Branch or Subsidiary? How a Foreign Company Should Enter the Polish Market

Companies planning to expand into Poland almost always face the same question: open a branch, or set up a subsidiary? At first glance both routes lead to the same destination — a lawful presence on the Polish market. In practice, however, they differ in the scope of liability, the way they are taxed and the freedom of action they allow, and a decision taken hastily can be difficult and expensive to reverse.

Three possible forms of presence

Polish law gives a foreign entrepreneur several options:

Branch (oddział) — an organisationally separate part of a foreign enterprise, acting in its name and on its account. It has no legal personality and no assets of its own.

Representative office (przedstawicielstwo) — a form with a very limited scope of application, permitting promotional and marketing activities only. It is not suitable for conducting actual business operations.

Subsidiary — most often a limited liability company (sp. z o.o.), an independent legal entity with its own legal personality and separate assets.

In practice the real choice usually lies between the first two of the above options and a subsidiary – which is why it is worth focusing on them.

Liability: the key difference

A branch is not a separate legal entity — the parent company is liable in full for all of its obligations, with no protection of its assets. The scope of a branch’s activity must also match the business purpose of the parent company.

A subsidiary operates as a separate legal person. As a rule, its obligations are charged against its own assets alone, not against the assets of the foreign shareholder. The minimum share capital of a limited liability company is PLN 5,000. It is worth remembering, however, that under Article 299 of the Commercial Companies Code the members of the management board are personally liable for the company’s obligations if enforcement against its assets proves ineffective.

The difference is also visible in day-to-day management. A branch is run by a representative entered in the National Court Register (KRS), whose powers are limited to the scope of the branch’s activity. A subsidiary has a full management board, which can independently incur obligations, conclude contracts and apply for bank financing without involving head office in every decision.

Registration procedure

Both forms are registered in the National Court Register (KRS), in practice electronically through the Court Registers Portal.

A branch requires, among other things: a resolution on its establishment, the appointment of a person representing it in Poland, an extract from the foreign register of entrepreneurs, the parent company’s articles of association or statute, and sworn translations of those documents into Polish. Deficiencies in the translations are one of the most frequent reasons for an application being returned. The whole process usually takes several weeks.

A limited liability company can be created in two ways: through the S24 system (registration in as little as 24 hours, with a simpler form of articles of association) or in the form of a notarial deed (from a few days to a few weeks), which is necessary for more complex shareholders’ agreements or non-cash contributions.

In both cases it is additionally necessary to obtain a NIP (tax identification number) and a REGON (statistical number), to register as a VAT payer and — where employees are hired — to register the entity with the Social Insurance Institution (ZUS).

Taxes: where the real difference lies

A branch is not a separate CIT taxpayer — its income is settled by the parent company, although Poland has the right to tax the profit attributed to the activity carried out on its territory (a so-called permanent establishment). The standard CIT rate is 19%, with no possibility of using the reduced 9% rate for small taxpayers or the IP Box relief.

A subsidiary is an independent Polish tax resident and settles tax on the whole of its income. It can, however, use preferences unavailable to a branch:

• the reduced 9% CIT rate for revenue of up to EUR 2 million per year,
• the IP Box relief (5% on income from qualified intellectual property rights) – significant for technology companies and those conducting R&D work in Poland.

A difference also arises on the transfer of profit abroad. Transferring funds from a branch to head office is an internal transfer and is not subject to withholding tax. The payment of a dividend by a subsidiary to a foreign shareholder is as a rule subject to withholding tax (19%), although in practice this rate can often be reduced or eliminated thanks to the EU Parent-Subsidiary Directive or double taxation treaties.

Branch and subsidiary compared

Which model to choose?

A branch works well where the time horizon is short, the market is being tested and contractual risk is limited – particularly where the priority is a simple and inexpensive transfer of funds to head office, without committing share capital.

A subsidiary is generally the better solution where the activity is intended to be permanent: when hiring a larger number of employees, concluding long-term contracts, planning acquisitions, bringing in an outside investor or seeking to benefit from tax reliefs. It also gives a clearer division of risk between the Polish operation and the foreign head office.

The most common mistakes when choosing a form of business

• Underestimating the liability of a subsidiary’s management board — local managers are often unaware of the personal liability provided for in Article 299 of the Commercial Companies Code.
• The absence of a properly prepared shareholders’ agreement in joint venture structures, governing, among other things, the rules on exiting the company and on resolving disputes.
• Omitting the filing with the Central Register of Beneficial Owners (CRBR) — the beneficial owner must be reported within 14 working days of the company’s registration; failure to do so carries a high financial penalty.
• The absence of sworn translations of foreign documents when registering a branch — one of the most frequent reasons for an application being returned by the court.

Summary

The choice between a branch and a subsidiary is a strategic decision that affects liability, tax burdens and operational freedom for many years. There is no single universal answer — the right form depends on the scale of the planned activity, the time horizon and the group’s tax and investment plans.