Division by separation

A new type of division is to be introduced into the Polish legal system - division by separation. It may be frequently used in practice, particularly for transactions involving an organised part of an enterprise.

The difference with the previous division by division by separation is that it is the demerged company that receives shares in the company to which the assets from the division will go (i.e. the way it used to work with contributions in kind). With a division by division by separation, it was the shareholders of the company being divided who received shares in the entity to which the assets were transferred. Thus:

• Division by division by separation - owner of the company being divided

• Division by division by separation - ownership by the shareholder of the company being divided

>>> Here more on the procedure of division by division by separation and the differences between this type of division and a contribution in kind or division by separation <<<

Cross-border activities

The changes also aim to allow cross-border operations in the EU market - splits, conversions and mergers.

Cross-border division may be effected by transfer of assets

of the company being divided into a newly incorporated company or companies. It is therefore not possible to make a division to an existing company. However, there is no restriction on the type of division to the new company - it can also be a division by separation or division by separation, which at the same time allows the existing demerged company to continue to operate.

>>> Here more on cross-border sharing, procedure and obligations <<<

In particular, among the changes, the need to obtain a tax opinion confirming the tax compatibility of the split with national law stands out.

>>> More on the certificate of legality of a cross-border division here <<<

Branch of a foreign company in Poland

Foreign entrepreneurs have often set up and continue to set up branches of their foreign companies in Poland as one way of entering the Polish market.

A branch is an organisationally separate part of the business from the company, which can only carry out activities to the extent that they are carried out by the main company. It is treated as a separate company, must keep accounts in accordance with Polish principles and the Accounting Act, may have its own TIN for employee purposes (contributions) and a joint TIN with the parent company for VAT and CIT purposes.

As regards VAT - the activities carried out between the branch and the foreign parent are of the nature of so-called intra-company activities, not subject to VAT.

The branch must prepare financial statements in accordance with Polish regulations.

However, the branch does not have legal personality - the main company is responsible for its liabilities, including tax liabilities.

The lack of legal personality also means that the branch does not have the capacity to sue, unless it is a labour claim.

It is the parent company that is subject to VAT and CIT.

Transfer of branches to separate entities

Within some organisations, branches may have developed to such a scale that it would be unreasonable to continue to keep them in this form. In particular, it may be problematic for some entities to be responsible for a branch that has long functioned as a separate entity within the internal structure.

To date, the transfer of such assets from the country of the parent company to the country of the branch has been associated with a number of legal (in particular the lack of general succession in the case of an in-kind contribution) as well as tax problems.

It seems that with the new legal tools, companies within the European Union will gain an optimal legal and tax way to transfer branches to the countries where the branch in question operates. And this applies both to the transfer of branches of foreign companies to Poland and branches of Polish companies abroad.

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