Justyna Zandberg-Malec

Foreign investors speak out on legal barriers in Poland

The country’s strengths include a large, strong market, a skilled workforce, and political stability. The main barriers are the inflexible employment law, unclear tax regulations, and difficulties in seeking investment incentives.

According to a report published on 25 January 2012 by the Polish Information & Foreign Investment Agency (PAIiIZ), Poland’s investment climate is generally rated very highly by foreign businesses already operating in Poland. But investors complain about barriers imposed by the system of investment incentives, employment law and tax law. Problems with bureaucracy and infrastructure, which figured more prominently in earlier surveys, have slipped down the list of drawbacks. Nonetheless, only telecommunications infrastructure has shown clear improvement; road and rail infrastructure has not.

The availability of public aid is one of the main factors considered when selecting which country to invest in, which is why difficulties in this area were raised frequently by the businesses surveyed by PAIiIZ.

In the case of government grants, the barriers include rigid criteria for awarding grants (for example, SMEs may apply for government grants to support R&D only when they are prepared to invest about PLN 3 million), as well as a general prohibition—not found in neighbouring countries—on combining government grants with other incentives.

With respect to EU structural funds, investors complained primarily about the low level of access to information about competitions, the red tape involved in the settlement procedures, the use of the unclearly defined “principle of competitiveness,” and the lack of long-term schedules for grant competitions. Moreover, when an applicant appeals from a denial of funding, the application is re-examined by the same authority that issued the original decision.

Investors said that the approaching phase-out of special economic zones in Poland, in 2020, limits the ability to take advantage of the tax incentives offered by the zones. Other problems with the zones include the rigid criteria for adding private land to the zones, the inability to apply tax losses, and the inflexibility of the permits issued for operating in the zones. The impermissibility of conducting auxiliary financial operations in special economic zones prevents banks and insurance companies from locating back-office service centres in the zones—despite the success of service centres in Poland, which now employ 80,000 people, a figure expected to rise to 150,000 within the next three years. Back-office workers are generally university graduates, which means that such centres fill the gap left by the government programme “First Job for Graduates” at a time when the unemployment rate among recent university graduates is 24%.

Investors pointed out the need to provide greater flexibility in the rules for working time, scheduling and organisation, in order to reflect the real needs of employers. In their view, Polish employment law seems designed for work in traditional factories, not state-of-the-art service centres. The current concept of workdays, unfavourable overtime rules, short periods for calculation of wages, the lack of individual working time accounts, and the inability to require service centre employees to work on Sundays or holidays came in for the harshest criticism in the survey.

The main barriers identified in the area of Polish tax law included the inability to establish VAT groups (in which affiliates could be treated as a single VAT payer), which reduces the attractiveness of Poland, particularly for investors from the modern services sector. Another barrier is treatment of employee benefits in the form of private medical packages and transportation to work as taxable income of the employees. In general, investors regard tax regulations in Poland as unstable and subject to inconsistent interpretations. As a result, although Poland ranked 62nd overall out of 183 countries in the World Bank report “Doing Business 2012”, the Polish tax system ranked 128th.

Despite these shortcomings, according to a report published by Deloitte in January 2012, 45% of international companies investing in emerging markets regard Poland as one of the locations offering the best opportunity for increased revenue over the next three years—2nd place in Eastern Europe, behind Russia. The challenge for Poland is to lay the foundations for a long career in the investment spotlight—and not fade away as a one-hit wonder.