Update October 2008
COUNTRY PROFILE, POLAND
Introduction and Country Background 2 Banking Environment 4 Financial Authorities 5 Legal & Regulatory Issues 5 Market Dominant Banks 5 Clearing Systems 5 Payments & Collections Methods & Instruments 5 Electronic Banking 5 Cash Pooling Solutions 5 Tax Issues 5 Source and Contacts 5
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Country profile, Poland
Introduction and Country Background
Despite a sharp drop Key Facts in religious obser- vance in recent years, Capital - Major Cities Warsaw – Lódz, Kraków, Wroclaw Poland remains one Area 312,685 km2 of the most devoutly Population 38.12m (12-2007 estimate) religious countries in Languages Europe Polish Currency PLN (Polish zloty) Telephone Code +48 2008 — 1, 11 Nov; 25-26 Dec National/ Bank 2009 — 1 Jan; 13 Apr; 1-3*, 21 May; 11 Jun; 15 Aug; 1, Holidays 11 Nov; 25-26 Dec Bank Hours 9.00–16.00 Mon–Fri, 9:00-15:00 Sat Business Hours 7:00–15:00 or 8.00–16.00 Mon-Fri Stock Exchange Warsaw Stock Exchange Leading Share Index WIG20 Overall Share Index WIG Index * Note it is usually impossible to do any business on 2 May as most government offices, banks, shops, etc are closed on this date. This extended holiday period is known as The Picnic (Majówka).
Since joining the Economic Performance European Union, many Poles have left 2004 2005 2006 2007 their country to work Exchange Rate – PLN/EUR1 4.5340 4.0254 3.1025 3.7845 in other EU countries Exchange Rate – PLN/USD1 3.65 3.2348 3.8951 2.7692 (particularly Ireland Money Market Rate (%)1 5.83 5.25 4.1 4.627 and the UK) because Consumer Inflation (%)2 3.5 2.1 0.9 2.3 of high unemploy- Unemployment Rate (%)3 19.5 18.2 14.0 11.4 ment, which is cur- rently the second- GDP (PLN billions) 923.3 980.9 1,049.2 1,119.4 4 highest in the EU GDP (USD billions) 252.7 303.2 269.4 351.3 GDP Volume Growth (%)2 5.3 3.4 5.0 4.5 GDP Per Capita (USD) 6,085 7,170 8,655 9,214 Current Account (% of GDP) -4.2 -1.4 -1.7 -1.9
Sources: International Monetary Fund, Central Statistical Office, Poland, National Bank of Poland, European Central Bank 1 Period average 2 Year on year 3 Per annum (seasons adjusted) 4 Per average exchange rate
An early election has Government seen, yet again, a single term gov- Legislature Regime ernment be unseated Poland is a republic. The parliamentary structure is bicameral:
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Country profile, Poland
• The Lower Chamber (Sejm) has 460 members elected for 4-year terms • The Upper Chamber (Senat) consists of 100 members likewise elected for four year terms • Election takes place via a proportional representation system. Last elections held on October 2007. The next lower house (Sejm) elections are due to be held by October 2011.
Head of State President Lech Kaczyński, of the Law and Justice Party, PiS (social conservativ- ism) since 2005. Next presidential election 2010.
Political Leader An early election was held in October 2007 with the Civic Platform, PO (liberal conservatism) soundly defeating the former ruling Law and Justice Party. This continues a trend since 1989 that no government in Poland has managed to rule for more than one term. Voter turnout, though still low, was nearly 53.8%, the highest since Poland’s the historic election in 1989 (and up from 13.2% in the 2005 elections). The Law and Justice Party’s former coalition partners, the so- called Self-Defence party and the League of Polish Families, fell below the 5% hur- dle and so will not be represented in parliament. Donald Tusk, leader of PO, was officially designated Prime Minister on November 9 and took office on Novebmer 16, 2007. He formed a coalition majority government with the Polish People’s Party, PSL, (centrist, agrarian).
European Union Poland joined the EU on 1 May 2004 and is expected to adopt the euro in 2012- 2013.
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Banking Environment
Further consolidation Overview of the Polish banking sector depends on Introduction the situation between The banking environment in Poland has changed significantly over the past 10–15 foreign banks on a years. From 1989 to 1992, rather hectic competition flourished in the absence of European and global a suitable legal framework as nine commercial banks spun off from the National scale Bank of Poland in 1989. In the beginning and in the mid of the nineties, the banks restructured, and an institutional framework was put in place. Since the mid- 1990s, the Polish banking market has experienced constant consolidation. The total number of banks has dropped by almost 60% since 1995.
In 1998, the market was fully liberalised, which soon attracted strategic foreign investors. There was a significant drive towards retail banking based on the grow- ing electronic capacity and the need for higher profit. Significant progress has been made in this direction as banking supervision capacity has developed in support of safety and soundness. Likewise, major institutional efforts have been made by regu- lators and market players in support of financial sector stability.
Sector Figures As of September 2008 there are 55 domestic commercial banks and 23 branches of credit institutions, approximately 500 cooperative banks and 20 representative offices of foreign banks and credit institutions. Collectively the cooperative banks have about 6% of Polish banks' total assets; they consequently play only a minor role in the market. 11 commercial banks are under state control, of which 4 banks were under the control of the State Treasury (2 directly and 2 in-directly).
In 2007, foreign investors (from 19 countries) hold a majority interest in 44 do- mestic commercial banks or approximately 66% (2008) of the sector, in contrast to say the Czech Republic and Slovakia where the vast majority of local banks are foreign owned. Further consolidation on that market mainly depends on the situa- tion between foreign banks on a European and global scale
Recent Years Mergers of Western European banks that control Polish banks subsequently force Polish banks to merge. A prime example of this situation is the case of UniCredit Group’s acquisition of HVB Group. UniCredit is the strategic investor in Peka and HVB controls Bank BPH, the second and third largest banks, respectively, in Po- land. Despite the support of the Polish Supervisory Commission, EU Commission and the EU competition authority, the merger could not proceed as planned due to political roadblocking by the then Polish right wing government who were initially against the merger out of fear of job cuts, stifled competition within the banking industry, and increased foreign ownership. An agreement was struck between UniCredit and the then Polish government, which called for UniCredit to sell off 200 of BPH’s 485 branches, while moving the corporate banking, investment funds and stockbroking parts of BPH into Pekao. Pekao ended up taking about 1.3 million clients, leaving BPH with 650,000. What remained of BPH was sold to GE Money
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Country profile, Poland
for €625m. GE and BPH will be one-fifth the size of Pekao.
The market share concentration ratios of the 5 largest banks for assets, deposits and lending is 48.3%, 55.5% and 45.6% respectively. In spite of fears of stifled competition, the asset concentration level in the bank sector, measured both with the discrete concentration ratios of 5, 10, and 15 banks, and with the Herfindahl- Hirschman (HH) index1 decreased according the to the National Bank of Poland in 2006, due to a more rapid growth of small banks. These indices in Poland are rela- tively low compared to the majority of EU countries. The concentration level of banking services on the Polish market is in fact the lowest among countries that joined the EU together with Poland.
Bad debts have increase substantially in the first half of 2008 as a result of lax mortgage lending standards by one in three Polish banks. Thus the Polish banking sector may soon face a period of contraction.
Sector Wide Agreements The Basel II framework, based on EU directives adopted in June 2006 and numer- ous interpretation guidelines issued by the Committee of European Banking Super- visors, entered into force in 2007. However, the framework will not be adopted simultaneously in all banks, as individual banks may choose not to introduce the new rules until the beginning of 2008.
Poland may be able to Central Bank adopt the euro by 2012 Background The Polish Central Bank is ‘The National Bank of Poland’ (Narodowy Bank Polski, NBP). The governing bodies of the National Bank of Poland are the President of the NBP, the Monetary Policy Council (MPC) and the Management Board of the NBP. The MPC determines monetary policy guidelines and the basic principles of their implementation as set out by law in 1997. The number one goal of the MPC is to maintain price stability – clearly defined as ‘to stabilise the inflation rate at the level of 2.5% with a permissible fluctuation band of +/- 1 percentage point’.
The NBP further strives at achieving a position as a significant economic research centre, domestically as well as within the European System of Central Banks.
Currency Poland is – like any other EU country – a member of the European System of Central Banks (ESCB). After Poland’s accession of the EU, the country will join the Euro- pean Monetary Union (the euro) as quickly as possible.
In order to be able to adopt the Euro, the National Bank of Poland will strive to meet the requirements for this adoption, most likely in 2012-2013.
Responsibilities
1 The Herfindahl-Hirschman index (HHI) is defined as the sum of squares of market shares of particular entities (e.g. the sum of squares of banks’ shares in the total banking sector assets); HHI = wi2, where wi is the market share of the i bank (i =1,2,3, …, n).
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The NBP is the cornerstone in the domestic clearing system. It owns and operates the SORBNET payment system, where all inter-bank payments are settled through the commercial banks’ accounts with the NBP. This also includes payment instruc- tions, which origin from the National Clearing House (KIR S.A.) or the National De- pository for Securities.
Other areas of responsibility include among other things: • Banking supervision o Safeguarding the stability of the financial system. The Commission for Banking Supervision and the General Inspectorate of Banking Supervi- sion (the latter being the executing body) supervise the banking sector and ensure the safety of funds entrusted to banks o Oversight also includes the efficiency, development and security of the payment system • Management of the foreign exchange reserves • The National Bank of Poland aims to build and enhance the economic and fi- nancial literacy of the general public through its education programme • Issuance of bank notes and coins to maintains the liquidity of cash payments
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Financial Authorities
The Ministry of Fi- Ministry of Finance nance offers relevant financial legislation The Polish Ministry of Finance’s has the legislative responsibility within financial services, e.g., for money laundering regulations.
Privatisations have Ministry of Treasury been managed by the Treasury The Ministry of Treasury is among other things responsible for the privatisation of state owned companies, e.g., state owned banks. Further responsibilities comprise corporate supervision, e.g., corporate governance, and treasury assets.
The PFSA took over Polish Financial Supervisory Authority financial supervision from the National The Polish Financial Supervisory Authority (PFSA) assumed responsibility for bank- Bank ing supervision in Poland from the National Bank of Poland’s Commission for Bank- ing Supervision and its executive body the General Inspectorate of Banking Super- vision (GINB) on 1 January 2008. The tasks of the PFSA cover banking supervision, capital market supervision, insurance supervision, pension scheme supervision and supervision of electronic money institutions. Other tasks include: • undertaking measures aimed at ensuring regular operation of the financial market; • undertaking measures aimed at development of financial market and its competitiveness; • undertaking educational and information measures related to financial market operation; • participation in the drafting of legal acts related to financial market super- vision; • creation the opportunities for amicable and conciliatory settlement of dis- putes which may arise between financial market actors, in particular dis- putes resulting from contractual relations between entities covered by PFSA supervision and recipients of services provided by those entities; • carrying out other activities provided for by acts of law.
The aim of financial market supervision is to ensure regular operation of this mar- ket, its stability, security and transparency, confidence in the financial market, as well as to ensure that the interests of market actors are protected. PFSA activity is supervised by the President of the Council of Ministers.
The Polish Bankers’ Polish Bankers’ Association Association repre- sents 109 entities The Polish Bank Association, (Związek Banków Polskich, ZBP) was created in 1991 on the initiative of the Chamber of Commerce Charter. All banks incorpo- rated under Polish law can be a member (voluntary). The member list currently counts 101 members and 8 associate members.
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The ZBP is mainly tasked with: • Representing and protecting the interests of its members vis-à-vis the pub- lic and the authorities • Co-operating with the NBP, the government, and with ministries who pro- duce regulations pertaining to the banking industry • Information sharing and ensuring promotion of general banking knowledge among its members • Promoting best practice and standardising banking products and services • Creating an interbank infrastructure o ZBP has taken part in the creation of e.g. the National Clearing Chamber, the Credit Information Bureau and the Warsaw Institute of Banking
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Legal & Regulatory Issues
Polish legislation has Introduction undergone significant convergence to join Following Poland’s EU membership as of 1 May 2004 the country adheres to the the EU but areas of principal of free movement of capital, which prohibits all restrictions on movement uncertainty still re- of capital between Member States (and, to some extent, between Member States main, e.g. cash pool- and third countries)2. ing
Residency is attained Resident and Non-Resident Status through incorpora- tion in Poland A company is regarded as resident if it is incorporated in Poland.
Account ownership is Account Ownership not residency deter- mined PLN and foreign currency accounts can be held by residents as well as non- residents.
The environment for Cash Pooling Regulations cash pooling and op- timal cash manage- Despite a significant amount of convergence with EU law and customs, the envi- ment is not fully in ronment for cash pooling and optimal cash management is not fully in place in Po- place in Poland land. This is due to the Central Bank’s reporting requirements still existing for transactions between residents and non-residents and some uncertainty with re- gards to the legal framework for cash pools and co-mingling of non-resident’s and residents’ funds.
A wide variety of ac- Account Types and Charges count types are avail- able with cross- Current accounts can be held in all exchangeable currencies and are offered with border payment fees or without overdraft limits. PLN accounts are convertible into foreign currency. regulated at the EU Interest rates can be either fixed using a basic rate of the bank or based on a mar- level ket rate (e.g. WIBOR) less a spread. Account maintenance fees will normally apply but are negotiable. Lifting fees (per mille of transferred amount) do normally not apply, however
Payment Fees A flat fee will be charged for domestic and international payments. Following the EU regulations on cross-border transfers in EUR, from 1 July 2003 the charge for a cross-border transfer of up to 12,500 EUR must be equivalent to the charge for a domestic payment in EUR. The increase to a maximum of €50,000 took effect on 1
2 Free movement of capital covers payments and transfers of money over the borders and other transactions allow- ing transfer of ownership of assets and liabilities (restrictions still apply for real estate and certain other sectors) Source: The Polish Information and Foreign Investment Agency (PAIiIZ)
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January 2006. The payer must provide the receivers International Bank Account number (IBAN) and the receiving bank’s Bank Identifier Code (BIC, the SWIFT code). If such information is not provided – or the information is wrong – an additional charge will be levied.
Generally capital FX Controls transactions have been liberalised Under the Foreign Exchange law of October 2002, generally all current account and though exchange capital transactions were liberalised. Transactions to and from EU, EEA and OECD permits may be re- countries are allowed, however some areas of capital flows still require a foreign quired in some areas exchange permit. Poland is currently in the middle of a debate over modifications to its foreign exchange law, which could be introduced in the course of its harmonisa- tion with EU law.
All payments between residents and non-residents (as well as all non-resident’s cash transactions) are subject to a control of payment title. In case of transactions exceeding EUR 10,000 the bank must be provided with either original documents confirming the above-mentioned title, or with the written obligation that missing documents shall be delivered within 3 months from the date of payment.
In order to simplify the procedure and limit the manual handling of documents con- nected to each single transfer, some banks conclude overall agreements with their corporate clients regulating the F/X procedure. Such an agreement may limit the circulation of original documents; however, the control as such cannot be avoided.
Reporting is required Central Bank Reporting Requirements for amounts above €12,500 The National Bank of Poland maintains statistical records of the balance of pay- ments, of indebtedness and foreign liabilities on the basis of bank and non-bank reports. In September 2005, the European Central Bank asked the European Commission to raise the threshold for balance of payments reporting (cross-border payments in euro) to EUR 50,000 as of 2008 since from 1 January 2006 the threshold for domestic charges on cross-border euro payments was raised to €50,000.
The reporting is the bank’s responsibility (except from some specific cases, e.g. the resident holding an account abroad or Polish company participating in the intra- group netting). The banks will normally report to the Central Bank on a monthly basis.
The third EU directive Money Laundering on money laundering has been imple- Poland has set up a specific body for dealing with Money Laundering, the General mented Inspectorate of Financial Information. Activities during the past couple of years of the Inspectorate have been aimed at achieving two basic objectives; effective im- plementation of the act of 16 November 2000 on Money Laundering and Fight against Terrorism and fulfilling the requirements on same in connection with the Polish EU membership. Both objectives have been fulfilled. The EC Money Launder-
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ing Directive (Council Directive 91/308/EEC of 10 June 1991 as amended by di- rective 2001/97/EC of 4 December 2001) is followed by Poland and the Polish legislation is now fully in line with the forty recommendation of FATF.
Following the vote by the European Parliament on 26 May 2005, the Council reached an agreement on a text for a third directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing (the “Third Directive). It builds on existing EU legislation and incorporates into EU law the June 2003 revision of the Forty Recommendations of the Financial Action Task Force (FATF), the international standard setter in the fight against money laundering and terrorist financing. The Directive is applicable to the financial sector as well as lawyers, notaries, accountants, real estate agents, casinos, trust and company service providers. Its scope also encompasses all providers of goods, when payments are made in cash in excess of €15.000.
The Directive introduces additional requirements and safeguards for situations of higher risk (e.g. trading with correspondent banks situated outside the EU). For the sake of clarity, the existing 1991 Directive, as amended in 2001, will be repealed and replaced by this Directive, upon its effective entry into force. EU Member States have agreed to implement the Directive within two years after its publica- tion in 2005.
The Ministry of Finance is working intensively on amending the law of 16 November 2000 “On Counteracting the Introduction of Property Values Originating from Il- legal or Undisclosed Sources to Financial Transactions and on Counteracting the Financing of Terrorism, and Amending the Law – Penal Code”, in order to transpose the Third Directive into national law and in order to bring national law in line with the requirements Directive 2006/70/EC, regarding the definition of ”politically exposed person” and the technical criteria for simplified customer due diligence procedures and for exemption on the grounds of a financial activity conducted on an occasional or very limited basis. The Recommendations of the Financial Action Task Force (FATF) will also be taken into account in the amended law. Work is al- ready underway on acts to implement the aforementioned law.
E-signature legisla- Regulations Applicable for Electronic Transactions tion is in place Electronic signatures are equivalent to handwritten signatures under Polish law. Poland implemented the Electronic Signatures Directive 1999/93/EC in 2001 through the Act on Electronic Signature. Only signatures that are secure and veri- fied through a qualified certificate are considered to be equal to a written signature.
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Market Dominant Banks
Danske Bank and Introduction Nordea together con- trol some 70% of the The top five market dominant banks are Bank Pekao, PKO Bank Polski, Bank Pekao, market ING Bank Slaski and Bank Handlowy w Warszawie–all of which are majority owned by foreign banks, except PKO Bank Polski, which is a state-controlled bank.
The merger of UniCredit and HVB/BA-CA in 2007, resulted in the integration of their Polish banks, Pekao and Bank PBH, and partial spun-off. The result is Poland’s market leading bank, Pekao.
Among the cooperative banks only one, Krakowski Bank Spółdzielczy, operates independently. The remaining banks are associated in 3 structures: Mazowiecki Bank Regionalny SA, Gospodarczy Bank Wielkopolski SA, and the largest Bank Polskiej Spółdzielczości SA.
Market Dominant Banks per 31 Dec. 2007 Bank Assets (USDm) Bank Pekao1 1,400,000 PKO Bank Polski 39,206 ING Bank Slaski2 1,798,945 Citi Handlowy3 2,187,631 1 Part of the UniCredit Group. Pekao assets 44,813 USDm. 2 Part of the ING Group 3 Part of the Citi Group
Note: Figures are total group consolidated assets in millions USD. Source: Banks’ annual reports
Bank Pekao Bank Pekao is Po- land’s largest bank Bank Pekao started operations in 1929. After being nationalised by the State Treasury in 1969, the back was privatised in 1998. Short thereafter the banks three subsidiaries merged creating one universal bank and a clear market leader, which attracted the Italian UniCredit Group as a strategic investor in 1999.
After UniCredit acquired HVB, it acquired 285 of BPH’s branches and moved the corporate banking, investment funds and stockbroking parts of BPH into Pekao. Pekao. It ended up taking about 1.3 million clients, leaving BPH with 650,000. What remained of BPH was sold to GE Money for €625m. GE and BPH are one-fifth the size of Pekao.
Bank Pekao focuses especially on the mutual fund market and also within the mort- gage sector and payment card area. Besides rapid development of the network of outlets and ATM machines the Bank plans to dynamically develop modern channels of distribution such as e-banking, telephone banking and direct distribution of pro- ducts.
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Bank BPH is a universal bank with focus on the private as well as the corporate and institutional segments. The Bank was created in 2001 following the merger of Bank Przemysłowo-Handlowy SA and Powszechny Bank Kredytowy SA (two of the banks spun off from the National Bank of Poland in 1989).
Bank BPH serves individual and institutional customers. It also actively operates on the international markets. The Bank renders its services to nearly 3 million cus- tomers in approximately 480 outlets located throughout the country. The bank is a dominant player on the mortgage lending market as well. Bank PKO has 480 branches across Poland.
Poland’s largest PKO Bank Polski commercial bank PKO Bank Polski is Poland’s largest commercial bank, both in terms of the achieved scale of business, number of customers and financial results, currently the highest in the sector. It has about 8 million retail customers, 400,000 customers from the MSE group and approximately 13,000 corporate customers. Electronic banking services are offered under the PKO Inteligo brand, which was acquired in October of 2002 from Inteligo Financial Services SA and Bankgesellschaft Berlin AG, one of the larger European banks. PKO plans to aggressively grow this channel. Addition- ally, the bank operates the largest banking network in Poland: 1,200 of its own branches, more than 2,500 agencies and nearly 1,900 ATMs.
The bank has in recent years invested heavily in IT systems, call centres and better Internet accessibility to its accounts through its modernisation strategy. From 2007 onwards it will focus on a strategy of innovation, focusing on its sales organi- sation, IT and product development, and internal processes.
The Polish State sold nearly 40% of the share capital of PKO Bank Polski through an IPO in 2004. During 2005 the state transferred slightly more than 10% of its stake, for free, to employees, leaving the state treasury with just under 52% of outstanding share capital.
ING Bank Slaski
Bank Slaski was established in 1988 in Katowice. The Dutch ING Group became a strategic shareholder in 1994 prior to the public listing of the Bank Slaski. Through the remaining years the ING Group continued to increase its percentage holdings of the Polish bank. In August Bank Slaski took over the Warsaw branch of ING and in September the combined entity was renamed ING Bank Slaski.
The principal objective of ING Bank Śląski S.A., based on its strategy, is to develop and strengthen its position in the Polish banking sector by providing integrated financial services and still being a customer-oriented bank. Apart from being a uni- versal bank, ING in Poland has interests in life insurance, asset management, se- curities trading, leasing and real estate development. The ING Group serves 75 million customers with 120,000 employees in Europe, the United States, Canada, Latin America, Asia and Australia. The ranks amongst the top-10 largest banks in
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Europe by market capitalisation and total assets, and is one of the 20 largest finan- cial institutions worldwide.
Citi Handlowy is a Citi Handlowy leading financial insti- tution in Poland Founded in 1870, Bank Handlowy w Warszawie SA is one of the leading financial institutions in Poland offering a wide range of corporate, investment and consumer products and services under the Citibank Handlowy brand. The bank has a network of more than 200 branches throughout Poland.
The Bank was set up as a result of the merger of Bank Handlowy w Warszawie SA – the oldest bank in Poland – and Citibank (Poland) SA in March 2001. The bank is included in the global network of Citi Group operating in more than 100 countries, with some 200 million customer accounts in more than 100 countries, and em- ploying more than 300,000 people.
Danske Bank offers Danske Bank A/S S.A. Branch in Poland corporates a wide variety of services Danske Bank A/S S.A. Branch in Poland is a part of Danske Bank Group. In 2000 and solutions in Po- Danske Bank A/S acquired St. Stanislaus Polish-Canadian Bank, which had been land established in 1991. In 2001 the Bank changed its name to Danske Bank Polska S.A. and in October 2006, Danske Bank Polska S.A. became Danske Bank A/S S.A. Branch in Poland.
The bank offers customised solutions in different areas of corporate banking such as financing, cash management and treasury. Currently, the bank serves more than 400 multinational companies, mainly subsidiaries of European corporations, in Poland.
Measured by total assets, the Danske Bank Group is the largest financial enter- prise in Denmark and one of the largest in the Nordic region offering services in banking, mortgage finance, insurance, leasing, real-estate brokerage and asset management. The vision of the Group is “One platform – exceptional brands” and its mission is to be “the best local financial partner”. In total, the Group serves 5 mil- lion retail customers and a large number of public sector and institutional organi- sations. Some 2 million customers use the Bank's online services. In the mid 1990s it expanded its operations into the rest of Scandinavia, and in 2005 via acquisition in the Republic of Ireland and Northern Ireland, marking its first move out of Scandinavia. In November 2006, the Danske Bank Group acquired the Sampo Bank Group, for approximately USD 5 billion in cash. Sampo Bank is Fin- land’s third-largest bank with a market share of 16% and 120 branches; subsidiar- ies in Estonia, Latvia and Lithuania; and a recently acquired bank in Russia.
In Denmark, the Group is a market leader with a market share of about one third within banking, mortgage finance and life insurance. The Group has reached this position by merging with BG Bank and Realkredit Danmark (the second largest building society) in 2000 and with Kjøbenhavns Handelsbank and Provinsbanken in 1990 - and by acquiring Danica Pension in 1995. The bank offers nation-wide cov- erage through their 431 branches and corporate banking centres.
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Clearing Systems
Overview
The National Bank of Poland (NBP) holds accounts for clearing members and pro- vides settlement services related to the following systems: • The real-time gross settlement payment system, SORBNET (owned by NBP) • Paperless net settlement system ELIXIR/Euro-ELIXIR, operated by The Clearing House (KIR S.A)
Poland migrated to the pan-European TARGET2 RTGS system on 19 May 2008 for high-value and urgent cross-border payments in EUR. SORBNET is Poland’s na- tional RTGS system for PLN denominated payments and (until May 2012) domes- tic EUR-denominated payments, settling urgent payments and all payments with a value in excess of PLN1 million.
Money market, foreign exchange market and securities market transactions, the latter netted by the National Depository for Securities, KDPW (Krajowy Depozyt Papierów Wartościowych S.A.) before hitting the NBP, are settled directly through SORBNET.
SORBNET is Poland’s High Value Clearing – SORBNET RTGS system with a link to TARGET SORBNET commenced operations in March 1996. Prior to that, banks could only present their payment instructions on paper or a floppy disk. • Participants: At year end 2006 there were 55 participants. The banks must have a settlement account with the NBP and meet the following requirements: o Operational activity for at least 6 months o Financial stability considered appropriate o Additional technical requirements enabling electronic exchange of payment instructions • Transaction types: Individual, urgent, same-day-value payments instructions in PLN with regards to money market, foreign exchange and securities market transactions, transactions between banks and the NBP (from other clearing systems) and high-value customer payments in excess of 1,000,000 PLN. Cus- tomer transactions for lower amounts are also allowed upon an individual re- quest. • Price indication: Narodowy Bank Polski charges fees for the maintenance and servicing of banks’ current accounts within the SORBNET system. According to this fee structure, banks pay a one-off admission fee of PLN 25,000 (EUR 6,525.71) to join the SORBNET system. A quarterly fee of PLN 4,000 (EUR 1,044.11) is charged for the maintenance of accounts. Fees for the perform- ance of payment orders in the SORBNET system have been unified, and the current rate is PLN 5 (EUR 1.31) for the execution of a single order. • Operating hours: Access to SORBNET is possible from 7:30 to 18:00. Cus- tomer payments can only be processed until 16:00 (under certain circum- stances until 17:00). • Clearing cycle details:
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o Payment instructions are cleared in priority: . KIR have the highest priority (settled through 3 daily clearing cycles) . Secondly, payment instructions presented by the NBP . Thirdly, KDPW instructions (settled through 5 daily clearing cycles) . Instructions by banks have the lowest priority o The bank must have cover on its account, otherwise NBP can allow free intraday credit against collateral (treasury bills and treasury bonds) o Electronic transmission of the payment instructions takes place within the network of the Bank Telecommunications Company (TELBANK SA) following the EDIFACT standard.
Poland will accede to TARGET2 TARGET2 on 19 May 2008 The current pan-European RTGS system, TARGET, migrated to a single shared platform (SSP) called TARGET2 making the 16 decentralised RTGS systems of individual Eurosystem countries and the ECB’s payment mechanism (EPM) obso- lete. The changeover took place in three migration waves, starting 19 November 2007 and ending 19 May 2008 (15 September 2008 is reserved for contingency needs).
Poland acceded to TARGET2 in the 3rd wave on 19 May 2008 with Estonia, Denmark, the ECB, Greece and Italy. The Swedish Central Bank and the Bank of England will not migrate to TARGET2.
• Participation: options include direct and indirect participation, “addressable BICs” and “multi-addressee access” to the system, also known as “technical BIC access”. Direct participation criteria for TARGET2 is the same as for the current TARGET system. Only supervised credit institutions established within the EEA can become indirect participants. • Transaction types: focus on large-value payments related to inter-bank oper- ations • Price indication: between €0.125 and €0.80 depending on type of participa- tion. • Operating hours: the operational day in TARGET2 will be longer than that of the current TARGET system. TARGET2 will start the new business day on the eve- ning of the previous day. The night-time window will be available from 19:30 to 6:45 the next day, with a technical maintenance period of three hours between 22:00–01:00. Daytime hours for customer payments 07:00–17:00 CET with the day ending at 18:00 + 30 minutes for the use of standing facilities on the last day of a minimum reserve period. • Transaction details: Direct participation: For the exchange of payments infor- mation, TARGET2 will use the SWIFTNet FIN service, while the SWIFTNet ser- vices “InterAct”, “Browse” and “FileAct” will be used for information and control services.
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Country profile, Poland
KIR processes all low Low Value Clearing – KIR value clearing in- structions into elec- The National Clearing House (KIR S.A.) has monopoly on clearing in Poland. The tronic documents for owners of KIR are the NBP, the Polish Bankers Association and the biggest com- further processing in mercial banks. KIR is head-quartered in Warsaw and has 17 regional clearing ELIXIR houses (BRIRs). Every single branch of a participating bank is connected to a BRIR. KIR manages one main clearing system ELIXIR.
The paper-based SYBIR system was closed in July 2004, while an optical scanning system, IMBIR, continues its operations. IMBIR is already running in all 17 BRIRs. More specifically, the IMBIR scanning system optically reads and converts paper settlement documents into electronic documents for further processing in ELIXIR.
• Participants: All banks in Poland participate directly in the clearing system • To participate a bank must meet the following requirements: o Polish banking license o Approval by KIR’s Supervisory Board, subject to certain financial cri- terion o Bank account agreement with the National Bank of Poland o A number of technical requirements
ELIXIR processes ELIXIR (and EuroELIXIR) credit transfers, di- rect debits and The EuroELIXIR system was activated in March 2005, enabling all banks operating cheques in Poland to process EUR payments. The system allows both domestic as well as international payments in EUR through STEP 2.
• Transaction types: Since 2001 ELIXIR, the electronic clearing system, has processed credit transfers, direct debits and cheques • Pricing indication: The structure of fees charged for transactions in the SORBNET-EURO system corresponds to that applied in the SORBNET system. Three basic categories of fees are charged in the system: a one-off fee for join- ing the system (PLN 25,000), a flat fee (charged on a quarterly basis) for main- taining the account (PLN 4,000), and a fee (charged on a monthly basis) for the execution of payment orders (in respect of both domestic and foreign pay- ments). Domestic payment orders cost PLN 4 per transaction, while foreign euro payment orders range from EUR 0.80 to EUR 1.75 depending on volume. • Operating hours: See clearing cycle details • Clearing cycle details: The principles of conducting the EuroELIXIR settlement sessions for euro domestic payments are identical to those applicable to set- tling zloty payments, cleared in the ELIXIR system o Means of communication: Normally via electronic communication through post BPT TELBANK SA. o Credit transfers . Banks deliver individual transactions to ELIXIR . Three clearing cycles applies: Final settlement is provided in three settlement sessions (10:30, 14:30 and 16:30) . The banks have real-time access to their ELIXIR positions re- ducing the risk of uncovered exposures between participating
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Country profile, Poland
banks o Debit transfers . Debit transfers include direct debits and cheques . Direct debits are delivered by the beneficiary’s bank to the KIR via a special message to the first daily session. The debtor’s branch until 16:00 can reject the payment. The transaction is settled on a net basis during the evening clearing (third ses- sion) . Cheques from saving accounts are truncated in the branch of the bank, in which they are presented. The issuing bank only receives the electronic message through ELIXIR
Swift Service Bureau
On September 1st, 2005, a new service - SWIFT Service Bureau - was introduced. It enables KIR to be an intermediate stage in statement transfer between KIR client location and SWIFTNet via KIR infrastructure. This new service allows new, as well as existing SWIFT users to have a primary or backup means of accessing the SWIFTNet for banks and financial institutions.
Source: The National Bank of Poland and KIR S.A.
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Payments & Collections Methods & Instruments
Rapid growth in non- Introduction cash means of pay- ments is expected in The holding of a bank account, especially among older people, is not common: the coming years as hence, a large number of pensions and disability allowances are paid in cash. The more and more peo- situation on the cards acceptance market has been improving steadily, owing to the ple gain access to strong growth in the number of POS terminals. Nevertheless, a large number of banking services shops and services outlets, particularly those outside the big cities, still do not accept non-cash forms of payment. In other segments of the market, plastic card providers are expected to continue the rapid growth in the coming years.
The non-cash payment instructions are dominated by 4 payment methods; stan- dard credit transfers, direct debits, payment cards and settlement cheques (the latter very rarely used). It is important to note, that the banks can set out their own rules for float as the Banking Law does not specify regulations for value dates for the performance of customers’ instructions.
Banks in Poland have been implementing SEPA (Single Euro Payments Area) standards for EUR-denominated payments. The country’s banks now only issue SEPA-compliant debit cards (since 1 January 2008) and also now offer pan- European SEPA credit transfers (since 28 January 2008). SEPA direct debits however will not be available until 1 November 2009 at the earliest. It is not yet known how long the transition period will last for national payment products to be fully replaced by SEPA payments. However it is hoped the Single Euro Payments Area (SEPA), an initiative of the European Payments Council, will be fully operative by around 2013. It will consist of all EEA member states plus Switzerland. Final transition dates and a completion date are expected to be decided in mid- to late 2009.
Volume of Transactions (millions) 2004 2005 2006 % change Debit cards* 156.30 196.73 267.54 36.0 Credit cards 45.13 67.45 86.37 28.1 Credit transfers 726.61 804.61 917.61 14.1 Direct debits 7.54 11.09 14.54 31.1 Cheques 0.40 0.04 0.02 -50.0 Total 935.98 1,068.83 1,286.09 20.3
Value of Transactions (PLN billions) 2004 2005 2006 % change Debit cards* 19.11 22.66 29.79 31.5 Credit cards 7.16 9.91 12.40 25.1 Credit transfers 2,000.96 2,080.69 2,385.25 14.6 Direct debits 6.71 8.51 10.14 19.2
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Cheques 0.72 0.19 0.24 26.3 Total 2,034.66 2,121.96 2,437.8 14.9 * Includes payments by cards with a debit and/or delayed debit function.
Note: Percentage change calculated from 2005-2006 Sources: ECB Statistical Data Warehouse
Although card pay- Card Payments ments have seen im- pressive growth in 2007 saw continued dynamic growth in the number of financial cards. The back- recent years, their ground of this strong rise is in part a low starting base, due to the limited uptake of usage in value terms banking services in Poland. Gradually, however, more Poles are using banking pro- remains significantly ducts, including financial cards. The development of the banking market is being below that of credit driven in part by economic growth, which is leading to an improvement in the finan- transfers cial situation of a large proportion of the Polish population. This positive trend has been strengthened by intensive promotional activities by banks and financial card operators, which are promoting financial cards as an essential element of a mod- ern lifestyle.
Cash remains the favoured method of payment in the country. Over half of all card transactions in 2006 were cash withdrawals from ATM machines, mostly using debit cards. At month-end June 2008, a total of 12,400 ATMs were available and some 140,000 POS terminals were available in Poland. More than 28 million cards were issued, of which 19.2 million were debit cards, half a million were delayed debit (charge) cards, and nearly 8.6 million were credit cards. While debit cards still dominate the market, credit card usage has seen significant growth.
The Polish market is dominated by two largest card operators, Visa International Service Association and MasterCard Europe. Visa is the clear leader in terms of volume of financial cards and transaction numbers. The remaining operators, such as Diners Club, American Express and Polcard, account for only a small share of the market. Both Visa and MasterCard have a strong image among Polish consum- ers, which results mainly from intensive promotional campaigns in the mass media. The largest Polish retail bank, PKO Bank Polski SA, leads in terms of number of financial cards in circulation. It is the largest issuer, due in part to the bank having the largest number of individual bank accounts. PKO Bank Polski SA took the lead- ership position in terms of credit cards in circulation from the previous leader, Citibank Bank Handlowy SA, in 2006.
PolCard is the leading card processing company, with a retail network of almost 70,000 point-of-sale terminals. In 2004, the last year for which data was provided, PolCard serviced almost 95 million transactions worth 12 billion PLN. The com- pany has relationships with many of the leading card-issuing banks and financial institutions. The majority of shares in PolCard were acquired by GTECH's in 2003. GTECH is a U.S. information technology company. PolCard acquired one of the em- erging providers of electronic bill payment services, BillBird S.A., in September 2004. BillBird has processing contracts for approximately 75% of the utility and telecommunications bar-coded bill issuers in the country. Additionally, it has ap- proximately 6,600 VIA-branded points-of-access through supermarket chains,
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large grocery and convenience stores as well as gasoline stations.
Growth in the financial cards market has led to intense competition among the banks, which have endeavoured to attract potential customers by means of tele- phone marketing, Internet campaigns and direct mail. Customers who are inter- ested in consumer credit or lending are frequently offered credit cards instead. The banks have also simplified their regulations regarding processing and the timing of card issuing, in many cases to reduce the number of visits customers need to make to a branch.
Credit transfers are Credit Transfers by far the most com- mon means of non- By far credit transfers are the predominant way of settling payments in Poland. cash payments, in Their share of total value transfers processed by KIR is more than 99%. The exist- both volume and ing system for the settlement of customers’ transactions via the KIR (ELIXIR) en- value terms ables credit transfers between customers of two different banks to be settled on the same day.
The Polish Post Office is permitted to perform certain bank activities. Postal trans- fers are mostly used for transferring cash between two persons who do not have a bank account, cash payments to bank accounts and payments of pension and dis- ability allowances. The postal branch office network comprises around 8,389 of- fices at year end 2006. It is only the larger post offices, which hold an account and thus clear through a bank. The cash transfer person-to-person is executed outside the banking system. Business-to-business credit transfers are electronic in their vast majority.
Direct debits are Direct Debits growing rapidly al- though their usage The first direct debit transactions were executed in July 1998. The number of di- remains marginal rect debits in Poland is still low compared to mature markets such as Germany and compared to other the Benelux countries. There are two types of instruments in the market: the widely payment means used direct debit, known as Polecenie Zaplaty, and the business-to-business direct debit, known as GOBI.
Polecenie Zaplaty: This instrument is commonly used and has the same format as direct debits in other countries so it is widely accepted. There is a limit of €1,000 on each transaction value if it is a direct debit to an individual/non-corporate, and it also has a revocation period of 30 days. If the recipient (i.e. debtor) is a corporate, the transaction limit is €50,000 and the revocation period is five days. The trans- action limit of €50,000 and the revocation option means that this is a more popu- lar choice for corporates than GOBI.
GOBI: The business-to-business direct debit is supported by a limited number of banks and is irrevocable. There is no limit to the value of each transaction. This means that, if two business parties agree to use this instrument, it is a very effec- tive collection method for the recipient. However, its irrevocability is also an im- pediment to its widespread use, as not all corporate treasurers are comfortable with this aspect.
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Cheque usage is neg- Cheques ligible The usage of cheques as a payment method has never been widespread, and with the rapid expansion of the payment card market, their relevance has decreased significantly.
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Electronic Banking
Internet banking is Introduction generally based on the MutliCash Plus Bank Handlowy, owned by Citibank, was the first to offer electronic banking via the multi-banking system Internet in 1997. Online banking is also gaining momentum and the move to web- based solutions is the way forward for major banks. In recent years pure internet banks have been set up, e.g. by BRE Bank and Volkswagen Bank Polska.
Electronic banking is becoming increasingly common in Poland and is generally based on the MultiCash Plus multi-banking system (the most common in Poland) although banks are increasingly using their own custom-built proprietary solutions. There are two broad trends that characterise the Polish electronic banking market: (1) the increasing popularity of web-based solutions that are developing at a rapid pace and are now offered by all major banks in the corporate services space; and (2) the evolution of e-banking applications and systems which offer increasing func- tionality to corporate clients.
Web-based electronic banking is being used more widely by small and medium- sized enterprises (SMEs) in Poland as well as big domestic and international firms. Most big companies that demand advanced functionality now have online electronic interfaces with their banks. Another factor driving the demand for online platforms is the added technical security and reliability of having the platform hosted almost entirely by the bank's IT infrastructure, which makes any adjustments to the sys- tem easier for the bank to make.
Electronic multi-banking platforms are not currently available in Poland. Corpo- rates can use a SWIFT connection but this is not common. Some electronic bank- ing applications include interfacing with third-party bank systems via the MT 101 and the MT 940 (SWIFT message types that provide requests for transfer and account statement messages, respectively). Electronic banking platforms will de- velop significantly, however, and banks will introduce the option for corporates to perform some basic cash management operations on their accounts with third- party banks.
Web-based platforms General Functionality of EBS Offerings provide the majority of services A number of Polish banks have only offered electronic banking via the internet and simply by-passed the PC based systems era. The services offered through the World Wide Web include payment transactions, account information, FX dealings and information etc.
Host-to-host solu- EDIFACT / Host-to-Host Solutions tions are supported by Polish banks The corporations growing effort of streamlining payment processing is supported by a number of Polish banks. Host-to-host solutions are provided for purely domes- tic as well as international payments (the latter usually through a ‘single, global
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pipeline’ solution to the central processing centre of the bank).
E-payments are not E-payments widely used in Poland In general, micropayments are offered by a lot of regional and ‘global’ players. Such solutions usually rest on two important prerequisites 1) Prepayment and 2) Set- tlement via debit or credit cards.
Alongside the development of electronic trading, new payment services have ap- peared whereby payment can be made online for products and/or services in online shops and auctions (Allegro, eBay, etc.). Online payments are usually effected using electronic transfers from bank accounts which a customer can access online, with payment cards and via other innovative methods (e.g. pre-paid internet accounts with service providers, pre-paid cards and text messaging). Nonetheless, e- payments are not widely used in Poland.
E-invoicing is slowly E-invoice / EBPP being adopted The Minister of Finance's decree introducing regulations on electronic invoicing into the Polish tax law entered into force on 4 August 2005. This decree estab- lishes ways and conditions of issuance and delivery of e-invoices as well as rules for their storage and presentation to the tax authorities.
The conditions determining the possibility of using e-invoices may be difficult to meet, particularly by smaller companies. During 2006 large and medium-sized companies started implementing e-invoicing
Electronic invoicing is still at the development stage in Poland and market stand- ards are still to be decided. While there is demand from Polish corporates for a solution that lowers their cost of invoice processing and management, e-invoicing is also dependent on other market factors, such as the volumes of electronic credit transfers in the consumer market and the levels of direct debits. As there is de- mand from corporates,as well as banks seek additional features for their retail e- banking platforms, it is likely that e-invoicing will be introduced in Poland in the foreseeable future.
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Cash Pooling Solutions
The country has re- Introduction tained a legacy of specific, complicated In the years since 1989, when Poland transformed from being a socialist state to a and, therefore, un- capitalist one, the country has retained a legacy of specific, complicated and, there- friendly foreign ex- fore, unfriendly foreign exchange (FX) and tax regulations. Instruments such as change (FX) and tax cash pooling were not recognized by Polish legislation and any type of liquidity regulations management solution (local or cross-border) was either virtually impossible or at least bore substantial (mostly fiscal) risks. Corporates are seeking to achieve as much efficiency as possible by establishing cash concentration techniques despite certain restrictions and automating their accounts receivables, for example.
Successful cash pool structures that have been tailor-made by banks for their large corporate clients and have done for several years.
Notional pooling is Notional Pooling complicated by sev- eral issues Notional pooling is permitted but lacks a clear legal framework in Poland and is therefore not widely offered, largely because banks are not permitted to offset credit and debit balances on their balance sheets. Nonetheless, some banks offer interest enhancement / compensation models. Polish regulations do not allow the offsetting of debit and credit balances, which means that notional pooling is expen- sive to implement and not widely used. Additional challenges for notional pooling include compulsory reserve costs (all the banks in Poland are obliged to put 3.5% of each deposit amount on a non-interest bearing account at National Bank of Po- land), capital adequacy requirements and risk-related issues. As a result, interest enhancement schemes are more commonly used.
Zero-balancing is the Cash Concentration preferred liquidity optimisation solution, As in other markets the most straight-forward cash pooling product, zero- although there may balancing, is the preferring solution for optimising liquidity. Cash pooling is not be risks in its applica- legislated for within Polish law and this means that pooling structures need to be tion tailor-made by the banks to suit the needs of their clients.
Zero balancing between accounts held by the same legal entity (accounts consoli- dation) is the most common liquidity management technique in Poland. Zero balan- cing and cash concentration structures between the accounts of different legal entities are more complicated, since they face several restrictions, such as: • Stamp duty, also known as tax on civil law transactions (TCLT), is payable on inter-company loans. The sweeping of excess balances into a Polish-based master account maybe considered to be an inter- company loan. • Transfer pricing, which operates by reference to the arm's length principle and follows OECD guidelines. It is applied to transactions be- tween related entities.
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• Thin capitalisation, which is applicable to interest on loans. • Withholding tax, which, in principle, is payable at 20% on income earned by non-residents from interest.
Implementing cash concentration solutions requires independent legal advice as the legal status of cash concentration remains uncertain.
Due to several legal Multicurrency and Cross Border Pooling obstacles cross- border cash pooling The more sophisticated cash pooling methods have not yet penetrated the market. has not been offered With Poland’s accession of the EU as well as the many foreign banks increased by the Polish banks investments in the market, such methods are expected to increase its relevance. so far However, due to several legal obstacles cross-border cash pooling has not been offered by the Polish banks so far.
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Tax Issues
Tax information is Introduction general and individual advice should be The following tax information, last updated by PricewaterhouseCoopers in October sought 2007, should be considered general and individual advice should always be sought.
Resident companies’ Tax Liability income is subject to the territorial princi- A company is liable to corporate income tax in Poland if it has either its registered ple office or place of management in Poland (such companies are subject to tax on their worldwide income) or is a foreign company which derives income in Poland (such companies are subject to tax on income earned in Poland).
A partnership is treated as a transparent entity for tax purposes. Thus, the tax liability lies with its partners.
The corporate tax Tax Base rate is 19% In general, taxable income - as the difference between tax revenue and tax- deductible costs - is determined on the basis of a profit and loss account prepared in accordance with Polish accounting principles, taking into consideration adjust- ments between accounting and tax regulations.
The corporate income tax rate is set at 19%. The tax year corresponds to the cal- endar year unless the taxpayer has selected a different tax year.
Tax losses incurred by taxpayers may be carried forward for up to 5 years under the condition that no more than 50% of the previous year’s loss is written off against income earned in a given year. However, there is no possibility for carry back.
Companies are obliged to pay monthly tax advances by the 20th day of the month following the month to which the tax settlement relates, based on cumulative in- come earned during the tax year. The advance payment for the last month of the tax year should be made by the 20th day of this month, in the same amount as the ad- vance payment for the preceding month of the tax year.
Furthermore, under certain conditions, the provisions of the corporate income tax law allow taxpayers to use a simplified method for settling monthly tax advances (in the amount of 1/12 of the tax specified in the annual tax declaration filed in the tax year preceding a given tax year or – if the taxpayer showed no tax due in the tax return for the preceding year – specified in the tax declaration filed a year earlier).
According to the corporate income tax law, taxpayers are obliged to file the annual tax declaration on the amount of tax income (loss) of the company for the given tax year and make the final tax settlement by the end of the 3rd month of the next year.
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Furthermore, taxpayers are obliged to file financial statements together with an opinion and a report by an entity authorised to audit financial statements to the tax office within 10 days of the approval of the annual financial statements.
The basic method of tax depreciation in Poland is the straight-line method (where the standard rates provided by corporate income tax law are used; in certain cir- cumstances they may be increased/decreased by the taxpayer). Furthermore, under certain conditions, the reducing-balance method (where the rates are com- puted by multiplying the standard rate by a coefficient) may be applied. The de- preciation method should be elected by the taxpayer before making the first de- preciation write-off and should be used for the whole period of the depreciation. Where the initial value of an asset is PLN 3,500 or less, the taxpayer is entitled to depreciate the total value in a one-off write-off.
Two or more corpo- Tax Consolidation rate entities regis- tered in Poland may Two or more corporate entities registered in Poland may form a fiscal unity (tax form a fiscal unity (tax capital group) that effectively reconciles the corporate income tax due as a single capital group) that taxpayer. The tax capital group should consist of a dominant company and its de- effectively reconciles pendent subsidiaries. There are certain requirements relating to the average share the corporate income capital of the companies (PLN 1,000,000) and the group’s shareholding structure. tax due as a single Furthermore, other strict conditions should be met. Companies forming a tax capi- taxpayer tal group cannot have any tax arrears or any non-arm’s length transactions with companies from outside the tax capital group. A written agreement on the forma- tion of the capital group for the period of at least 3 years should be concluded (in the form of a notary deed, registered with the relevant tax authorities). In each year of its existence, the tax capital group must have a profitability ratio of at least 3% (the ratio of taxable income to taxable revenue of the whole tax capital group).
Dividends paid by Inbound and Outbound Taxation of Dividends Polish companies are generally subject to Dividends paid by Polish companies are generally subject to 19% withholding tax, 19% withholding tax, which is collected by the distributing company. which is collected by the distributing com- Dividends paid by a Polish company to a Polish / EU / EEA company that holds at pany least 15% of shares for a period of two years of the company paying the dividends are exempt from taxation. The exemption applies provided that the shares have been held for at least 2 years. The exemption applies even if the shares have not been held for the required period of 2 years when the dividends are paid but the recipient intends to retain the shareholding for a 2-year period. The above exemp- tion applies also to dividends paid by a Polish company to a Swiss company holding at least 25% of shares of the company paying the dividends provided that the 2 year holding period requirement is met.
In the case the above tax exemption does not apply, dividend payments made to foreign companies may be subject to a reduced tax rate or be exempt from taxation based on a relevant double tax treaty (the majority of double tax treaties set the withholding tax rate at a level of 5-15%). The beneficial treaty provisions are ap- plicable provided that the dividend payer holds the certificate of the dividend re-
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Country profile, Poland
cipient’s tax residence.
Dividends received by Polish corporate investors from Polish companies may be exempt from taxation under certain conditions. Dividends, which are subject to taxation, are not combined with income from other sources and are not subject to further taxation.
Dividends received from foreign companies, which are subject to taxation abroad, are added to the worldwide income of the Polish company, but the tax withheld abroad may be credited against the recipient’s total corporate income tax liability.
Capital gains are Taxation of Capital Gains and Losses on Shares, Bonds, Debts, taxed according to Receivables and Financial Contracts the standard 19% corporate income tax Capital gains are taxed according to the standard 19% corporate income tax rate. rate
Under the Polish tax regulations derivative instruments are defined as property rights, the price of which directly or indirectly depends on either the price of goods, foreign currencies, gold and platinum of foreign exchange standards, securities, or on the level of interest rates or indexes. Generally, a taxable event arises on the exercise, waiver or sale of the instrument. This means that the tax deductibility of expenditure on the derivatives is postponed until one of the above events (provided that the expenditure connected with these instruments does not increase the initial value of the underlying fixed or intangible assets). Income from these instruments is taxable according to the standard corporate income tax rate.
Losses incurred on the disposal of shares, bonds and on investing in derivatives are deductible from the taxpayer’s income according to general rules regarding deduction of tax losses (discussed in point 2 above). Please note that losses in- curred on the sale of receivables are tax deductible only under the condition that the receivables were previously booked as the seller’s revenue due.
Interest income is generally taxable in Poland on a “cash” basis. This means that interest constitutes taxable revenue upon being received and interest can be re- garded as a tax-deductible cost upon payment. In general practice, this rule is not applied to interest capitalised, which constitutes taxable revenue / tax deductible cost at the moment of its capitalisation into the loan principal. However, based on a recent verdict of an administrative court, interest capitalised constitutes tax de- ductible costs only at the moment of its payment. At this stage it is difficult to pre- dict whether this interpretation will be adopted by the tax authorities.
There are currently CFC Taxation no CFC taxation rules in the Polish tax law There are currently no CFC taxation rules in the Polish tax law. To the best of our knowledge, no amendments have been proposed.
As a rule, 20% with- Withholding Tax holding tax is im- posed on specific
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payments made to As a rule, 20% withholding tax is imposed on specific payments made to foreign foreign entities entities, in particular: • interest, royalties, fees on trademarks and similar rights, as well as on the proceeds earned on the disposal of these rights, know-how; • fees for certain services such as advisory, accounting, market re- search, legal, marketing, management, data processing, recruitment services, guarantees and sureties and services of similar nature.
However, the 20% tax rate applies unless a relevant double tax treaty states otherwise. The majority of Polish double tax treaties provide reduced tax rates for interest and royalties (which may include licence fees, etc.). Under the Polish trea- ties, in most cases services rendered by foreign entities to Polish residents are not subject to taxation in Poland. The beneficial treaty provisions are applicable pro- vided that the Polish payer holds the certificate of the payment recipient’s tax resi- dence.
Interest and royalties may also be subject to reduced taxation under the specific provisions applicable to qualifying associated companies located in EU Member States. Poland has implemented the EU Interest and Royalties Directive effectively exempting from withholding tax on such payments (under certain conditions) but has been granted a transitional period of 8 years during which 10% withholding tax rate is applicable until 30 June 2009, 5% rate will be applicable as from 1 July 2009 and the full exemption from withholding tax – as from 1 July 2013.
Furthermore, according to the Decrees of the Minister of Finance dated 7 March 2002 and 20 December 2006, interest obtained by foreign companies from cer- tain treasury bonds issued by the Government of Poland on foreign markets is ex- empt from withholding tax.
Transactions be- Transfer Pricing and Thin Capitalisation tween related entities should be concluded Under Polish transfer pricing rules, transactions between related entities should taking into account be concluded taking into account the arm’s length principle – i.e. at prices which the arm’s length prin- would have been set in this given type of transactions between unrelated com- ciple panies. Thus, the market level of payments between related parties (or any reasons for divergence from market levels) should be exhaustively documented and such documentation should be kept for evidence purposes. In addition, transactions concluded between related parties may be subject to other strict statutory trans- fer pricing documentation requirements, if they exceed certain thresholds. Upon the tax authorities’ request, the taxpayer is obliged to present this required docu- mentation within 7 days. Where the tax authorities assess additional income to the taxpayer and there is no required transfer pricing documentation, the difference between the income assessed and declared is subject to a 50% tax rate and pen- alty interest (currently 12.5%).
Based on the Polish thin capitalisation rules, interest paid on certain loans/credits drawn from qualified lenders (specifically related entities) cannot be recognised as a fully tax deductible cost. Part of interest paid on such restricted loans/credits is not deductible for corporate income tax purposes if the Polish entity’s total debt to specific companies exceeds three times the value of the share capital (3:1 debt to
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equity ratio). The term “loan” includes also an issue of bonds and other debt in- struments as well as irregular and term deposits.
A qualified lender is defined as: • a shareholder holding at least 25% of the debtor’s shares, • two or more shareholders holding together at least 25% of the debtor’s shares, • “sister” companies, if the same shareholder holds at least 25% of the shares in the creditor and the debtor company.
Duties, know as civil Capital or Stamp Duties law activities taxes in Poland, apply to vari- Conclusion of the articles of association of a Polish company is subject to 0.5% ous activities civil law activities tax withheld by the notary and calculated on the share capital contributed to the company. The same duty applies in particular to increasing a company’s share capital and when its actual management or registered office is moved to Poland. In addition, some legal fees are incurred in the process of setting up a company (e.g. court registration fee, notary fees). The sale/purchase of shares in Polish companies is in principle subject to civil law activities tax of 1% on the market value of the shares sold/purchased.
Loan agreements are subject to civil law activities tax of 2%, however, several ex- emptions to this rule exist. In particular, an exemption applies to loans granted by entrepreneurs not having their seats or management boards in Poland provided that their business activities include granting loans. In addition, in general, no civil law activities tax liability should arise in the case of financial services rendered by banks, including granting loans. However, these exemptions will not apply to loans granted to a company by its shareholders, since they are treated as amendment of articles of association of the borrowing company and are subject to civil law activi- ties tax at 0.5%.
The standard VAT VAT and Payroll Duty rate is 22% VAT is levied on the supply of goods and services for remuneration, the export and import of goods, intra-Community acquisition of goods for a remuneration and in- tra-Community supply of goods. The standard rate is 22% which applies to all goods and services not qualifying for the reduced rate. The reduced VAT rate of 7% applies e.g. to the supply of new flats, construction services related to residential or public utility buildings and passenger transport services. The reduced VAT rate of 3% applies e.g. to the supply of unprocessed agricultural products and services related to agriculture, forestry and fishery. The VAT rate of 0% applies e.g. to the supply of servers, computers, printers to educational institutions. Certain activities may be VAT exempt, e.g. financial services, the transfer of used real estate or as- sets, educational services.
If in the previous tax year the value of a taxpayer’s VAT-able sales (net of VAT) did not exceed the PLN equivalent of EUR 10,000, the taxpayer is exempt from VAT in the current tax year, provided that the current year’s sales also do not exceed this limit. The exemption expires at the moment the taxpayer’s VAT-able sales exceed
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this limit. In such a case, the amounts over the limit are subject to VAT.
Employers withhold Employer Obligations – Tax and Social Security Withholdings monthly income taxes A local employer is required to withhold the monthly tax advances due on the salary paid to an employee and submit it to the relevant tax authority by the 20th day of the following month for the preceding month. By the end of January, the employer is obliged to submit the collective tax declaration on tax advances collected for the previous year.
The employer also acts as a social security and sickness insurance remitter and is required to withhold from the employee’s gross income the appropriate pension and disability (13.26% of the employee’s gross income) and sickness insurance (2.45% of the employee’s gross income) contributions and submit them to the rel- evant authorities by the 15th day of the following month for the preceding month together with the appropriate tax declarations. In addition to the contributions above, the employer is also obliged to pay the following contributions: • pension and disability (16.26% of the employee’s gross income); • accident (1.80%* or 0.67-3.60%** of the employee’s gross income); • labour fund (2.45% of the employee’s gross income); • employee’s guaranteed benefits fund (0.1 % of the employee’s gross income).
Additionally, the employer is obliged to prepare and pass on information on income and the amounts of tax advances, social security and sickness insurance contribu- tions withheld during the preceding tax year to the employee and the appropriate tax office by the end of February of the following year (or by the 15th day of the month following the month in which the last tax advance was withheld).
Pension and disability contributions are payable on gross earnings up to the annual limit of PLN 78,480.
*Employing up to 9 employees **Employing above 9 employees – percentage rate depends on the type of economic activity
Page 32 of 32 Danske Bank
Country profile, Poland
Source and Contacts
Sources used for this Sources country profile The National Bank of Poland www.nbp.pl The Ministry of Finance www.mofnet.gov.pl The Ministry of the Treasury www.mst.gov.pl Polish Information and Foreign Investment Agency www.paiz.gov.pl The Polish Bank Association www.zbp.pl Poland Development Gateway www.pldg.pl Danske Bank in Poland www.danskebank.com/pl National Clearing House (KIR S.A.) www.kir.com.pl
Contact Danske Bank Danske Bank Contacts for cash management services See www.danskebank.com/corporate for contact persons for all countries.
Tax information pro- Tax Contacts vided by Pricewater- houseCoopers PricewaterhouseCoopers Sp. z o.o. Al. Armii Ludowej 14 00-638 Warszawa Poland Telephone: +48 22 523 4000 Facsimile: +48 22 523 4040 www.pwcglobal.com/pl
Camiel van Tax der Meij Partner +48 22 523 4959 [email protected] Maciej Tax Wilczkiewicz Manager +48 22 523 4533 [email protected]
Market research pro- Country Research vided by CaRisMa Consulting This country profile was researched CaRisMa Consulting. For contact information see www.carismaconsulting.dk
Disclaimer: This publication was prepared by Danske Bank and CaRisMa Consulting solely for information purposes.
The information, calculations, estimates and judgements in the publications do not replace the customer's own judgement of how and whether to act in the market/area concerned. In the Bank's opinion, the information in the publications is correct and fair. The Bank does not, however, accept any responsibility for how accurate or comprehensive the publications are. Furthermore, the Bank is not liable for any loss resulting from actions taken on the basis of the publications. Further and/or updated information can be requested from the Bank.
Danske Bank A/S holds the copyright to the publications, which are intended for the customer's personal use and may not be published elsewhere.
Page 33 of 33 Danske Bank