your Polish market entry that supports rather than constrains your growth ambitions.

Frequently Asked Questions

Can a branch be converted to a subsidiary later, and what does this process involve?

Yes, many companies begin with a branch and later convert to a subsidiary as their Polish operations grow. This typically involves establishing a new subsidiary entity, transferring assets and contracts from the branch to the subsidiary, and then closing the branch. The process usually takes 3-4 months and requires careful planning to ensure business continuity and proper handling of existing contracts, employees, and tax obligations. While not technically a “conversion” but rather a restructuring, this pathway allows companies to evolve their legal structure as their market commitment deepens.

How do branches and subsidiaries differ in their ability to access Polish government incentives and EU funds?

Subsidiaries generally have significantly better access to Polish government incentives and EU funds compared to branches. Many investment incentives, including those in Special Economic Zones, tax relief programs, and government grants, are explicitly designed for Polish legal entities. Similarly, EU-funded programs administered in Poland often prioritize or exclusively target Polish companies. Branches can find themselves either ineligible for certain programs or at a disadvantage during the application process. If accessing development funds or investment incentives is important to your business plan, a subsidiary structure typically offers clear advantages.

What are the key banking and financial differences between operating a branch versus a subsidiary in Poland?

Branches often face more scrutiny and limitations from Polish financial institutions compared to subsidiaries. While branches can open bank accounts in Poland, they may encounter higher fees, more restrictive lending terms, and limited access to certain financial products. Polish banks typically view subsidiaries as lower-risk clients due to their clear legal separation and local incorporation. Additionally, subsidiaries have greater flexibility in local financing options, including potential access to the Warsaw Stock Exchange for larger operations considering public equity. If your business will require significant local financing or complex banking arrangements, a subsidiary structure generally provides better financial system integration.