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TAX ADVISORY SERVICES September 2006 Spotlight on Poland: tax and investment incentives for Chinese investors Xiamen Confucius said: In leading a state of a thousand chariots, respect the office and be trustworthy; Economize in the use of resources and love the people, and employ the people when it is timely* 2 * The Lun Yu (499 sayings), chapter 1 verse 5 Spotlight on Poland 5th most attractive location for foreign investment in the world* and ranked 5th globally on the FDI Confidence Index* Central location in Europe with access to 750 million relatively wealthy consumers (250 mln within 1,000 km radius) Member of the European Union (since 2004) and WTO Stable political, legal and business environment Young, ambitious, hard-working and well-educated population Abundant tax and business incentives for foreign investors Tax-competitive location for business with preferences for foreign direct investment (FDI) Tax laws and regulatory environment harmonized with the European Union Recently gaining momentum and popularity with Asian investors (LG-Philips LCD, Huawei) 3 *Sources: Ernst & Young European Attractiveness Survey 2006; AT Kearney Report 2006 93 billion USD of FDI Poland – macroeconomics 17 % unemployment rate 3.4 % GDP growth 5.2 % GDP growth 2% Inflation 2% Inflation 2005 I Q 2006 4 Source: Central Statistical Office 2005 2005 Young, ambitious, hard-working and well-skilled population Eighth largest in Europe and the largest in Central Europe (38 million) 26 million work force 6 million in graduate education 35% of population is under 25 and 50% is under 35 With high unemployment, a large pool of specialists and college graduates is on offer at competitive cost In 2004 Poles worked 600 hours more on average than the French and Germans* Poles according to foreign investors: hard-working, achievers, positive attitude, willing to learn, creative, disciplined, loyal 5 *Source: OECD Employment Outlook 2005 Poland: highlights of tax system Major taxes: – Corporation tax (CIT) with one of the lowest rates in Europe of 19% – Value Added Tax (VAT) with standard rate of 22%, fully harmonized with the European Union VAT system – Personal tax (PIT) with progressive rates from 19% to 40% – Other taxes: social security, real estate tax, customs duty, excise Tax administration: – Monthly or quarterly reporting for tax – Binding rulings to protect companies against tax penalties – Advance pricing agreements to guard prices against tax audit assessment 6 Poland: highlights of tax system International aspect: – Broad treaty network to facilitate tax-efficient cross-border flow of dividends, interest and royalties (10% under China-Poland treaty) – Part of the EU taxation system Special features: – – – – – – – – – 7 Tax consolidation for corporate tax Deductions and exemptions Taxation of partnerships Branch vs. subsidiary Tax loss carry-forward (5 years) Transfer pricing (OECD Guidelines are followed) Interest and f/x loss deduction on cash basis rather than on accruals basis Statute of limitations for tax liabilities is 5-6 years Tax and investment incentives Tax and investment incentives Special Economic Zones: – Exemption from corporate tax equal to 30-50% of investment (increased by 15% for SME’s) – Exemption from real estate tax – Competitive pricing of land (€ 1) – In place until 2017 – Re-zoning possible to encompass investor-preferred location Grants and support programs: – 2007-13 EU budgetary perspective – Poland to receive € 91 bln – Cash grants available (training programs, new employment, innovative investments) Shared Services Centers / Business Process Offshoring – Poland ranks fifth in terms of offshoring environment* – SSC’s can be located in Special Economic Zone to benefit from tax exemptions R&D Centers: – Increased tax deductions related to innovative technologies Increased depreciation rates for high-tech capex 8 *Source: Economist Intelligence Unit Report 2006 Shared Services Centres in Poland transactions services … and more – about 50 SSC’s in 2006 human resources Olsztyn accounting global competence centre Bydgoszcz Warszawa Poznań accounting, taxes, salaries, IT, legal division outsourcing of IT services, accounting and finance Łódź accounting and finance Wrocław accounting and finance human resources outsourcing of IT services Kraków Bielsko-Biała accounting and finance back office support services 9 Source: Ernst & Young human resources accounting, payments (salaries), taxes accounting outsourcing of IT services, accounting and finance R & D Centres in Poland software and hardware research centre dedicated to Gdańsk Development of software for telecommunication and IT (functional and quality tests). communications technology (system architecture, software & hardware development, network quality labs); 150 engineers. Bydgoszcz developing software system solutions for digital TV, designing highly advanced set-top boxes; 200 engineers. Warszawa Zielona Góra Wrocław Kraków Software Development Centre – development of GSM, GPRS and UMTS networks; further expansion (from present 270 to 400 engineers). Development and integration of customized IT solutions (special competence for German IT market); 140 IT specialists to be employed by 2006. … and more – 36 centers in 2006 10 Source: Ernst & Young engineering systems and automation, advanced service and IT diagnostic systems. Enginering Design Center (design of jet engine, including disks, turbine blades, airfoils, combustors; 150 engineers. software development in automotive industry – 480 engineers. software for digital satellite, cable and terrestrial TV (in the future - software development in DVD devices and digital cameras); 600 engineers. software research centre, 380 software engineers. Ernst & Young: one-stop shop for Chinese investors in Poland E&Y’s one-stop shop <=> advisory services centrally managed by a dedicated project leader – multidisciplinary professional advisory services through one relationship and central project management E&Y’s one-stop shop <=> multidisciplinary, pro-active, flexible, tailor-made: – – – – – – – – – – – tax advisory regulatory advisory contacts with government and local authorities, grants & incentives negotiation support IT systems risk advisory and management SOX 404 process implementation accounting advisory and outsourcing assistance in financing and hedging strategies and transactions assistance in local sourcing internal procedures and controls design and implementation legal advisory (in cooperation with best-friend law firms) Tzu Kung asked about the gentleman. Confucius said: Action takes precedence over words* 11 * The Lun Yu (499 sayings), chapter 2 verse 13 Contact Radoslaw Szczech Partner Tel. +48 22 557 72 93 [email protected] Address: Ernst & Young sp. z o.o. Rondo ONZ 1 00-124 Warszawa www.ey.com/pl 12