Solicitor (England & Wales), Warsaw, Poland

Poland's lower house of Parliament, the Sejm, passed legislation on 9 September that significantly amends the Law on Special Economic Zones of 20 October 1994 ('SEZ') (Official Journal of Laws of 1994, No.123, item 600 as amended). Its legislative route is now through the Senate, and once the amending law is signed by the president it will come into force on 1 January 2001. The amendments are dictated by Poland's obligations in respect of future EU membership. They are also correlated with the new Law of 30 June 2000 on Conditions of Availability and Supervision of Public Support for Enterprises which go some way towards adjusting government support provisions in line with those currently in force in the EU. As well as this, the amendments also modify the basis on which the zones function, in order to meet Poland's obligations under the Europe Agreement.

Unfair Competition?

The SEZ tax preferences have been criticised as unfair competition by Polish companies engaged in competitive activity outside the zones and thus subject to general tax rules (a company operating within a zone cannot at the same time operate outside a zone). The European Commission and EU negotiators have also claimed that EU law has been breached, noting that the establishment of the SEZs started after Poland became an associate member of the EU. The maintenance of such zones has been a source of friction with the Commission. It has argued that art. 63 (1) (iii) of the Europe Agreement has been breached.

SEZs In EU Countries

Some EU members still maintain their SEZs (mainly in Ireland, Belgium, and Holland). In December of 1999 the EU countries agreed to freeze the formation of further zones at the existing level, and to eliminate them gradually in the years 2000-2002. According to Polish Government statistics at the beginning of 1999, the liquidation of the SEZs, as demanded by Brussels, could mean the loss of 175,000 work places in a country already suffering a high unemployment rate (13.8 per cent at end of August of this year). Significant foreign investment has flowed into some of the zones, e.g. that of General Motors in the Katowice SEZ. Other countries seeking EU membership are forming their own 'industrial zones' such as those in the Czech Republic and Hungary, and there is some concern in Poland that the liquidation of Poland's zones without an appropriate transition period will divert investment to those countries.

Pegging SEZs At Existing Levels

In June of 1999 the government withdrew a controversial measure to freeze the granting of new permits in the zones and decided that permits would be issued until the end of 2001 at the latest. The government also decided that Poland would not establish new zones and that existing ones should not be expanded. This was seen as something that would not worsen the investment conditions in the zones as they would be the same as those in force in the EU.

They would also allow Poland to take advantage of EU structural funds and would keep in place the acquired rights of investors, thus avoiding claims for compensation.

Polish Defence Of SEZs

The EU position has been that the continued existence of the zones leads to unemployment. In its negotiations with Brussels, Poland's official position is that it wants to maintain the 17 Polish SEZs after Poland becomes an EU member. It argues that liquidation of the zones would mean the breach of Poland's obligations to investors operating within them where, in six of the zones, it is specifically provided that the tax incentives are to be in force until 2017. In the remaining 11 zones there remains the possibility of eliminating the incentives, but Poland has not distinguished between the two groups of zones in its negotiations.

Importance To Poland

The SEZs are, for a majority of Polish regions, the principal means of attracting investors and decreasing unemployment. The zones are most often located in regions where there is above average unemployment or where the region is particularly threatened by structural unemployment. The current government strategy on SEZs, as reflected in the amendments, is to include them in the regional development policy. Article 12 of the 30 June 2000 legislation on public support for enterprises provides that regional support will be allowed where the GNP per inhabitant is lower than the average 75 per cent of GNP per each inhabitant in the EU, measured as an average for the last three years. Hence the SEZs will be part and parcel of regional development policy in the regions in which they are located, and new SEZ investors will, as of 1 Jan 2001, be able to take advantage of tax exemptions only within levels allowed for in those regions. The basic difference between an investor in a SEZ and all investors outside a SEZ will be that the SEZ investor will receive public support automatically while those outside will only be eligible for such support.


Each zone is established for a fixed number of years. Although they are referred to generally as SEZs, 15 of them are actual SEZs, while the remaining two are technological parks. More than 200 permits have been issued for conducting economic activity in these zones but only 40 companies have started their activity, providing employment for about 6,000 persons.

Investors intend to invest US$2 billion with total employment of about 30,000. The oldest SEZ was established in 1995 in Mielec, south-eastern Poland, to last until 2015. Mielec offers a full ten-year tax exemption if the investment expenditure exceeds the equivalent of €2m. A portion of the SEZs were established for a period lasting until 2017.


Each zone is managed by a limited liability company or joint stock company in which the State Treasury or the Voivodship self-governing authority has a majority of votes, and is authorised to appoint and recall a majority of members of the management board. Under the amendments, the supervisory boards of the zone management companies will not have any members from companies operating in the zones nor persons 'connected' with such members within the meaning of art. 11 of the Corporate Tax Law. The amendments provide the management board of a SEZ with the power to invite tenders for the sale of real property on the territory of the zone, subject to the rules contained in real property administration legislation.

Permits Required

The Minister of the Economy grants companies permits for conducting economic activity in the zones and certain specified services within the zones do not require a permit, e.g. some transport services. The proposed economic activity must be within the scope of the activities permitted within a particular zone, and it must be seen as contributing to the realisation of the zone's development plan. Permits specify the time-period during which the activity can be conducted as well as the deadline for commencing such activity.

Permits And Government Support

The amendments introduce changes to the permit procedure in that the permit for conducting the economic activity ceases to be the basis for conducting such activity, and is rather only the basis for taking advantage of government support. The amendments specify the conditions required for granting such a permit. The start of activity within a specified time is no longer a condition for granting the permit. Under the current legislation an investor loses his permit if he does not start his activity within the required time. The permit for taking advantage of government support expires automatically once it reaches the end of the period for which it was granted, and after the expiry of the period in which the company was subject to conditions specified in his permit. These conditions may be changed if there are justifiable reasons, or if the scope of activity can be extended where it is seen as favourable to the zone's development.

Tax Benefits

Until now, individual tax incentives in the zones have been generally similar and have aimed at promoting investment. They have consisted of:

  • full corporate tax exemption for a period, generally of ten years, starting once the activity has been commenced; and
  • exemption of up to 50 per cent thereafter until the zone designation expires.

New Incentives

The amendments have eliminated these incentives and as of 1 January 2001 new investors will be able to receive government support in the form of an income tax exemption of up to 50 per cent of the value of the planned investment. The rights of the current investors will be kept as acquired rights. While the size of a particular zone's allowable tax exemption will be established by a Council of Ministers regulation, the amendments provide that their conditions are to be based on principles contained in legislation on government support to enterprises and that, during the existence of the zone, the size of government support to companies that have a permit allowing for such support cannot be changed to their disadvantage. The amendments provide that in establishing a particular SEZ, the Council of Ministers must specify:

  • areas of economic activity for which permits allowing government support would not be granted;
  • the size of government support granted to enterprises operating in a given SEZ, on the basis of the permit allowing for such support; and
  • specific conditions of allowing deduction of investment expenditures in a given SEZ, as well as their minimum amount.

The criteria by which the Council of Ministers must be guided in specifying the allowable government support in a SEZ are the following:

  • level of unemployment in the region where the SEZ will be located;
  • level of gross national product per inhabitant in that region;
  • scale of problems of the region connected with the necessity of restructuring former industrial regions; and
  • structure of recession and social degradation within the meaning of legislation on employment and counteracting of unemployment.

Provisions For Stability

Another important amendment is the defining of criteria against which the Council of Ministers must measure in liquidating a given SEZ before the date that it is scheduled to expire, in changing the size of a given zone and in consolidating zones. Particularly important for maintaining Poland's positive image with investors is the provision that a SEZ cannot be liquidated during a period where there remains even one permit in force for conducting economic activity that allows for public support. The diminution of a zone cannot exclude from its area real property on which the permitted economic activity is conducted.

The amendments, should they go through in the present form, contribute to alleviating some of the points of conflict that the SEZs elicit in Poland's EU membership negotiations. Current investors in the zones will not lose their rights obtained under the old legislation. As to the future of the SEZ in respect of new investors, here it is less clear whether the advantages will be quite as beneficial as under the old legislation once they become an integral part of regional development. While Poland is very much interested in new foreign investments, and of course not only from EU countries, the government is nevertheless steering a course which is more in line with EU membership requirements as the long-term benefits of that membership far outweigh short-term gains from inward investment on preferential terms. Barring failure to negotiate a satisfactory transition period for the SEZ, once EU membership is achieved the zones will remain, for some time yet, an attractive part of the Polish investment scene for both foreign and domestic investors.

Leon Paczynski is an English qualified solicitor with Canadian, UK and for the past ten years Polish legal and taxation experience. He is a contributor on Polish subjects to various publications including the Financial Times and Euromoney.

First published in Eastern European Newsletter, Issue 34, October 2000, CCH New Law, UK

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