Solicitor (England & Wales), Warsaw, Poland
January 2001 saw the coming into force of one of the most important laws of the past several years: the Law of 19 November 1999 on the Act of Economic Activity (‘the Act’) (Official Journal of Laws No. 101 of 1999, Item 1178, and No. 86 of 2000, Item 958), which replaces the 1988 Law on Economic Activity (‘the 1988 Law’). The law is actually a code of economic activity and is seen as a constitution for the economic life of Poland's entrepreneurs. It comes into force at the same time as the new Code on Commercial Companies (‘the CC’) (Eastern European Newsletter Issue 35, p. 133). The Act also has specific provisions regarding the activities of both foreign persons and foreign entrepreneurs and regulates branch and representative offices established by foreign entrepreneurs.
The 1988 Law was first drafted at a time when Poland was still a centrally planned economy and contained archaic provisions such as that a business person may employ any number of employees without the need for any labour office agency. Numerous amendments to the 1988 Law could only partially adjust the scope of that law to the new market conditions. In order to emphasise the Act's codified character, the legislation is called prawo rather than ustawa, which is terminogy reserved for laws of fundamental and higher significance. The Act is consisent with EU law and the principles of the Polish Constitution of 1997 and takes into account Poland's international agreements.
Before an ‘entrepreneur’ (which replaces the term of ‘economic entity’ under the 1988 Law) may start to conduct ‘economic activity’ under the Act he must first register in the register of entrepreneurs governed by the provisions of the National Court Register (Official Journal of Laws of 1997 No. 121, Item 769, and No.155 of 1998, Item 1015) which came into force on 1 January 2001. This duty to register is also incumbent on those who are already entered on the commercial register or record of economic activity and who are simply carrying on their business in the new year. Such previous registrations retain their validity only until 31 December 2003 and hence registration under the National Court Register legislation must be made not later than that date.
The Act's most important principles are as follows:
- freedom to undertake and conduct economic activity;
- legal equality for entrepreneurs;
- fair competition and consumer protection;
- observance of good business principles;
- creation of favourable conditions for small and medium-sized enterprises (SMEs) - a provision addressed to legislative bodies as the Act itself does not introduce specific clauses for SMEs.
For the first time it is possible to tell whether an entrepreneur qualifies as a ‘small-sized’ or a ‘medium-sized entrepreneur’. A small-sized entrepreneur is one employing less than 50 employees and with net earnings or balance sheet assets of not more than euro7m. A medium-sized entrepreneur is one employing less than 250 employees and with net earnings of not more than euro40m and balance sheet assets of not more than euro27m.
‘Economic Activity’ And ‘Entrepreneur’ Defined
The term ‘economic activity’, i.e. commercial activity, is a term which has been retained from the 1988 Law. The activity must be ‘income generating’ and must be conducted by the entrepreneur in his own name in one of the following areas:
- services; and
- the activities (which was not listed in the 1988 Law) of prospecting, identification and exploitation of natural resources.
To be governed by the Act the ‘economic activity’ must be conducted by an ‘entrepreneur’ as a line of business, in his own name and, crucially, in an ‘organised and continuous’ manner. An ‘entrepreneur’ may be:
- a physical person;
- a legal person such as a state Treasury company or limited liability and joint stock company under the CC;
- a company without legal personality under the CC; or
- partners in a civil partnership (under the 1988 Law a civil partnership was itself considered an ‘economic entity’) whose ‘economic activity’ corresponds to any of the listed activities.
The term ‘entrepreneur’ replaces the term ‘economic entity’ used in the 1988 Law. The Act excludes certain professions from the definition of ‘entrepreneur’, i.e. barristers, solicitors and notaries whose professional activity is governed by separate laws. The concept of ‘organised and continuous’ was not present in the 1988 Law and hence it has particular significance for an entrepreneur's so-called ‘side activities’ that are not subject to sufficiently clear regulation in the Act. The Act, however, clearly excludes certain activities that, although organised and continuous, are not within the meaning of ‘economic activity’, e.g. activities in agriculture, agro-tourism, livestock breeding and inland fishing.
Regime Of Licences And Permits
The Act significantly reduces the more than 30 areas of economic activity which previously required either a licence (koncesja) or permit (zezwolenie). It indicates the grounds for limiting the freedom to undertake economic activity by introducing a uniform regime for granting licences and permits. Any expansion of the requirement for a licence or permit will henceforth require the actual amendment of the Act itself. This is consistent with art. 20 of the Polish Constitution that the basis of Poland's economic system is a market economy based on, amongst other things, ‘freedom of economic activity’ that can only be limited by means of law and then only for an important public interest reason.
The basic difference between a permit and a licence is that a permit cannot be denied if all the legal requirements for granting it are met, while a licence requires administrative approval. Hence a licence (koncesja) is granted while a permit (zezwolenie) is issued.
However, in practice there may be situations where the difference between the two concepts may be less clear. Thus, the Act provides that where permits for a given activity cannot be issued to all those who meet the necessary requirements, an administrative procedure is carried out by the relevant organ issuing the permits. This procedure takes into account those provisions that regulate licensing where a limited licensing regime is foreseen for a particular activity.
Nevertheless, the Act has significantly expanded the scope for freedom of economic activity where neither a licence nor a permit is required. Some of the 1988 Law licences have been converted into permits, while some activities previously requiring a licence or permit are now free of any requirement for either. The Act does not provide a definition of a licence but its characteristics can be easily constructed on the basis of the detailed provisions for the granting of a licence. Licences are granted for a period of not less than two years and not more than 50 years.
An entrepreneur who intends to commence an activity that is subject to a licensing regime may apply to be granted a promesa (promise) of granting a licence, which may be conditional on the fulfilment of conditions encompassing the given activity.
Licences are granted for a period of not less than six months. The appropriate licensing organ can grant or refuse the licence, make changes to it or withdraw it in the course of administrative procedure, for which there is a right of appeal under the Code of Administrative Procedure (‘the CAP’).
The body responsible for issuing a permit checks whether the motion fulfils certain legal conditions of the activity. The permit has to be issued if those conditions are met. As in the case of licences, all permit decisions are subject to appeal under the CAP.
The following areas of economic activity require a licence from the relevant issuing authority:
- prospecting for and exploitation of subterranean natural resources;
- manufacture and trade in explosive materials, armaments and ammunition, as well as goods and technology destined for the military and police;
- manufacture, processing, storage, transport, distribution of fuels and energy and trade therein;
- bodyguard and property security services;
- air transport and the performance of other air services;
- construction and exploitation of toll motorways and express roads;
- administration of rail lines and performance of rail transport; and
- distribution of radio and television programmes.
The introduction of other licences for activities that are currently ‘free’ and that have a particular significance for state security or citizens, or for some other important public interest, is allowed only by way of amending the Act where this activity cannot be performed as a ‘free’ activity, or after the activity has been permitted. The Act removes the following activities from either the licensing or permit regime:
- processing and trade in precious metals;
- processing and trade in non-ferrous materials;
- trade in cultural works created prior to 9 May 1945;
- passport services;
- performance of audio transfer or audio and picture to video tapes records, cassettes, video cassettes and video discs;
- production and distribution of films;
- inland fisheries;
- food markets;
- sea transport and administration of ports other than of basic significance for the national economy;
- tourist services with the exception of organising tourist events and agency for client orders in conclusion of agreements for the provision of tourist services;
- professional sports; and
- prospecting for and extraction of mineral resources remaining after mining works and enrichment of coal mines.
Each decision not to grant a licence is subject to appeal under the Code of Administrative Procedure.
The following activities do require a permit:
- manufacture of alcoholic spirits;
- tobacco production;
- detective services;
- production and distribution of automobile registration plates;
- airports administration;
- courier, postal services of a public character;
- telecommunications services;
- production of pharmaceuticals and medical materials, conduct of pharmacies and pharmaceutical and medical warehouses and customs houses;
- trade in plant protection materials;
- domestic and foreign trade of livestock and animal fats except for sales performed by domestic operators of hunting leaseholds;
- sale of tourist services for domestic hunting by foreigners and for hunting abroad;
- customs agencies;
- wine production;
- foreign trade in goods and services under separate legal provisions; and
- international transport.
Licences and permits that were issued prior to the date of the Act coming into force retain their validity for the period they were issued or become permits for the relevant period. Permit provisions for activities listed in the Act and subject to permit provisions in separate laws retain their validity for a period of three years from the date the Act comes into force unless this period is extended in a separate law.
‘Foreign Persons’ And ‘Foreign Entrepreneurs’
The Foreign Investment Law of 1991 which governed the establishment and activities of Polish companies with foreign participation loses its validity, and companies established pursuant to this law become companies operating under provisions of the Act. Foreign entities which conduct small manufacturing activities by foreign legal and physical persons under the Small Manufacturing Law of 1982 may bring the entity into an entity established under the Act.
The Act defines a 'foreign person' as:
- a physical person with a permanent foreign residence;
- a legal person with its seat abroad; or
- a partnership without a legal personality with its seat abroad of persons mentioned under (1) or (2).
A ‘foreign entrepreneur’ is defined as a foreign person performing economic activity abroad. Citizens of foreign countries who have been issued with a Polish residency permit have the same legal right to undertake and perform economic activity as Polish citizens.
Under the principle of reciprocity, and unless an international agreement to which Poland is a party constitutes otherwise, a foreign person may undertake economic activity in Poland on the same basis as entrepreneurs with a permanent residence or seat in Poland. Where there is no such reciprocity, a foreign person may only establish a limited partnership (spolka komandytowa), a limited liability company (spolka z ograniczona odpowiedzialnoscia) and a joint stock company (spolka akcyjna) as well as participate in such entities and take up or acquire their shares or stock.
Branch And Representative Offices
The principle of reciprocity is also applied to the establishment of a branch office in Poland (oddzial) by a foreign entrepreneur. The scope of such activity may only be within the area of activity performed by the entrepreneur in his home jurisdiction. In contrast with the 1988 Law, a branch office requires only registration under the National Court Register provisions. The foreign entrepreneur is required to appoint a person authorised to represent him. The branch office must use the name of the entrepreneur appropriate to his foreign base, together with a Polish language translation of the name of the legal form of the entrepreneur and, in addition, the words that it is a branch office in Poland (‘oddzial w Polsce’). Separate Polish accounting books must be kept in the Polish language and in accordance with Polish accounting regulations. The liquidation provisions of the Code on Commercial Companies are applied to branch offices.
A representative office (przedstawicielstwo) may be established by a foreign entrepreneur only for the purposes of advertising and for the promotion of the foreign entrepreneur. It requires registration in the record of representative offices of foreign entrepreneurs maintained by the ministry responsible for the type of activity conducted by the foreign entrepreneur.
One of the most significant contributions of the Act on Economic Activity is its decisive limitation of the power of state bodies to limit the commercial freedom of entrepreneurs through a complicated and often non-transparent regime of licenses and permits. This has often stifled commercial enterprise and acted as a millstone from the bygone era of a centrally planned economy where entrepreneurship was seen as an anomaly to be kept under strict state control. The Act takes account of the four basic tenets of the EU Single Market: free movement of goods, of services, of capital and of labour, in order to facilitate economic adaptation to eventual EU membership. In accentuating the freedom to undertake and perform commercial activity, a freedom guaranteed by the Polish Constitution, the Act is an important step in eliminating the final vestiges of a socialist legal framework in favour of legislation that is supportive of the needs of a market economy in which the individual entrepreneur has a crucial role to play.
First published in Eastern European Newsletter, Issue 38, February 2001, CCH New Law, UK
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