Economic Freedom Act

 


Economic Freedom Act - good news for entrepreneurs
General Rules
Easier to start
Permissions and licenses
Entrepreneur identification made easier
Binding legal interpretation
Inspections
Redefining 'entrepreneur'



Economic Freedom Act
 - good news for entrepreneurs

The Economic Freedom Act* came into force on 21 August 2004 to improve the business climate in Poland by removing many restraints and uncertainties that had burdened entrepreneurs.

The far-reaching Act introduces provisions which make setting up a business activity easier than ever before as well as simplifying day-to-day operations. New regulations provide a more business-friendly environment  and protect entrepreneurs' interests more efficiently.

The number of documents required to commence business activity has been reduced, cutting the time needed to fulfil all formalities. The number of business activities requiring a licence has been also cut, as have inconveniences related to government inspections. Entrepreneurs have never had so much freedom while conducting business activity in Poland as they do today.

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General Rules

The Act prevents any public administrator from making a decision about starting, conducting or terminating a business activity conditional on the entrepreneur fulfiling  extra requirements over an above those set out in the regulations. Administrative authorities can no longer demand that an entrepreneur provides additional documents or data. This has a crucial significance in relations between administration and entrepreneurs in creating the rule that “what is not forbidden by the law is allowed”. This is a substantial limitation of administrative power and its freedom to make arbitrary decisions.

Administrative officials are obliged to act with respect to entrepreneurs' justified interests and to deal with their matters within a due time. While fulfilling their duties, authorities are obliged to co-operate with employers’, employees’ and entrepreneurs’ associations or professionals’ bodies.

These provisions represent a positive changes in regulations and set out clearly a framework for mutual relations between entrepreneurs and the public administration.


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Easier to start

The Act simplifies the procedure of registering a business entity. Since 31st March, 2009 it is possible to use simplified application forms (on the basis of Council of Ministers’ Regulation  of 24th March, 2009 on the pattern and format of an application form for an entry into Business Activity Register). Moreover since 31st March, 2009 one may submit an application to the Business Activity Register by the Internet. However, since 1st July, 2011 an IT system - Central Register and Information on Business Activity shall operate, in which entrepreneurs being natural persons shall be registered and which shall provide information and data concerning entrepreneurs being natural persons (and also information concerning other entrepreneurs and specified entities).

Moreover a great facility is a possibility of submitting with an application for an entry into proper register (which still remain municipality body and National Court Register) all documents necessary for obtaining NIP (taxpayer identification number) and REGON (statistical number) or registration at the Social Insurance Office (ZUS) - it is so called “one stop shop”. The above-mentioned procedure concerns also the change of data in that scope. The provisions enabling full implementation of that rule came in force on 31st March, 2009. It shall enable providing information from the register in a more efficient way and quicker issuing of certificates stating the entry of the entrepreneur into register. Central Register and Information on Business Activity shall be additionally integrated with central evidence and data bases of other bodies.

The above-mentioned solution is aimed at preparing administration bodies and entrepreneurs for the so called “no shop rule”. The idea of “no shop” shall come in force on 1st July, 2011, when an IT system - Central Register and Information on Business Activity shall be implemented, in which similarly as in National Court Register information system, shall be gathered all data contained in the registers kept by the municipalities.

It is essential that, beginning from 31st March, 2009 an entrepreneur may undertake a business activity on a day of submitting an application into the register or after obtaining an entry into the register of entrepreneurs in the National Court Register. The company in organisation may undertake a business activity before entering it into the register. However the above-mentioned does not apply when acts for undertaking and exercising business activity require a concession or a permit, referred to in the article 75. It is worth mentioning that an entrepreneur is entitled to specify a later date of starting a business activity than a date of submitting an application.

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Permissions and licenses

The number of business sectors in which entrepreneurs need government concessions has been reduced to only six categories of exceptional public interest. A licence to do business in construction and/or operation of toll motorways and roads is no longer needed.

The new act incorporates significant changes to the concession-granting procedures in cases where there is a  limited number of available concessions and a surplus of applicants. The relevant concession authority now chooses from the tenderers who offer the highest royalty.

The minimum period of time for which a concession may be granted was extended from two to five years.

Another amendment making it easier to set up a business is the new approach towards the regulating business activities. Formerly carried out by issuing licenses, the legislator replaced that system with the institution of 'regulated enterprises'. To run  one, an entrepreneur  has to satisfy relevant legal requirements and obtain an entry in the register of regulated enterprises.  A licence is no longer needed in such cases. Whether or not a given enterprise should be classed as a regulated one depends on specific regulations considering that enterprise. The entrepreneur gains a record in the regulated enterprise registry after issuing a proper application and a statement confirming that the legal requirements are satisfied. The relevant regulation came into force on 1st January, 2007. Moreover, from 1st January, 2007 the company’s letters and commercial orders addressed to a named person, submitted in writing or in electronic form and information on homepages of  limited joint-stock partnerships, limited liability companies and joint stock companies should include, inter alia, tax payer identification number (NIP) and the amount of share capital and in case of joint-stock companies the amount of share capital paid.

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Entrepreneur identification made easier

Another significant change in the entrepreneurs’ identification system has been in force  since the 1st of  January 2007. A single identification number was introduced; this basic number is now NIP (Tax Identification Number). All remaining numbers presently functioning, such as REGON (statistical number), KRS (NCR)  number etc, will retain their significance only within a given registry.

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Binding legal interpretation

On the 1st of January 2005 more favourable regulation on effects of a written interpretation of legal provisions concerning public duties (including taxes)  came into force. 
Any entrepreneur receiving such written interpretation can rely on it in his or her actions and can not be charged with or punished on the grounds of further interpretations contrary to the one he or she received.

Detailed regulations considering legally binding interpretations are laid down in new Chapter 1a of  Section II of the Tax Ordinance Act, which came into force on the 1st of July 2007. New provisions stipulate,  that a taxpayer who follows  the interpretation - even when it was subsequently altered or was not taken into account in proceedings against the taxpayer - is exempt  from the tax payment arising from the tax event referred to in that interpretation, as long as:

  1. the obligation was not performed correctly as a result of acting accordingly to guidelines of interpretation which was later altered or to  interpretation which was disregarded in an individual taxpayer case,
  2. tax related results of a tax event similar to  factual background of  interpretation, have occurred after the general interpretation was published or individual interpretation was delivered.”

While applying for such interpretation to the Ministry of Finance – who, from the 1st of July 2007, is competent organ in this respect -  the entrepreneurs need to follow provisions of the Tax Ordinance.


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Inspections

Regulations regarding business inspections have been introduced to improve procedures and make them less burdensome.

An entrepreneur, particularly during his absence, should designate a person to represent him during the inspection, which should help in effective proceeding.

An entrepreneur is obliged to maintain and keep on the business premises an inspection book, which notes the following: the subject of any official inspection, its start and finish dates, directions left by inspectors as to issues that the entrepreneur must address, and finally actions taken by the entrepreneur to remedy issues identified by the inspection. The controlling authority  is obliged to enter its directions in the inspection book while the entrepreneur is obliged to disclose information about steps taken to comply with the directions and any other information about those directions. The entrepreneur should store inspection protocols along with the inspection book and make them accessible to the controlling authority on demand.

Authorities are not permitted to carry out more than one inspection at the same time in the same business. If an inspection is already carried out at the entrepreneur, the inspecting body shall withdraw from inspection and may specify with the entrepreneur another date of inspection. Inspection time has also been limited in one calendar year (inspection in the case of micro, small or medium enterprises, cannot last longer than accordingly 12 business days, 18 business days, 24 business days and in case of other entrepreneurs 48 business days. Written authorisation is required to prolong an inspection beyond these limits.

Exceptions from above-mentioned rules provided for by the Act include situations when inspection is necessary as part of an investigation or inquiry, or when justified by threat to life, health or environment.

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Redefining 'entrepreneur'

The Act changes the definition of a small and medium-sized entrepreneur and introduces a totally new definition of a micro-entrepreneur. This is important, because by raising thresholds of capital, turnover and asset value, more entrepreneurs become eligible to gain beneficial status when applying for public aid, for example EU structural funds.

A micro-entrepreneur is a trader, who in one of the last two fiscal years has employed no more than 10 employees and his net turnover from sale of goods, services or financial operations does not exceed the PLN equivalent of €2,000,000 or if assets at the end of either fiscal year do not exceed the above amount.

A small entrepreneur is a trader, who in one of the last two fiscal years has employed no more than 50 employees and whose net turnover does not exceed the PLN equivalent of €10,000,000, or if assets at the end of either fiscal year do not exceed the above amount.

A trader is regarded as medium entrepreneur if in one of the last two fiscal years he has employed no more than 250 employees and whose net turnover from sale of goods, services or financial operations does not exceed the PLN equivalent of €50,000,000, or if assets at the end of either fiscal year do not exceed €43,000,000.

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*Text published in the Journal of Laws, No. 173, item 1,807.

Prepared for the Polish Information and Foreign Investment Agency by:

Kancelaria Prawna Chałas i Wspólnicy

Author: Jarosław Chałas - Managing Partner 

(Last update: January 2011)

 

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