Baker & McKenzies Doing Business in Poland - Chapter 1 (Poland)

1|Poland

This is chapter 1 of Baker & McKenzie “Doing Business in Poland 2016” brochure

2 Baker & McKenzie | Doing Business 2016

All of the information included in this document is for informational purposes only, and may not reflect the most current legal developments, judgments, or settlements. This information is not offered as legal or any other advice on any particular matter. The Firm and the contributing authors expressly disclaim all liability to any person in respect of anything, and in respect of the consequences of anything, done or not done wholly or partly in reliance upon the whole or any part of the contents of Baker & McKenzie’s Doing Business in Poland brochure. No client or other reader should act or refrain from acting on the basis of any matter contained in this document without first seeking the appropriate legal or other professional advice on the particular facts and circumstances.


POLAND

Poland, officially the Republic of Poland, is situated in Central Europe and borders Germany to the west; the Czech Republic and Slovakia to the south; Ukraine, Belarus and Lithuania to the east, and the Baltic Sea and Kaliningrad Oblast, a Russian enclave to the north. It also shares a maritime border with Denmark and Sweden. The total area of Poland is 312,679 sq km, making it the 69th largest country in the world with a population of over 38.4 million people concentrated mainly in large cities, including the historical capital of Poland, Kraków, and the present capital, Warsaw. Besides Warsaw and Kraków, other major cities are Łódź, Wrocław, Poznań, Gdańsk and Szczecin. Poland is a unitary state made up of 16 voivodeships.


Poland is a member of the European Union, NATO, the United Nations, the World Trade Organization, the Organization for Economic Co-operation and Development (OECD), the European Economic Area, the International Energy Agency, the Council of Europe, the Organization for Security and Co-operation in Europe, the International Atomic Energy Agency, G6, the Council of the Baltic Sea States, the Visegrad Group, the Weimar Triangle and the Schengen Agreement. Population and Language

Today, Poland has more than 38 million inhabitants, and 99.8 per cent of the popu-lation considers itself Polish, 0.15 per cent considers itself to be of another nationality and 2,000 people do not declare their nationality. Officially there are nine recog-nized ethnic minority groups, including

Germans, Ukrainians, Belarusians, Lithua-nians, and Jews.

The Polish language, a member of the West Slavic branch of the Slavic languages, functions as the official language of Poland.

92.8 per cent of Poles are Roman Catholics, with 70 per cent declaring as practicing Catholics. The rest of the population consists mainly of followers of the Orthodox Church (0.7 per cent), Jehova’s Witnesses (0.3 per cent) and others (0.5 per cent).


The Government, Political and Legal Systems

Poland is a democracy with a president as the head of state. The current constitution dates from 1997. The government structure centers around the Council of Ministers, led by a prime minister. The president appoints the cabinet according to the proposals of the prime minister, typically from a majority coalition in the Polish parliament. The president is elected by popular vote every five years. The current president is Andrzej Duda, who replaced Bronisław Komorowski after the elections in 2015 and officially assumed the office after he was sworn in on 6 August 2015. The current Prime Minister, Beata Szydło, is the third woman to have been appointed to this position in the history of Poland.

Former Prime Minister Donald Tusk assumed the office of the President of the European Council on 1 December 2014. There is no doubt that the biggest challenges of the new head of the European Council include the immigration crisis and the Russian-Ukrainian conflict, as well as the referendum in the UK to remain in the European Union. Polish voters elect a bicameral parliament consisting of a 460-member lower house (Sejm) and a 100-member Senate (Senat). The Sejm is elected via proportional repre-sentation according to the d’Hondt method, a method similar to that used in many parliamentary political systems. The Senat, on the other hand, is elected us-ing the First-past-the-post voting method, with one senator being returned from each of the 100 constituencies.


The judicial branch plays an important role in decision making. Its major institutions include the Supreme Court of the Republic of Poland (Sąd Najwyższy); the Supreme Administrative Court of the Republic of Po-land (Naczelny Sąd Administracyjny); the Constitutional Tribunal of the Republic of Poland (Trybunał Konstytucyjny); and the State Tribunal of the Republic of Poland (Trybunał Stanu). On the approval of the Senat, the Sejm also appoints the ombudsman or the Commis-sioner for Civil Rights Protection (Rzecznik Praw Obywatelskich) for a five-year term. The ombudsman is responsible for guarding the observance and implementation of the rights and liberties of Polish citizens and residents, the law and principles of community life and social justice.

The Regional and Administrative Structure

Since 1999, the administrative division of Poland has been based on three levels of subdivision. The territory of Poland is divided into voivodeships (provinces); these are further divided into powiats (counties), and these in turn are divided into gminas (communes or municipalities). Major cities normally have the status of both gmina and powiat. Poland currently has 16 voivode-ships, 379 powiats (including 65 cities with powiat status), and 2,478 gminas.

The current system was introduced pursuant to a series of acts passed by the Polish parliament in 1998, and came into effect on 1 January 1999. Previously (in the period from 1975 to 1998) there were 49 smaller voivodeships and no powiats (see Adminis-


division of the People’s Republic of Poland). The reform created 16 larger voivodeships (largely based on and named after historical regions) and reintroduced powiats.

Administrative authority at voivodeship level is shared between a government- appointed governor, called the voivode (usually a political appointee), an elected assembly called the sejmik, and an executive chosen by this assembly. The leader of the executive is called the marszałek. The boundaries of the voivodeships do not always reflect the historical borders of Polish regions. Around half of the Śląskie Voivodeship belongs to the historical prov-ince of Lesser Poland. Similarly, the area around Radom, which historically is part of Lesser Poland, is located in the Mazowieckie Voivodeship. Also, the Pomorskie Voivode-

ship includes only the eastern extreme of historical Pomerania, as well as areas outside it.

Each voivodeship is divided into a number of smaller entities known as powiats (counties). The number of powiats per voivodeship ranges from 12 (Opolskie Voivodeship) to 42 (Mazowieckie Voivode-ship). This includes both powiats proper (known as land counties, Polish powiaty ziemskie), and cities with powiat status (city counties, Polish powiaty grodzkie or more formally miasta na prawach powiatu). Land counties have an elected council (rada powiatu) which elects an executive and their head. In city counties the functions of these institutions are performed by the city’s own council and executive.


POMORSKIE

WIELKOPOLSKIE

MAZOWIECKIE

PODLASKIE

LUBELSKIE

PODKARPACKIE

ŚWIĘTO-KRZYSKIE

ŁÓDZKIE

LUBUSKIE

DOLNOŚLĄSKIE

OPOLSKIE ŚLĄSKIE

MAŁOPOLSKIE

ZACHODNIO-POMORSKIE

WARMIŃSKO-MAZURSKIE

KUJAWSKO-POMORSKIE

Voivodeship

DolnośląskieKujawsko-Pomorskie

ŁódzkieLubelskieLubuskie

MałopolskieMazowieckie

OpolskiePodkarpackie

PodlaskiePomorskie

ŚląskieŚwiętokrzyskie

Warmińsko-Mazurskie Wielkopolskie

Zachodniopomorskie

Capital city or cities

WrocławBydgoszcz and ToruńŁódźLublinGorzów Wielkopolski and Zielona GóraKrakówWarsawOpoleRzeszówBiałystokGdańskKatowiceKielceOlsztynPoznańSzczecin


The third level of administrative division is the gmina (commune or municipality). A powiat is typically divided into a number of gminas (between three and 19), although the city counties constitute single gminas. A gmina may be classed as urban (consist-ing of a town or city), urban-rural (consisting of a town, its surrounding villages and coun-tryside), or rural (not containing a town). A gmina has an elected council as well as a directly elected mayor (known as prezy-dent in large towns, burmistrz in most urban and urban-rural gminas, and wójt in rural gminas).

Gminas are sub-divided into smaller units, called osiedle or dzielnica in towns and sołectwo in rural areas. However, these units are of lesser importance and are subordinate in status to the gmina.

The Constitutional Tribunal

The Constitutional Tribunal is an indepen-dent constitutional organ of the State. The Constitutional Tribunal was established to resolve disputes on the constitutionality of the activities of state institutions; its main task being to supervise the compliance of statutory law with the Constitution.

The Constitutional Tribunal adjudicates on the constitutionality of legislation and international agreements (also their ratification), on disputes over the powers of central constitutional bodies, and on the constitutionality of the aims and activities of political parties. It also rules on constitu-tional complaints.

The Constitutional Tribunal is made up of 15 judges chosen by the Sejm (Polish parlia-


ment) for nine-year terms. They are fully independent. The Constitutional Tribunal constitutes one of the formal guarantees of a state grounded on the rule of law.

The Supreme Administrative Court

The Supreme Administrative Court (Naczel-ny Sąd Administracyjny) is the court of last resort in administrative cases, e.g. those between private citizens (or corporations) and public bodies. This court deals with appeals from lower administrative courts called Voivodeship Administrative Courts. The Supreme Administrative Court is divided into three chambers: the Financial Chamber, Economic Chamber and General Adminis-trative Chamber.

The Economy

Poland’s high-income economy is consid-ered to be one of the healthiest among the CEE countries and is currently one of the fastest growing within the EU. With a strong domestic market, moderate level of private debt, flexible currency, and the fact that it is not dependent on a single export sector, Poland is the only European economy to have avoided the late-2000s recession. It is the seventh-largest economy in the EU and the largest market in Central Europe in terms of population and total GDP. The economy has increased over 40% in the last 10 years and further strong growth is expected. In 2015 the pace of growth of the Polish economy was fairly quick, given the unfavor-


able external conditions. GDP growth was at the level of 3.6 per cent, higher than in 2014 (3.3 per cent), which is still more attractive than in the rest of the EU. In 2015, economic growth in Poland was triggered by consumption and investments and, to a lesser extent, by external demand. There occurred a rise in the number of people active in the labor market, and the unemployment rate reached a single-digit level that was at 9.8 per cent in 2015. The Polish economy witnessed an increase in deflation from 2014, caused to a large extent by decreasing energy prices around the world.

The Polish banking sector is the largest in Central and Eastern Europe and is also the largest and most highly developed sector of the country’s financial markets.

It is regulated by the Polish Financial Supervision Authority. During the transfor-mation to a market-oriented economy, the government privatized some banks, recapi-talized the rest and introduced legal reforms that made the sector competitive. This has attracted a significant number of strategic foreign investors.

Poland’s banking sector has 5 domestic banks, a network of nearly 600 cooperative banks and 18 branches of foreign-owned banks. In addition, foreign investors have controlling stakes in nearly 40 commercial banks, which makes up 68 per cent of the banking capital. Due to capital requirements, a new local tax regime and technological improvements, the banking sector has been consolidated in recent years.


Inflation

Poland faced inflation throughout the period after the political changes in 1989. However, since mid-2014, the trend has been one of deflation.

In 2015, the average annual price drop was 0.9 per cent and was lower than that provid-ed for in the Budget Act by 2.1 percentage points.

This was mostly the result of falling trans-port costs (by 0.8 per cent), and falling pric-es for clothing and footwear (by 1 per cent), which caused the index to be lowered by 0.07 percentage points and 0.05 percentage points respectively.

0 2% 3% 4%1%–1%

2016*

2015

2014

2013

2012

2011

2010

–0.96%

–0.24%

–0.03%

0.90%

3.70%

4.27%

2.58%

* Forecast Source: IMF

Annual percent change of consumer prices in Poland


Unemployment

By the end of March 2016, the registered unemployment rate in Poland amounted to 10.0 per cent. In total, 1.6 million people were unemployed. The highest unemploy-ment rate was registered in the warmińs-ko-mazurskie voivodeship (16.5 per cent) and the lowest rate was registered in the wielkopolskie voivodeship (6.3 per cent). The average monthly remuneration in the private sector in February 2016 amounted to PLN 4,138 (around EUR 961).

According to the Central Statistical Office, (GUS) the average gross monthly remuner-ation in the national economy amounted to PLN 4,067 in Q4 2015. In the budgetary sphere (i.e. in the public and local govern-ment spheres combined) the average remuneration amounted to PLN 3,900.

4,139

3,716 5,156

3,541

3,519

3,463

3,530

3,749

3,487

4,093

3,695 4,167

3,888

3,7223,441

3,498

Registered unemployment rate and average monthly wages (PLN, February 2016)

below 10 per centSource: National Statistics Office (GUS)

10-13 per cent

over 13 per cent


According to the same source, the labor productivity in the industry (measured by the value of products sold per employee) increased by 3.3 per cent throughout 2015, and employment increased by 1.5 per cent in 2015, while the average gross monthly remuneration increased by 2.6 per cent.

Budget

According to the official forecast of the Ministry of Finance, the budget deficit in 2016 will not exceed 2.8 per cent, which is PLN 54.7 bn. Revenues are expected to reach PLN 313.7 bn and expenditures PLN 368.5 bn. Human capital

Poland stands out among the developed nations in terms of education of its popula-

tion. 91 per cent of adults have completed secondary education, while the average among OECD countries is 77 per cent.

More than 93 per cent of Polish pupils learn English as their second language, while over two thirds of all adults speak at least one foreign language.

below upper secondary

upper secondary

Bachelor’s or equivalent

Master’s or equivalent

PhD

Source: OECD

Highest educational attainment level of Poles (aged 25-64, 2014)


0

10

5

15

20

25

30

35

40

BG RO LT LV HU PL

8.6

4.1

25.0

41.3

HR CZ SK EE MT PT EL CY SL ES EU UK IT IE DE AT FI NL FR LU SE BE DK

Average hourly total labor costs in EU countries (EUR, 2015 estimates or the latest available)Source: Eurostat

Labor costs

According to Eurostat in 2014 the average hourly labor costs were estimated at EUR 25.0 in the EU-28. However, this average masks significant gaps between EU member states, with the hourly labor cost ranging between EUR 4.1 (Bulgaria) and EUR 41.3 (Denmark). In Poland, it amounted to EUR 8.6. In 2015, the minimum wage increased in Poland by 3.5 per cent. Among all CEE countries Poland recorded the highest nominal minimum wage - EUR 409.53.


Corporations Poland is recognized as a regional economic power within Central Europe, with nearly 40 per cent of the 500 biggest companies in the region (by revenues). The country’s most competitive firms are members of the WIG30 and are listed on the Warsaw Stock Exchange. Well-known Polish brands include: KGHM (silver and copper producer), PKN Orlen (oil), E. Wedel (food), PKO Bank (the largest Polish bank), PKP (railway), PZU (insurance) and LOT Polish Airlines. There is a large development of companies active in the private sector, and this is increasingly noticeable in the world. These companies are, among others: InPost (innovator in postal services), Inglot

(color cosmetics), PESA and Solaris (rail transport and public transport), LiveChat (IT communication solutions developer), Comarch (software developer) and CD Projekt RED (computer games developer, best known for “The Witcher” series).

Poland has a significant development poten-tial. Its economy has grown faster than the economy of i.a. Sweden and Belgium, which put it in the seventh place, just behind the Netherlands. Foreign Direct Investment in Poland has remained strong ever since the country’s re-democratization following the Round Table Agreement in 1989. Having said this, problems do exist, and further progress in achieving success depends largely on the establishment of an appropriate economic environment for both domestic and foreign investors.


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