Successfully investing in Poland

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last updated on 16 June 2023 | reading time approx. 5 minutes

 

 

 

How do you assess the current economic situation in Poland?

Despite the forecast slowdown, the Polish economy grew by almost 5 per cent in 2022. This is quite a perfor­mance considering the economic and political situation in Europe. Analyses show that such a good result was the effect of higher inventories and consumer spending, particularly on essentials, owing to the influx of mi­gran­ts from Ukraine.

In Poland, like in Europe, high inflation, interest rates and relatively lower wage growth resulted in reduced in­vest­ment and consumption of durable goods. This, in turn, affected the condition of companies producing in­dus­tri­al goods and the construction sector. The average annual inflation rate in 2022 was over 14 per cent and most of that increase was caused, among other things, by the war in Ukraine and the resulting rise in gas prices.

Even so, Poland is again recovering from economic crises better than expected, and not for the first time. Nei­ther COVID-19 nor the war in Ukraine lead to a drastic collapse of the Polish economy. Of course, the energy transition resulting from the jump in gas and electricity prices will cost money. Still, a positive surprise was how well the labour market absorbed some of the refugees from Ukraine. This means that the Polish economy con­tin­ues to generate new jobs. Please also note the effects of the weakening Polish zloty – Polish companies be­come even more competitive abroad.

How would you describe the investment climate in Poland? Which sectors offer the largest potential?

Poland still shows large foreign direct investments, and the investment climate seems to continue to be attrac­tive and conducive to a steady inflow of new foreign capital. Noteworthy is also the fact that Poland is a large domestic market with about 38 million consumers having easy access to the EU market. Labour costs and land prices are still attractive compared to other European countries. That is why, Poland remains a leader in green­field investments in the CEE region.

The investment climate in Poland will most likely be influenced by the general economic uncertainty in Europe and the world which is triggered by external factors such as the war in Ukraine and the related economic sanc­tions. We can see businesses relocating from Russia, Ukraine and Belarus, and some of them will end up in Poland. The current geopolitical situation will also boost investments in certain areas, especially the power in­dus­try. New infrastructure will be necessary to obtain energy from new, including more eco-friendly, sources. Other industries prone to dynamic growth include hi-tech and cybersecurity.

In today's post-pandemic world with artificial intelligence increasingly used daily, investors will most likely want to replace the human factor with new technologies as much as possible. This is the area considered to have the greatest potential in the market. Digital competitiveness will be an important factor in determining investment decisions. There is still a noticeable trend toward investments in countering climate change and favouring en­ergy efficiency, namely renewable energy sources.  

No doubt, state aid available for businesses from most industries creates added value for investors in Poland. Developers of investment projects in the Polish Economic Zone, which covers the whole country, may enjoy income tax exemption for up to 15 years. The extent of the tax exemption is calculated by multiplying total in­vest­ment costs or two years' labour costs by the regional aid intensity ratio applicable to a given location. Mini­mum investment costs eligible for support depend on the unemployment rate in the region of investment and the status of the enterprise (small, medium or large). As a result, small and medium-sized enterprises are in a particularly privileged situation here. This form of support is also increasingly used by companies that open Shared Services Centres in Poland. Another attractive incentive for investors in key areas of the Polish eco­nomy comes in the form of government grants.

Regardless of the above, Poland is to be a huge beneficiary of the aid from EU funds which has been launched this year. This should be about 76 billion euro in the years 2021–2027, of which a part will be spent on business projects. Areas to be supported at the national level will include mainly innovativeness, entrepreneurship, infra­structure, environmental protection, power engineering, education and social affairs. Businesses may receive grants and preferential loans for research and development work, investments in ecological changes, including transition to renewable energy sources, as well as implementation of innovations and digitalisation.
 

What challenges do German companies face during their business ventures into Poland?

The main challenge for German companies is Polish tax law and the fact that it is constantly changing. Starting an investment project in Poland involves several key decisions that have to be made at the very beginning of the investment process and have profound consequences later on, such as which legal form is the most ap­pro­priate. This determines the future tax implications and the investor's liability – for example, the CIT Act imposes tax on limited partnerships, thus leading to double taxation of profits earned by the general partner and limited partners. Yet another cause of difficulties is the amendment to the Polish Tax Act which changed the compe­tent tax authorities for settling flat income tax (WHT) withheld from non-residents. 

Importantly, considerable incentives and facilities for companies have been introduced, such as preferential conditions for investment activities, i.e. the option to choose between two alternative taxation schemes (Esto­nian CIT or special investment fund).  
 

Poland is by far Germany's largest trading partner in Eastern European business and Germany's fifth largest trading partner worldwide. What opportunities does this present for Polish-German cooperation?

Tremendous opportunities. This is the first time we have been ranked so highly. We have overtaken even such large economies as Italy, which proves that the importance of Poland for Germany's foreign trade is growing year by year. Polish companies already see an opportunity for establishing permanent relations with the Ger­man SME (small and medium-sized enterprise) sector. This creates opportunities for the development of many industries such as power engineering, digital technology, automotive or pharmaceuticals.
 

In your opinion, how will Poland develop?

Since 2021 Poland has been successfully recovering from the havoc wreaked by the pandemic and lockdowns. There are also some changes associated with the conflict in Ukraine – an influx of new workers and the relo­cation of many businesses from the East to Poland. Also, the high level of support recently received by Poland from EU funds should greatly stimulate domestic reform, larger and smaller investments in the energy sector, in particular renewable energy, and attract broadly defined innovation by financing research and development activities. Renewable energy sources and other eco-friendly investments, e.g. in low-emission hydrogen pro­duc­tion, should gain much significance. Optimistic scenarios suggest significant intensification of economic activ­ity in some sectors, especially those favoured in the European Union, namely decarbonisation, power engi­neer­ing, research and development of high technologies, digitalisation, robotisation and cybersecurity.

The good news for the future of the Polish economy is that managers of large companies are paying more and more attention to the digital competencies of potential employees; here, Poland has a solid technical infra­struc­ture and a large pool of well-educated and talented engineers, IT specialists and technicians. The influx of Ukrainian citizens may also boost the supply of workers in Poland.

Beyond doubt, the major challenge for the government will be to bring inflation under control and stabilise inter­est rates so that the economic growth achieved in the past few years continues despite the temporary recession.

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