Month: May 2025

Zollamt Inspection 

In the previous article, we reminded what basic duties rest on employers delegating employees to Germany. It also mentioned an additional, often overlooked notification obligation towards the Zollamt concerning most industries, including those covered by collective agreements. So, for the purpose of an inspection, is it enough that the employer provides the delegated employees with appropriate working conditions, adequate to the country of posting, and fulfils the obligation to notify the Customs Office? Unfortunately, not always.

In the case of most industries and all professions covered by collective labour agreements, there are additional documentation obligations, failure to comply with which involves severe sanctions, not only for employers delegating employees or employers using employment agency services, but also for the employees themselves.

Sanctions

A negative result of an inspection by the German Customs Office may result in heavy fines, and in some industries even in the inability to conduct business. Below is a list of some administrative penalties at the disposal of the Zollamt:

• A fine of up to EUR 500,000 threatened for failing to ensure the minimum employment conditions specified in German labour law, failure to pay the mandatory contribution to the holiday fund on time, failure to pay a temporary worker the minimum hourly wage for posted hours, refusal to allow customs officers to inspect or lack of cooperation during the inspection;
• A fine of up to EUR 30,000 threatened for failure to fulfil documentation obligations regarding the preparation of working time records and translations, failure to appoint a proper representative, failure to implement and refusal to allow customs officers to conduct an inspection or lack of cooperation during it;

In the case of being fined at least EUR 2,500 for violation of administrative regulations, the employer may be temporarily excluded from participation in public procurement tenders for supplies, construction, or services. Furthermore, all fines over EUR 200 will be entered in the German commercial register (Handelsregisterportal).
A kind of informal sanction can be considered the high likelihood of another Zollamt inspection to ensure that the entrepreneur has rectified the identified irregularities in accordance with the law.

So how to prepare for an inspection and avoid penalties? First, be sure what kind of regulations apply to us and comply with the legally prescribed additional obligations. Below we present a list of further requirements placed on employers delegating employees (and user-employers using employment agency services), which should be taken into account in case of a Zollamt inspection.

Working Time Records

Under certain conditions, both employers based in Germany or abroad, as well as those using employees who employ workers supplied by a temporary employment agency, are obliged to record the start, end, and length of the daily working time of employees, no later than by the end of the seventh calendar day following the day on which the work was performed, and to keep it for two years. There is no requirement regarding the form of working time records; it may be kept electronically or on paper. The data in the files must only indicate the start, end, and total number of hours worked on a given day, but not the exact time or length of breaks. They do not have to follow a specific pattern, and installing an electronic working time recording system is not necessary.

Whether a given industry is subject to this obligation at all or whether it is relaxed/stricter in its case is regulated by three different German labour laws, namely the Minimum Wage Act (MiLoG), the Posted Workers Act (Arbeitnehmer-Entsendegesetz – AEntG), and the Temporary Employment Act (AÜG). However, these contain references to the German Act on Combating Undeclared Work and Illegal Employment (SchwarzArbG) and the German Social Code Book IV (Sozialgesetzbuch Viertes Buch – SGB IV). The situation for an employer wishing to understand their obligations is further complicated by regulations issued to the aforementioned acts, which regulate exceptions and specific forms of keeping records.

For example, in the meat industry, the employer is obliged to record the start of the employee’s or hired worker’s daily working time immediately after starting work and to record the end and total number of hours of this work still on the day the work was completed. On the other hand, the regulation to the Minimum Wage Act provides for exemption from the recording obligation for employees earning above a specified amount.

Special provisions allow the use of a simplified form of recording working time, in which only the total number of hours worked in a given day is recorded in cases of “flexible working time”, i.e. when the employee’s work is exclusively mobile without specifying the exact number of working hours.

But that is still not all. The employer is also burdened, among other things, with the obligation to store documentation in a specified form and for the period prescribed by law, as well as the obligation to appoint a representative on German territory, about which more will be in the next article of the series devoted to employer obligations towards the Zollamt.

text = “””In the list of legislative works of the Council of Ministers, there is a draft Act on the protection of persons reporting breaches of law. The aim of its adoption is to implement into Polish law the Directive of the European Parliament and of the Council (EU) 2019/1937 of 23 October 2019 on the protection of persons who report breaches of Union law (OJ EU L 305 of 26.11.2019, p. 17). In connection with the new provisions, employers will be obliged to implement a special protection system for so-called whistleblowers, i.e. persons who report or publicly disclose information about a breach of law obtained in a work-related context. Some of the solutions proposed by the government raise significant controversy among entrepreneurs. This is hardly surprising, considering that failure to implement the provisions may result in personal criminal liability.

Whistleblower — who is that?

A whistleblower may be almost any person who has knowledge of a breach of law in their professional environment. The key factor is the connection between obtaining information about the breach and the work performed (or to be performed).

According to Article 4 of the draft, the act applies to a natural person who reports or publicly discloses information about a breach of law obtained in a work-related context, including:

1) an employee, including when the employment relationship has already ended,

2) a person applying for employment who obtained information about the breach of law during the recruitment process or negotiations preceding the conclusion of the contract,

3) a person performing work on a basis other than an employment relationship, including under a civil law contract,

4) an entrepreneur,

5) a shareholder or partner,

6) a member of the governing body of a legal person,

7) a person performing work under the supervision and management of a contractor, subcontractor or supplier, including under a civil law contract,

8) an intern,

9) a volunteer.

Breach of law

A breach of law is, according to Article 3 of the draft, an act or omission inconsistent with the law or intended to circumvent the law concerning:

1) public procurement;

2) services, products and financial markets;

3) prevention of money laundering and terrorist financing;

4) product safety and compliance with requirements;

5) transport safety;

6) environmental protection;

7) radiological protection and nuclear safety;

8) food and feed safety;

9) animal health and welfare;

10) public health;

11) consumer protection;

12) privacy and personal data protection;

13) security of network and information systems;

14) the financial interests of the European Union;

15) the internal market of the European Union, including competition rules, state aid and taxation of legal persons.

An employer may additionally establish reporting of other breaches than those listed above at the workplace within the employer’s internal regulations or ethical standards.

Prohibition of retaliation

The basic obligation envisaged for the employer is of a negative nature. According to Article 10 of the Act, the employer may not undertake retaliatory actions against a whistleblower reporting a breach. Such actions are defined as direct or indirect acts or omissions caused by the reporting or public disclosure which violate or may violate the rights of the reporter or cause or may cause harm to the reporter.

According to Article 11, if the work is or is to be performed under an employment relationship, the reporter may not be treated unfavourably because of the report or public disclosure.

Unfavourable treatment is particularly understood as:

1) refusal to establish an employment relationship,

2) termination or dismissal of the employment relationship without notice,

3) failure to conclude a fixed-term employment contract after termination of a probationary employment contract, failure to conclude another fixed-term employment contract or an indefinite contract after termination of a fixed-term contract — where the employee had a justified expectation of such a contract being concluded,

4) reduction of remuneration for work,

5) withholding or omission in promotion,

6) omission in granting benefits related to work other than remuneration,

7) transfer of the employee to a lower position,

8) suspension from performing employee or official duties,

9) transferring existing employee duties to another employee,

10) unfavourable change of the place of work or working time schedule,

11) negative assessment of work results or negative opinion on work,

12) imposition or application of disciplinary measures, including financial penalties or similar measures,

13) withholding or omission when nominating for participation in professional development training,

14) unjustified referral for medical examination, including psychiatric examination, if separate regulations provide for the possibility to refer an employee to such examination,

15) actions aimed at hindering future employment in a given sector or branch based on informal or formal sectoral or branch agreements.

Unfavourable treatment because of the report or public disclosure also includes threats or attempts to apply the above measures, unless the employer proves they acted on objective grounds.

Internal documentation

Another obligation for employers will be to establish an internal reporting regulation (Article 20 of the draft), specifying the internal procedure for reporting breaches of law and taking follow-up actions. Preparation of the regulation is mandatory for employers employing at least 50 employees. This number includes both employees within the meaning of the Labour Code and temporary workers under the Act on temporary employment.

The procedure for establishing the regulation includes consultations with the workplace trade union or employee representatives in the manner accepted by the employer. The document should come into force 2 weeks after being communicated to employees.

The time to prepare the regulation depends on the number of employees. Employers employing 250 or more employees, as well as public administration entities, will be obliged to implement the appropriate procedure 14 days after the law is announced (the exact date is still uncertain, although the implementation of the EU directive should take place no later than 17 December this year). The same obligation will begin to apply to entrepreneurs employing 50–249 employees already in December 2023.

Behind the employer’s back

The Act will enable whistleblowers to report irregularities also outside the procedure provided by the employer. The so-called external reporting may be made without prior internal reporting. The competent authority in this respect is to be the Ombudsman or, within their competencies, the President of the Office of Competition and Consumer Protection (UOKiK). Reporting to such an authority bypassing the internal reporting procedure shall not result in the loss of protection provided by the Act.

Criminal liability (Chapter 6 of the draft Act)

The draft provides for the possibility of criminal liability of up to 3 years, and penalises:

• obstructing the making of reports,
• undertaking retaliatory actions against persons making reports or public disclosures,
• breach of the obligation to maintain the confidentiality of the identity of the person who made the report,
• making false reports or public disclosures,
• failure to establish or improper establishment of internal reporting procedures.

As can be seen, liability may also fall on whistleblowers who provide false information. For employers, the most important sanction is the penalty for failing to establish the proper reporting procedure. Due to the short, 14-day vacatio legis of the Act and the need to introduce costly changes in the internal regulations of the workplace (including documentation and record-keeping), the issue of criminal liability raises many controversies. It is therefore worth not waiting and implementing the appropriate procedure as soon as possible, and if necessary, seeking professional legal assistance in this matter.
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In previous articles, the institution of the German Customs Office, or Zollamt, was introduced, along with the nature of most administrative duties imposed on employers who post workers to Germany, as well as employers using employment agencies. The sources of these obligations were also indicated, namely the three principal acts of German labour law: the Minimum Wage Act (MiLoG), the Posted Workers Act (Arbeitnehmer-Entsendegesetz – AEntG), and the Act on Temporary Employment (AÜG), as well as a range of implementing regulations.

These legal acts also point to a final, somewhat culminating obligation to prepare and retain appropriate documentation. This seemingly formal duty may prove decisive in the outcome of an inspection and should therefore be given particular attention by employers.

Document retention

In accordance with the three aforementioned German labour law acts and implementing provisions, both employers based in Germany and those based abroad must retain the German-language documentation available in Germany, required to demonstrate compliance with employment conditions.

Such documentation includes (in addition to working time records), among others:

• employment contracts and/or equivalent documents specifying the essential terms of the employment relationship (Directive 91/533/EEC on the obligation of employers to inform workers about the conditions applicable to their contract or employment relationship, Official Journal of the European Communities L 288/32 dated 18 October 1991),
• pay slips,
• proof of wage payments.

The above documents must always be available for inspection in Germany. If circumstances require presenting other documents, these must also be made promptly available to the inspecting authority. Relevant regulations provide exceptions to this rule (e.g., in the case of remote work). It is worth noting that both duties regarding working time recording and document retention may be subject to additional strict requirements, as is the case with construction services, or may be simplified, such as in the case of “flexible working hours”.
Local representative

Another important obligation from the perspective of inspections is the employer’s requirement to appoint a local representative (verantwortlich Handelnder) who is available to the inspection authority and responds to queries during the inspection. This is the primary entity within the employer’s organisation responsible for cooperating with Zollamt officials.

At the same time, there is a second category of local representative, covering the authorisation of a chosen person to receive all written documents intended for the employer, such as official notices from the Customs Office. Any person may be appointed, e.g., a posted employee or a temporary worker, provided they reside in Germany. When choosing a local representative authorised to receive documents, attention should be paid to whether this representative guarantees that the delivered document will be promptly forwarded to the employer. Such a representative should reliably and without undue delay pass on the relevant information, as the delivery of a written document may start the deadline for filing an appeal.

Don’t delay

As can be seen, understanding the additional administrative duties monitored by the Zollamt can cause employers considerable difficulties. Because the obligations arise from several different acts and regulations, the legal bases often overlap, and, for example, an exemption from a notification obligation under the Minimum Wage Act does not exclude the existence of the same obligation under the Posted Workers Act. Ultimately, the employer will still be subject to such an obligation. Additionally, specific procedures should be considered, such as simplified working time records, as well as additional restrictions applying, for example, to construction services.

Considering the severity of penalties, it is not advisable to wait for legal clarifications from the German inspection authority; rather, compliance with posting procedures should be ensured proactively. If you wish to find out whether any of the above obligations apply to your business, please contact the experts at ATL Law Anna Błaszak Legal Adviser’s Office. We provide services related to employee data notifications to the German Customs Office, define the scope of additional obligations, help prepare appropriate documentation, and advise on how to proceed in the event of an inspection.

ATL Law Anna Błaszak Legal Adviser’s Office has been advising entrepreneurs for many years on matters related to international employee mobility, including tax and social security issues. We support companies in fulfilling formalities related to posting employees abroad, including to EU countries and beyond, relocations, and work performed by posted employees in Poland.

On 15 November this year, the President signed a law introducing tax changes as part of the so-called Polish Deal. Among the adopted provisions was a regulation altering the previous rules regarding car leasing, buyouts, and subsequent sales. Importantly, although the changes take effect only from January 2022, the new regulations will also impact entrepreneurs who concluded leasing agreements earlier and do not manage to complete the buyout before then.

Thus, the government’s announcements published in July on the gov.pl website, where the Ministry of Finance stated:

“Among other things, the practice of taking cars on company leasing and, after paying the lease instalments, buying them out into private ownership will be limited. This practice borders on illegality; in other EU countries, only companies can buy out the car.

The new regulations will also prevent bringing overvalued assets into the company. There is a dishonest practice of buying, for example, a new car and after several years of private use, contributing it to the company. The rules currently allow amortisation of assets brought into the company at the purchase price, not their value at the time of contribution. This reduces tax liabilities by means of used cars and electronics. We will amend the regulations so that from next year depreciation deductions will be made based on the market value at the time the asset is brought into the company, not the “historical” purchase price.”

Double tax obligation

From January 2022, an entrepreneur wishing to buy out a car and then transfer it to private assets will be obliged to pay both income tax and VAT. Moreover, the sale of a car bought out from leasing for private use will be treated as income from business activity and taxed accordingly. But that is not all — if the car was bought into the company’s assets and the income from its sale is accounted for in the company’s PIT tax returns, the transaction may also be subject to VAT.

The issue of VAT due on the sale of a car bought out privately remains uncertain. Until now, tax authorities maintained that no VAT was payable on the sale of an asset from private assets. However, there is a risk that the tax office may change its stance, arguing that since the income from the sale should be included in PIT business activity declarations, the sale should also be subject to VAT (if the taxpayer had the right to deduct VAT upon buyout).

The new regulations provide for a possible exemption from tax on the sale of the car, but only if the transaction occurs after five years (counting from the year following the payment of the last instalment). Thus, the period after which the sale ceases to be taxed has been significantly extended (previously it was 6 months). Furthermore, VAT paid on the buyout of the car will no longer be calculated on the buyout value (last instalment), which was often only a fraction of the vehicle’s value. The new regulations mean that for purchases of vehicles into private assets, VAT will be paid on the real market value of the vehicle.

What about existing leasing agreements?

The Polish Deal regulations will apply to all buyouts made from 1 January 2022 onwards. According to Article 51 of the amending act, the new rules apply to assets acquired after 31 December 2021, so the key date is the buyout date. A leasing agreement concluded before 1 January 2022 will, as of the new year, be subject to the new rules. To be able to buy out a car privately under the old terms, the buyout must be completed before the end of December this year.

To avoid paying tax on the sale, an entrepreneur who has already entered into a leasing agreement with a buyout planned for 2022 will need to amend the contract to buy out the car, for example, on 20 December. Then they can sell it after six months without taxation.

Attempt to circumvent the rules

There is a way to shorten the 5-year waiting period for tax-free sale of a car bought out from leasing. After buyout, the vehicle can be gifted to a close person belonging to the so-called zero tax group, fully exempt from donation tax under the Inheritance and Donation Tax Act. Those eligible for exemption—and thus potential recipients of the gift—are: spouse, descendants, ascendants, siblings, stepfather, and stepmother. Such a recipient can sell the car without taxation within the usual 6 months from acquisition. It is unclear how the tax office will respond to this practice; a clear position will likely only emerge through court rulings.

Another blow to sole proprietorships

These changes effectively eliminate the benefit of privately buying out leased assets from January 2022. It is worth noting that the possibility of buying out assets into the entrepreneur’s private assets and selling them tax-free was one of the biggest advantages of running a sole proprietorship. Given the other regulations introduced under the Polish Deal, it is highly likely that running a business as a sole trader may become unprofitable from next year. In forthcoming articles dedicated to New Year’s changes, we will advise how entrepreneurs can adapt to the new legal reality and recommend alternative ways to conduct business.

Until now, employees working “off the books” or receiving part of their salary unofficially faced criminal and fiscal liability, including the obligation to pay outstanding taxes and part of the overdue social security contributions (ZUS). From January 2022, employees will no longer bear any legal consequences for illegal employment. According to the amendment, responsibility for undeclared work will rest solely with the employer.

Consequences of undeclared work

As the Ministry of Finance informs on the National Tax Information website, from 1 January 2022, the Polish Deal will introduce new tax and contribution solutions aimed at limiting illegal employment and the concealment of part of wages from the appropriate authorities.

From next year, the consequences of illegal employment will affect only the employer, not the employee. It will be the employer who pays tax on wages paid “off the books” or part of the salary paid under the table. The employer will also be assigned additional income equal to the minimum wage for each month of illegal employment, regardless of whether or how much remuneration was actually paid.

Dishonest employers will also be required to pay in full the social security and health insurance contributions on wages paid off the books or under the table. Moreover, both the paid wages and the contributions will not be deductible as tax costs for the employer.

Meanwhile, an illegally employed employee:

• will not pay tax on income derived from illegal employment or underreported earnings,
• will gain access to healthcare and social security benefits (pensions, disability benefits, and allowances),
• will not finance social security contributions on declared wages, as these contributions will be fully covered by the employer, including the part normally borne by the employee under general rules.

B2B contracts in the spotlight

The State Labour Inspectorate’s Action Programme for 2022–2024 has been published. The Inspectorate announced increased frequency of inspections concerning employment conditions where mutual obligations are regulated by agreements between entrepreneurs (in a B2B arrangement). The authorities will verify whether the terms of such agreements have not been unilaterally imposed by the employer.

Retroactive effect of regulations

The provisions introduced in the amendment to counteract illegal employment may be used to report notifications to the State Labour Inspectorate regarding not only current periods but also previous ones, i.e. before 2021.

As can be seen, the coming year will bring much stricter enforcement of employment control among Polish entrepreneurs, and the consequences will fall solely on employers. In case of doubts or if you seek legal advice on this matter, we recommend consulting the specialists from our team. ATL Law Anna Błaszak Legal Advisor’s Office has many years of experience in providing legal advice to entrepreneurs, helps minimise risks related to business activities, and offers services in broadly understood compliance, particularly in the context of new challenges posed by the Polish Deal to employers.

According to the amendment signed by the President of the Republic of Poland, from January 2022, members of management boards appointed by the company’s articles of association will be subject to a 9% health insurance contribution.

The explanatory note of the Act states that the purpose of the changes is to equalise the rights and obligations of persons subject to compulsory health insurance with those appointed to perform functions under an act of appointment, who receive remuneration on that basis (i.e., members of management boards, audit committees, proxies, and members of examination boards). Including this group in health insurance aims to provide additional funds to the universal health insurance system and to better realise the principle of social solidarity.

Increased costs

Income earned by management board members under relevant resolutions has not previously constituted a basis for social or health insurance contributions. However, under the new regulations, income received for performing duties as a management board member under a resolution will, from 2022 onwards, form the basis for a compulsory 9% health insurance contribution. This contribution cannot be deducted as a tax cost.

This burden will affect both management boards and companies, which will have to adjust the level of current remuneration to the existing salaries of management staff. The necessity of such “compensation” may prove particularly costly for the company, especially regarding better-paid management board members.

 

A workaround not for everyone

Although the legislator has not provided any exemptions from the health insurance contribution — meaning all management board members appointed by resolution must accept the new burdens coming into effect at the start of the year — there is a way to avoid the obligation. However, this applies exclusively to shareholders of limited liability companies.

Pursuant to Article 176 of the Commercial Companies Code, a company may require a shareholder to perform recurring non-monetary services for remuneration. Such remuneration, although subject to personal income tax (PIT), is not subject to health insurance contributions.

This form of shareholder remuneration should be specified in the company’s articles of association; therefore, unless the contracting shareholders were particularly foresighted, an amendment to the articles will be necessary.

It’s now certain. Most of the tax changes planned by the government under the so-called Polish Deal will come into effect from January and February 2022. Polish tax law is facing a genuine revolution. Although the amendment also brings positive changes, such as increasing the tax-free allowance from PLN 3,091 (PLN 8,000 for the lowest earners) to PLN 30,000, and raising the second tax threshold from PLN 85,528 to PLN 120,000, it should not be forgotten that these changes apply only to entities taxed according to the progressive scale (17%, and 32% beyond the second threshold).

When assessing the upcoming amendment, entrepreneurs primarily point to issues related to the new method of calculating the health insurance contribution. From January next year, it will be income-dependent and cannot be deducted as a tax cost.

Health insurance contribution

For entrepreneurs taxed under the progressive scale, the health insurance contribution will amount to 9% of the declared income. It is worth noting that for income exceeding the second threshold, the real tax rate after the Polish Deal changes will effectively be as high as 41% (including the 9% health contribution).

For entrepreneurs taxed with a flat rate, the health insurance contribution will be 4.9% of income, but not less than 9% of the minimum wage. Considering that the gross minimum wage in 2022 will be PLN 3,010, the minimum health insurance contribution will be PLN 270. For monthly earnings of, for example, PLN 12,000, the health contribution will already be PLN 588.

In the case of taxation by lump sum on registered income (“karta podatkowa”), the health insurance contribution will be 9% of the minimum wage, i.e., also PLN 270. However, from 2022 this form of taxation will be unavailable to all except those who used it in 2021. Moreover, if such persons give up this form of taxation, they will not be able to return to it.

For entrepreneurs taxed by lump sum on revenue (“ryczałt”), the contribution will be 9% of the contribution base, which depends on annual revenue as follows:

• 60% of the average wage for annual revenues not exceeding PLN 60,000, i.e. PLN 305.56;
• 100% of the average wage for annual revenues between PLN 60,000 and PLN 300,000, i.e. PLN 509.27;
• 180% of the average wage for annual revenues exceeding PLN 300,000, i.e. PLN 916.68.

This applies to revenues reduced by ZUS contributions, if they were not included as tax-deductible costs or deducted from income under the Personal Income Tax Act.
What about B2B?

The previously popular model of business-to-business transactions, often replacing employment contracts, may lose popularity from next year. Cooperation with an employer, where the “employee” decides to set up their own business instead of signing an employment contract, will be adversely affected by the higher real tax burden for high earners. One declared goal of the Polish Deal is to address the existing inequality between employees and sole proprietors, which results from more favourable taxation.

Alternatives to sole proprietorships

In light of the increased health insurance contributions, the inability to deduct them as costs, and the elimination of some forms of taxation, a decline in the popularity of sole proprietorships is to be expected. The most obvious alternative is a limited liability company (Ltd). Company income is subject to 19% corporate income tax (CIT), but a 9% rate may apply if the company’s revenue does not exceed EUR 2,000,000 (as a so-called small taxpayer). If the company is formed by transforming a sole proprietorship, the right to apply the 9% rate arises in the second fiscal year following the transformation.

A significant advantage of an Ltd over a sole proprietorship is that shareholders of an Ltd are not subject to social security and health insurance contributions, except when the Ltd is single-shareholder. In that case, a flat health contribution of PLN 500 per month is payable. Dividends paid by an Ltd are taxed at 19%, so as a rule, double taxation occurs, but there are ways to avoid this additional burden, as we have already explained on the firm’s website. There is also the issue of the health insurance contribution on the remuneration of a managing board member appointed by resolution, but we have described methods to avoid that obligation as well.

Of course, there are other charges that shareholders or board members of an Ltd may be subject to, so when deciding to transform a sole proprietorship into a company, it is advisable to seek expert advice. Transformation can be an effective way for an entrepreneur to avoid increased tax burdens, but to minimise risks, we recommend professional legal assistance. Specialists at ATL Law Anna Błaszak Legal Counsel Office have many years of experience both in servicing sole proprietorships and capital companies. Entrusting us with the transformation process will ensure optimal solutions, including in the context of the upcoming implementation of the Polish Deal regulations.

As we mentioned in previous articles, the changes introduced under the Polish Deal, coming into effect from 1 January 2022, will significantly impact the profitability of sole proprietorships (hereinafter: SP). In light of the possibility of some board members avoiding the health insurance contribution, and the lack of social security contributions (ZUS), one of the most advantageous alternatives is to establish a limited liability company (Ltd). Sole proprietors may consider several options to achieve this: dissolve their business and set up a Ltd “from scratch”, transform the business in accordance with the provisions of the Commercial Companies Code, or contribute the enterprise as a non-cash contribution (apport) to a new or existing company. To help with the choice, we briefly outline the recommended methods of transformation and their key aspects.

Transformation of the business under the Commercial Companies Code (CCC)

The Commercial Companies Code contains regulations regarding the transformation of a sole proprietorship into a Ltd. This process primarily requires:

• Preparing a transformation plan for the sole proprietorship along with attachments and an auditor’s opinion;
• Submitting a declaration of transformation by the entrepreneur;
• Appointing the members of the transformed company’s governing bodies;
• Concluding the company agreement or signing the articles of association of the transformed company;
• Registering the transformed company and deregistering the transforming entrepreneur from the Central Register and Information on Economic Activity (CEIDG).

All of the above actions require appropriate legal and tax knowledge, and their correct implementation may involve additional procedures and fees. For example, preparing the transformation plan generally requires establishing the book value of the sole proprietorship’s assets (which may require paying an auditor). The cost of the valuation may be around PLN 1,000, but the final amount depends on the size and nature of the assets. Additionally, drafting the transformation plan requires a notarial deed (incurring notarial fees) and review by an auditor (which also involves remuneration).
In practice, entrepreneurs opting for this process most often engage professional legal assistance.

Contribution of the enterprise as a non-cash contribution (apport)

An alternative to the above method is to contribute the sole proprietorship (enterprise) to a new Ltd as a non-cash contribution (apport). In return for the non-monetary contribution, the entrepreneur operating the sole proprietorship will receive shares in the newly formed company. The apport of the enterprise is very popular due to its tax neutrality (it is exempt from personal income tax (PIT) on the entrepreneur’s side, corporate income tax (CIT) on the company’s side, and VAT). Furthermore, it allows avoidance of the costs associated with hiring an auditor and preparing opinions and transformation plans. However, there remains the separate issue of transferring any licences, contracts with clients, and other rights and obligations of the sole proprietorship to the Ltd.

The use of this method depends on the existence of the Ltd, which means that if the entrepreneur running the sole proprietorship is not a shareholder in the company to which they intend to contribute the enterprise, they will have to establish a new company, which involves carrying out another procedure.

Dissolution of the sole proprietorship and establishment of a new company

The last possible option is to establish a Ltd as an entirely separate entity from the existing sole proprietorship and dissolve the sole proprietorship. In this case, the entrepreneur should prepare for the sequential necessity of dissolving the sole proprietorship, setting up a new company, and transferring individual assets from the sole proprietorship to the company. Each of these actions has tax consequences.

Which method to choose?

When choosing the form of transformation, one should familiarise themselves with the amount of administrative fees, the taxation methods applicable to particular legal actions (e.g., apport), and the degree of formalisation of the various procedures.

Beyond the above remarks, there are numerous other aspects that the entrepreneur should consider during the transformation process. To conduct a proper analysis, it is recommended to seek professional assistance, who can also supervise the entire procedure. Especially in view of the forthcoming amendment to the Polish Deal, expert support will help avoid mistakes. Should you wish to obtain legal assistance, we encourage you to contact the experts at ATL LAW Legal Counsel Anna Błaszak’s Office, who have many years of experience in servicing sole proprietorships and companies. We will help choose the most advantageous transformation method, provide support in both legal and tax aspects of the selected procedure, and minimise the risk of costly errors.

On 29 January 2022, the amended Act on Foreigners came into effect. The changes aim to streamline the procedures concerning the granting of temporary residence permits to foreigners on the territory of the Republic of Poland. This particularly concerns temporary residence and work permits, which are the most frequently issued type of temporary residence permits in Poland.

The new regulations are also intended to improve other existing provisions regarding foreigners. The goal of the amendments is to optimise procedures and reduce the duration of proceedings.

Simplifications regarding the granting of temporary residence and work permits to foreigners (the changes announced below have already come into effect)

As of the date the amendment came into force, the requirements for granting a temporary residence and work permit will no longer include:

• possession by the foreigner of a stable and regular source of income sufficient to cover the costs of living for themselves and their dependants (currently Art. 114(1)(1)(b) of the Act on Foreigners);
• possession by the foreigner of secured accommodation on the territory of the Republic of Poland (currently Art. 114(1)(2) of the Act on Foreigners).

At the same time, the existing requirement that the foreigner’s remuneration cannot be lower than the minimum wage (Art. 114(1)(5) of the Act on Foreigners) will be amended. Following this change, the foreigner’s monthly remuneration must not be lower than the minimum wage regardless of the working time and the type of legal relationship forming the basis for employment, including part-time work.

This amendment will also introduce a new provision, Art. 114(4b) of the Act on Foreigners, which will address cases where a foreigner applies for a temporary residence and work permit due to performing work for more than one entity assigning the work. In such cases, the requirement for granting the permit will be considered met if the sum of the remunerations indicated in Annex 1 to the application for the temporary residence and work permit is not lower than the minimum wage.

Additionally, a new provision, Art. 114(4a) of the Act on Foreigners, will be introduced, according to which the requirement for a foreigner to have health insurance under the provisions of the Act of 27 August 2004 on publicly funded healthcare services (Journal of Laws 2021, item 1285 as amended) will be deemed fulfilled if the foreigner holds health insurance in connection with performing the work constituting the basis for applying for the permit. This provision will enable consideration of situations where the foreigner’s work results in a compulsory entitlement to health insurance pursuant to Art. 66(1) of the aforementioned Act.

In Art. 119 of the Act on Foreigners, two new circumstances will be introduced under which it will not be necessary to obtain a new temporary residence and work permit or its modification. Specifically, these will be changes in the job title while maintaining the scope of duties, and an increase in working hours with a proportional increase in remuneration.

The amending Act also introduces, responding to practical demands, significant changes in the procedure for changing a temporary residence and work permit. Currently, the change may include the change of the user employer or changes in work conditions specified in the permit under Art. 118(1)(2–5) of the Act on Foreigners. The upcoming change will include also the change of the entity assigning the work, and the foreigner will be exempted from the obligation to hold a work permit regulated by separate provisions.

The amending Act will also introduce a new provision, Art. 117b of the Act on Foreigners, providing a legal basis for the voivode to prioritise cases of granting temporary residence and work permits where the entity assigning the work is an entrepreneur conducting activity of strategic importance to the national economy, included in a list established by regulation of the minister responsible for the economy (currently Minister of Development and Technology) pursuant to Art. 88cb of the Act of 20 April 2004 on employment promotion and labour market institutions (Journal of Laws 2021, item 1100 as amended). The application of Art. 117b will depend on the issuance of the relevant regulation (which is optional).

Other procedural changes

A special procedure will be introduced to conclude proceedings on granting temporary residence and work permits initiated before 1 January 2021.

This special procedure means that if, on the date of its entry into force, the proceeding is still ongoing (Art. 114 or Art. 126 of the Act on Foreigners), it should be concluded by granting a permit valid for 2 years from the date of the decision, except in cases where:

• the foreigner’s data must be entered in the register of foreigners whose stay on Polish territory is undesirable;
• the foreigner’s data is recorded in the Schengen Information System for refusal of entry;
• the granting of the permit conflicts with national defence or security, public order protection, or obligations arising from ratified international agreements binding on Poland.

A permit granted under this special procedure will not specify the entity assigning the work, the user employer (in the case of temporary work), or the work conditions as in ordinary permits. The details of the work assignment will be supplemented by a declaration from the entity assigning the work regarding the entrusted work (Art. 9(1)(3) of the amending Act).

According to the government website, this declaration must be submitted using an official form, the template of which will be defined in a regulation by the Minister of the Interior and Administration issued pursuant to Art. 9(23) of the amending Act.

In proceedings on granting temporary residence permits (and in proceedings on changing such permits), the voivode’s deadline to handle the case will be 60 days (new Art. 112a(1) of the Act on Foreigners), counted from the last of specified events (new Art. 112a(2) of the Act). The deadline for the Head of the Office for Foreigners in appeal proceedings will be 90 days from the day the appeal is forwarded, or from the day of supplementing formal deficiencies if the appeal does not meet legal requirements (new Arts. 112a(4), 112a(5), 210(4), 210(5) and 223 of the Act).

The amending Act also explicitly enables the exchange of information between the voivode or the Head of the Office for Foreigners and authorities contacted for information about whether a foreigner’s entry or stay on Polish territory may pose a threat to national defence, security, or public order (e.g., regional police commander, border guard commander, Head of the Internal Security Agency) via electronic communication means, facilitating document flow and expediting proceedings.

A full list of changes can be found on the government website under the news section of the Office for Foreigners:

Changes in the law concerning foreigners – Office for Foreigners – Gov.pl (www.gov.pl)

On 29 January 2022, the amended Act on Foreigners came into force. The changes aim to streamline procedures concerning the granting of temporary residence permits to foreigners on the territory of the Republic of Poland. In particular, this concerns temporary residence and work permits, which are the most commonly issued type of temporary residence permits in Poland.

The new regulations also seek to improve other existing solutions regarding foreigners. The goal of the amendments is to optimise procedures and shorten the duration of proceedings.

Simplifications concerning the granting of temporary residence and work permits to foreigners (the below announced changes have already come into effect)

As of the date the amendment entered into force, the requirements for granting a temporary residence and work permit will no longer include:

• the foreigner possessing a stable and regular source of income sufficient to cover the costs of maintenance for themselves and their family members dependent on them (current Art. 114(1)(1)(b) of the Act on Foreigners);
• the foreigner having secured accommodation on the territory of the Republic of Poland (current Art. 114(1)(2) of the Act on Foreigners).

At the same time, the existing requirement that the foreigner’s remuneration must not be lower than the minimum wage (Art. 114(1)(5) of the Act on Foreigners) will be amended. Following this change, the foreigner’s monthly remuneration must not be lower than the minimum wage regardless of the working time and type of legal relationship underpinning the foreigner’s employment, including cases where the foreigner works part-time.
This change will also introduce a new provision, Art. 114(4b) of the Act on Foreigners, which addresses situations where a foreigner applies for a temporary residence and work permit due to performing work for more than one entity assigning the work. In such cases, the requirement will be deemed fulfilled if the sum of the remunerations indicated in the annexes to the application for a temporary residence and work permit is not less than the amount of the minimum wage.

Furthermore, a new provision, Art. 114(4a) of the Act on Foreigners, will be introduced, stipulating that the requirement for the foreigner to have health insurance, as defined by the Act of 27 August 2004 on healthcare services financed from public funds (Journal of Laws 2021, item 1285, as amended), shall also be considered fulfilled if the foreigner holds health insurance arising from employment forming the basis for the temporary residence and work permit application. This provision will thus cover cases where the foreigner’s employment mandates health insurance coverage pursuant to Art. 66(1) of the 2004 Act on healthcare services financed from public funds.

Article 119 of the Act on Foreigners will be amended by adding two new circumstances which will not require obtaining a new temporary residence and work permit or its amendment. These are: a change in the job title held by the foreigner while maintaining the scope of duties, and an increase in working hours with a proportional increase in remuneration.

The amending Act will also introduce significant changes to the procedure for changing a temporary residence and work permit. Under current law, changes to the permit may cover a change of the user employer or changes in the conditions of work performance defined in the permit (Art. 118(1)(2–5) of the Act on Foreigners). The upcoming amendment will additionally allow for changes concerning the entity assigning the work and will exempt foreigners from the obligation to hold a separate work permit, where applicable.

Moreover, the amending Act will introduce a new legal basis in Art. 117b of the Act on Foreigners for voivodes to prioritise processing applications for temporary residence and work permits where the entity assigning the work is a business operating in sectors strategically important to the national economy. Such businesses will be listed by a regulation issued by the minister responsible for the economy (currently the Minister of Development and Technology) pursuant to Art. 88cb of the Act on Employment Promotion and Labour Market Institutions (Journal of Laws 2021, item 1100, as amended). The application of Art. 117b will depend on whether this regulation is issued (its issuance is optional).

Other procedural changes

A special procedure will be introduced for concluding proceedings on granting temporary residence and work permits initiated before 1 January 2021.

This special procedure means that if, on the day the amendment comes into force, proceedings on granting a temporary residence and work permit (Art. 114 or Art. 126 of the Act on Foreigners) are still ongoing, the proceedings should conclude with granting a permit for 2 years from the date of decision issuance, except in cases where:

• the foreigner will be entered into the register of foreigners whose stay in Poland is undesirable;
• the foreigner’s data will be in the Schengen Information System for entry refusal;
• defence, state security, public order, or obligations arising from ratified international agreements binding Poland oppose the granting of the permit.

The temporary residence permit granted under this special procedure will not specify the entity assigning the work or the user employer (in the case of temporary work) nor the conditions of work performance as is typical for permits granted under standard conditions. The details of the entity (or entities) assigning the work and the terms will be supplemented by a declaration from the entity assigning the work (Art. 9(1)(3) of the amending Act).
According to government information, such a declaration will need to be submitted on an official form following a template to be specified in a regulation of the Minister of the Interior and Administration issued under Art. 9(23) of the amending Act.

In cases of proceedings concerning the granting or changing of temporary residence and work permits, the deadline for the voivode to resolve the case will be 60 days (new Art. 112a(1) of the Act on Foreigners), counted from the last of the following events (new Art. 112a(2) of the Act). The deadline for the Head of the Office for Foreigners to handle appeals will be 90 days from receipt of the appeal, or, if the appeal does not meet legal formal requirements, from the date of completion of deficiencies (new Arts. 112a(4), 112a(5), 210(4), 210(5), and 223 of the Act).

The amending Act will also explicitly authorise the exchange of information electronically between the voivode or Head of the Office for Foreigners and other authorities (such as the provincial police commander, border guard commander, and the Head of the Internal Security Agency) regarding whether a foreigner’s entry and stay in Poland may pose a threat to defence, security, or public order. This will facilitate document circulation and improve the efficiency of proceedings.

A full list of changes can be found on the government website in the Office for Foreigners’ news section:

Changes in the law concerning foreigners – Office for Foreigners – Gov.pl Portal (www.gov.pl)