Argentina presents investment and trade opportunities, particularly in agriculture, energy, health, infrastructure, information technology, and mining. However, economic uncertainty, interventionist policies, high inflation, and persistent economic stagnation have prevented the country from maximizing its potential. Argentina fell into recession in 2018, the same year then-President Mauricio Macri signed a three-year $57 billion Stand-By Arrangement (SBA) with the International Monetary Fund (IMF). Efforts to rationalize spending contributed to Macri’s defeat by the Peronist ticket of Alberto Fernandez and former president Cristina Fernandez de Kirchner (CFK) in 2019. The new administration took office on December 10, 2019 and reversed fiscal austerity measures, suspended the IMF program, and declared public debt levels unsustainable. The COVID-19 pandemic deepened the country´s multi-year economic recession. This led the government to intensify price, capital, and foreign trade controls, rolling back some of the market driven polices of the previous administration. After recording its ninth sovereign default in May 2020, the government of Argentina restructured international law bonds for $65 billion and domestic law bonds for $42 billion. The debt restructuring provides financial relief of $37.7 billion during the period 2020-2030, lowering average interest payments from 7 percent to 3 percent. In August 2020, the government formally notified the International Monetary Fund (IMF) of its intent to renegotiate $45 billion due to the Fund from the 2018 Stand-by Arrangement. In 2020, the Argentine peso (official rate) depreciated 29 percent, inflation reached 36 percent, the poverty rate reached 42 percent, and the economy contracted 10 percent.
The Fernandez administration’s economic agenda during 2020 focused on restructuring the country’s sovereign debt and addressing the impact of the COVID-19 pandemic. The government increased taxes on foreign trade, further tightened capital controls, and initiated or renewed price control programs. The administration also expanded fiscal expenditures, which were primarily directed at mitigating the economic impact of the COVID-19 pandemic. Citing a need to preserveArgentina’s diminishing foreign exchange reserves and raise government revenues for social programs, the Fernandez administration passed a sweeping “economic emergency” law in December 2019, that included a 35 percent advance income tax plus a 30 percent tax on purchases of foreign currency and all individual expenses incurred abroad, whether in person or online.
After the first COVID-19 case was confirmed in Argentina on March 3, 2020, the country imposed a strict nationwide quarantine on March 20, which became one of the longest in the world. The confinement measures were relaxed starting in the second semester of 2020, although multiple restrictions remained in place. Hotel and lodging, travel and tourism, and entertainment activities were deeply affected and were still not fully operational as of March 2021. According to estimates from the Argentine Small and Medium-Sized Confederation´s (CAME), 90,700 retail stores and 41,200 businesses permanently closed in Argentina during 2020, accounting for more than 185,300 jobs losses. As a result of the confinement measures, economic activity dropped 10 percent during 2020 compared to 2019, reaching levels similar to the 2002 economic crisis.
The Argentine government issued a series of economic relief measures, primarily focusing on the informal workers that account for 40 percent of the labor force as well as small and medium size enterprises (SMEs). The government prohibited employers from terminating employment until April 2021 and mandated a double severance payment until December 31, 2021. The government also prohibited the suspension of utility services (water, natural gas, electricity, mobile and land line services, and internet and cable TV) for failure to pay. The government’s ninth sovereign default and self-declared insolvency has limited its access to international credit, obligating it to finance pandemic-related stimulus measures and COVID-19 vaccine purchases via money printing, which may hamper its efforts to restrain inflation and maintain a stable exchange rate in the near term. The government is expected to further expand fiscal expenditures ahead of mid-term elections in October 2021.
Both domestic and foreign companies frequently point to a high and unpredictable tax burden and rigid labor laws, which make responding to changing macroeconomic conditions more difficult, as obstacles to further investment in Argentina. In July 2020, the government passed a teleworking law which imposed restrictive regulations on remote work. The law discourages companies from granting workplace flexibility and lowering labor costs via telework. In 2019, Argentina ranked 36 out of 41 countries evaluated in the Competitiveness Ranking of the World Economic Forum (WEF), which measures how productively a country uses its available resources.
As a MERCOSUR member, Argentina signed a free trade and investment agreement with the European Union (EU) in June 2019. Argentina has not ratified the agreement yet. In May 2020, Argentina proposed slowing the pace and adjusting the negotiating parameters of MERCOSUR’s ongoing trade liberalization talks with South Korea, Canada, and other partners to help protect vulnerable populations and account for the impact of the COVID-19 pandemic. Argentina previously ratified the WTO Trade Facilitation Agreement on January 22, 2018. Argentina and the United States continue to expand bilateral commercial and economic cooperation, specifically through the Trade and Investment Framework Agreement (TIFA), the Commercial Dialogue, and under the Growth in the Americas initiative, in order to improve and facilitate public-private ties and communication on trade, investment, energy, and infrastructure issues, including market access and intellectual property rights. More than 300 U.S. companies operate in Argentina, and the United States continues to be the top investor in Argentina with more than USD $10.7 billion (stock) of foreign direct investment as of 2019.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The Government of Argentina has identified its top economic priorities for 2021 as resolving its debt situation with the IMF, controlling inflation, responding to the COVID-19 pandemic by providing financial aid to the most vulnerable sectors of society. When the Fernandez administration took office in late 2019, the Ministry of Foreign Affairs, International Trade, and Worship became the lead governmental entity for investment promotion. The Fernandez administration does not have a formal business roundtable or other dialogue established with international investors, although it does engage with domestic and international companies.
Market regulations such as capital controls, trade restrictions, and price controls enhance economic distortion that hinders the investment climate in the country.
Foreign and domestic investors generally compete under the same conditions in Argentina. The amount of foreign investment is restricted in specific sectors such as aviation and media. Foreign ownership of rural productive lands, bodies of water, and areas along borders is also restricted.
Argentina has a National Investment and Trade Promotion Agency that provides information and consultation services to investors and traders on economic and financial conditions, investment opportunities, and Argentine laws and regulations. The agency also provides matchmaking services and organizes roadshows and trade delegations. Upon the change of administration, the government placed the Agency under the direction of the Ministry of Foreign Affairs (MFA) to improve coordination between the Agency and Argentina´s foreign policy. The Under Secretary for Trade and Investment Promotion of the MFA works as a liaison between the Agency and provincial governments and regional organizations. The new administration also created the National Directorate for Investment Promotion under the Under Secretary for Trade and Investment Promotion, making the Directorate responsible for promoting Argentina as an investment destination. The Directorate´s mission also includes determining priority sectors and projects and helping Argentine companies expand internationally and/or attract international investment.
The agency’s web portal provides information on available services (https://www.inversionycomercio.org.ar/). The 23 provinces and the City of Buenos Aires also have their own provincial investment and trade promotion offices.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign and domestic commercial entities in Argentina are regulated by the Commercial Partnerships Law (Law 19,550), the Argentina Civil and Commercial Code, and rules issued by the regulatory agencies. Foreign private entities can establish and own business enterprises and engage in all forms of remunerative activity in nearly all sectors.
Full foreign equity ownership of Argentine businesses is not restricted, for the most part, with exception in the air transportation and media industries. The share of foreign capital in companies that provide commercial passenger transportation within the Argentine territory is limited to 49 percent per the Aeronautic Code Law 17,285. The company must be incorporated according to Argentine law and domiciled in Buenos Aires. In the media sector, Law 25,750 establishes a limit on foreign ownership in television, radio, newspapers, journals, magazines, and publishing companies to 30 percent.
Law 26,737 (Regime for Protection of National Domain over Ownership, Possession or Tenure of Rural Land) establishes that a foreigner cannot own land that allows for the extension of existing bodies of water or that are located near a Border Security Zone. In February 2012, the government issued Decree 274/2012 further restricting foreign ownership to a maximum of 30 percent of national land and 15 percent of productive land. Foreign individuals or foreign company ownership is limited to 1,000 hectares (2,470 acres) in the most productive farming areas. In June 2016, the Government of Argentina issued Decree 820 easing the requirements for foreign land ownership by changing the percentage that defines foreign ownership of a person or company, raising it from25 percent to 51 percent of the social capital of a legal entity. Waivers are not available.
Argentina does not maintain an investment screening mechanism for inbound foreign investment. U.S. investors are not at a disadvantage to other foreign investors or singled out for discriminatory treatment.
Other Investment Policy Reviews
Argentina was last subject to an investment policy review by the OECD in 1997 and a trade policy review by the WTO in 2013. The United Nations Conference on Trade and Development (UNCTAD) has not done an investment policy review of Argentina.
In 2019, stemming from the country’s deteriorating financial and economic situation, the Argentine government re-imposed capital controls on business and consumers, limiting their access to foreign exchange. Strict capital controls and increases in taxes on exports and imports the Argentine government instituted at the end of 2019 have generated uncertainty in the business climate.
With the stated aim of keeping inflation under control and avoiding production shortages during the COVID-19 pandemic, the government increased market interventions in 2020, creating further market distortions that may deter investment. Argentina currently has two consumer goods price control programs, “Precios Cuidados,” a voluntary program established in 2014, and “Precios Máximos,”an emergency program established in March 2020. The Argentine Congress also passed the Shelves Law (No. 27,545), which regulates the supply, display, and distribution of products on supermarket shelves and virtual stores. Key articles of the Law are still pending implementing regulations. Private companies expressed concern over the final regulatory framework of the Law, which could affect their production, distribution, and marketing business model.
In August 2020, the government issued an edict freezing prices for telecommunication services (mobile and land), cable and satellite TV, and internet services until December 2020, later extending the measure into 2021. In Argentina’s high inflation environment, companies sought a 20 to 25 percent increase, however, the regulator allowed the telecom sector a five percent rate increase as of January 2021. The health sector was also subject to limits on price increases. In February 2021, the Secretary of Trade took administrative action against major consumer firms and food producers for purportedly causing supermarket shortages by withholding production and limiting distribution. Companies are currently contesting this decision. In March 2021, the Secretary of Domestic Trade issued Resolution 237/2021 establishing a national registry to monitor the production levels, distribution, and sales of private companies. If companies fail to comply, they could be subject to fines or closure. Tighter import controls imposed by the Fernandez administration have affected the business plans of private companies that need imported inputs for production. The private sector noted increased discretion on the part of trade authorities responsible for approving import licenses.
The Ministry of Production eased bureaucratic hurdles for foreign trade through the creation of a Single Window for Foreign Trade (“VUCE” for its Spanish acronym) in 2016. The VUCE centralizes the administration of all required paperwork for the import, export, and transit of goods (e.g., certificates, permits, licenses, and other authorizations and documents). The Argentine government has not fully implemented the VUCE for use across the country. Argentina subjects imports to automatic or non-automatic licenses that are managed through the Comprehensive Import Monitoring System (SIMI, or Sistema Integral de Monitoreo de Importaciones), established in December 2015 by the National Tax Agency (AFIP by its Spanish acronym) through Resolutions 5/2015 and 3823/2015. The SIMI system requires importers to submit detailed information electronically about goods to be imported into Argentina. Once the information is submitted, the relevant Argentine government agencies can review the application through the VUCE and make any observations or request additional information. The list of products subject to non-automatic licensing has been modified several times since the beginning of the SIMI system. Due to the Covid-19 pandemic, the government reclassified goods needed to combat the health emergency previously subject to non-automatic import licenses to automatic import licenses. Approximately 1,500 tariff lines are currently subject to non-automatic licenses.
The Argentine Congress approved an Entrepreneurs’ Law in March 2017, which allows for the creation of a simplified joint-stock company (SAS, or Sociedad por Acciones Simplificada) online within 24 hours of registration. However, in March 2020, the Fernandez administration annulled the 24-hour registration system. Industry groups said this hindered the entrepreneurship ecosystem by revoking one of the pillars of the Entrepreneurs´ Law.
Foreign investors seeking to set up business operations in Argentina follow the same procedures as domestic entities without prior approval and under the same conditions as local investors. To open a local branch of a foreign company in Argentina, the parent company must be legally registered in Argentina. Argentine law requires at least two equity holders, with the minority equity holder maintaining at least a five percent interest. In addition to the procedures required of a domestic company, a foreign company establishing itself in Argentina must legalize the parent company’s documents, register the incoming foreign capital with the Argentine Central Bank, and obtain a trading license.
A company must register its name with the Office of Corporations (IGJ, or Inspección General de Justicia). The IGJ website describes the registration process and some portions can be completed online (https://www.argentina.gob.ar/justicia/igj/guia-de-tramites). Once the IGJ registers the company, the company must request that the College of Public Notaries submit the company’s accounting books to be certified with the IGJ. The company’s legal representative must obtain a tax identification number from AFIP, register for social security, and obtain blank receipts from another agency. Companies can register with AFIP online at www.afip.gob.ar or by submitting the sworn affidavit form No. 885 to AFIP.
The enterprise must also provide workers’ compensation insurance for its employees through the Workers’ Compensation Agency (ART, or Aseguradora de Riesgos del Trabajo). The company must register and certify its accounting of wages and salaries with the Secretariat of Labor, within the Ministry of Labor, Employment, and Social Security.
In April 2016, the Small Business Administration of the United States and the Ministry of Production of Argentina signed a Memorandum of Understanding (MOU) to set up small and medium sized business development centers (SBDCs) in Argentina. Under the MOU, in June 2017, Argentina set up a SBDC in the province of Neuquén to provide small businesses with tools to improve their productivity and increase their growth.
The National Directorate for Investment Promotion under the Under Secretary for Trade and Investment Promotion at the MFA assists Argentine companies in expanding their business overseas, in coordination with the National Investment and Trade Promotion Agency. Argentina does not have any restrictions regarding domestic entities investing overseas, nor does it incentivize outward investment.
3. Legal Regime
Transparency of the Regulatory System
The Secretary of Strategic Affairs under the Cabinet is in charge of transparency policies and the digitalization of bureaucratic processes as of December 2019.
Argentine government authorities and a number of quasi-independent regulatory entities can issue regulations and norms within their mandates. There are no informal regulatory processes managed by non-governmental organizations or private sector associations. Rulemaking has traditionally been a top-down process in Argentina, unlike in the United States where industry organizations often lead in the development of standards and technical regulations. The Constitution establishes a procedure that allows for citizens to draft or propose legislation, which is subject to Congressional and Executive approval before being passed into law.
Ministries, regulatory agencies, and Congress are not obligated to provide a list of anticipated regulatory changes or proposals, share draft regulations with the public, or establish a timeline for public comment. They are also not required to conduct impact assessments of the proposed legislation and regulations.
All final texts of laws, regulations, resolutions, dispositions, and administrative decisions must be published in the Official Gazette (https://www.boletinoficial.gob.ar ), as well as in the newspapers and the websites of the Ministries and agencies. These texts can also be accessed through the official website Infoleg (http://www.infoleg.gob.ar/ ), overseen by the Ministry of Justice and Human Rights. Interested stakeholders can pursue judicial review of regulatory decisions.
In September 2016, Argentina enacted a Right to Access Public Information Law (27,275) that mandates all three governmental branches (legislative, judicial, and executive), political parties, universities, and unions that receive public funding are to provide non-classified information at the request of any citizen. The law also created the Agency for the Right to Access Public Information to oversee compliance.
During 2017, the government introduced new procurement standards including electronic procurement, formalization of procedures for costing-out projects, and transparent processes to renegotiate debts to suppliers. The government also introduced OECD recommendations on corporate governance for state-owned enterprises to promote transparency and accountability during the procurement process. The regulation may be viewed at: http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do?id=306769 .
In April 2018, Argentina passed the Business Criminal Responsibility Law (27,041) through Decree 277. The decree establishes an Anti-Corruption Office in charge of outlining and monitoring the transparency policies with which companies must comply to be eligible for public procurement.
Under the bilateral Commercial Dialogue, Argentina and the United States discuss good regulatory practices, conducting regulatory impact analyses, and improving the incorporation of public consultations in the regulatory process. Similarly, under the bilateral Digital Economy Working Group, Argentina and the United States shared best practices on promoting competition, spectrum management policy, and broadband investment and wireless infrastructure development.
The Argentine government has sought to increase public consultation in the rulemaking process; however, public consultation is non-binding and has been done in an ad-hoc fashion. In 2017, the Government of Argentina issued a series of legal instruments that seek to promote the use of tools to improve the quality of the regulatory framework. Amongst them, Decree 891/2017 for Good Practices in Simplification establishes a series of tools to improve the rulemaking process. The decree introduces tools on ex-ante and ex-post evaluation of regulation, stakeholder engagement, and administrative simplification, amongst others. Nevertheless, no formal oversight mechanism has been established to supervise the use of these tools across the line of ministries and government agencies, which make implementation difficult and severely limit the potential to adopt a whole-of-government approach to regulatory policy, according to a 2019 OECD publication on Regulatory Policy in Argentina.
Some ministries and agencies developed their own processes for public consultation by publishing drafts on their websites, directly distributing the draft to interested stakeholders for feedback, or holding public hearings.
The Argentine government also made an effort to improve citizens’ understanding of the budget, through the citizen’s budget “Presupuesto Ciudadano” website: https://www.economia.gob.ar/onp/presupuesto_ciudadano/seccion6.php . The initiative aligns with the Global Initiative for Fiscal Transparency (GIFT) and UN Resolution 67/218 on promoting transparency, participation, and accountability in fiscal policy.
Argentina requires public companies to adhere to International Financial Reporting Standards (IFRS). Argentina is a member of UNCTAD’s international network of transparent investment procedures.
International Regulatory Considerations
Argentina is a founding member of MERCOSUR and has been a member of the Latin American Integration Association (ALADI for Asociación Latinoamericana de Integración) since 1980. Once any of the decision-making bodies within MERCOSUR agrees on applying a certain regulation, each of the member countries has to incorporate it into its legislation according to its own legislative procedures. Once a regulation is incorporated in a MERCOSUR member’s legislation, the country has to notify MERCOSUR headquarters.
Argentina has been a member of the WTO since 1995, and it ratified the Trade Facilitation Agreement in January 2018. Argentina notifies technical regulations, but not proposed drafts, to the WTO Committee on Technical Barriers to Trade. Argentina submitted itself to an OECD regulatory policy review in March 2018, which was released in March 2019. The Fernandez administration has not actively pursued OECD accession. Argentina participates in all 23 OECD committees.
Additionally, the Argentine Institute for Standards and Certifications (IRAM) is a member of international and regional standards bodies including the International Standardization Organization (ISO), the International Electrotechnical Commission (IEC), the Pan-American Commission on Technical Standards (COPAM), the MERCOSUR Association of Standardization (AMN), the International Certification Network (i-Qnet), the System of Conformity Assessment for Electrotechnical Equipment and Components (IECEE), and the Global Good Agricultural Practice network (GLOBALG.A.P.).
Legal System and Judicial Independence
Argentina follows a Civil Law system. In 2014, the Argentine government passed a new Civil and Commercial Code that has been in effect since August 2015. The Civil and Commercial Code provides regulations for civil and commercial liability, including ownership of real and intangible property claims. The current judicial process is lengthy and suffers from significant backlogs. In the Argentine legal system, appeals may be brought from many rulings of the lower court, including evidentiary decisions, not just final orders, which significantly slows all aspects of the system. The Justice Ministry reported in December 2018 that the expanded use of oral processes had reduced the duration of 68 percent of all civil matters to less than two years.
According to the Argentine constitution, the judiciary is a separate and equal branch of government. In practice, there are continuous instances of political interference in the judicial process. Companies have complained that courts lack transparency and reliability, and that the Argentine government has used the judicial system to pressure the private sector. Media revelations of judicial impropriety and corruption feed public perception and undermine confidence in the judiciary.
Many foreign investors prefer to rely on private or international arbitration when those options are available. Claims regarding labor practices are processed through a labor court, regulated by Law 18,345 and its subsequent amendments and implementing regulations by Decree 106/98. Contracts often include clauses designating specific judicial or arbitral recourse for dispute settlement.
Laws and Regulations on Foreign Direct Investment
According to the Foreign Direct Investment Law 21,382 and Decree 1853/93, foreign investors may invest in Argentina without prior governmental approval, under the same conditions as investors domiciled within the country. Foreign investors are free to enter into mergers, acquisitions, greenfield investments, or joint ventures. Foreign firms may also participate in publicly-financed research and development programs on a national treatment basis. Incoming foreign currency must be identified by the participating bank to the Central Bank of Argentina (www.bcra.gob.ar).
The National Commission for the Defense of Competition and the Secretariat of Domestic Trade, both within the Ministry of Productive Development, have enforcement authority of the Competition Law (Law 25,156). The law aims to promote a culture of competition in all sectors of the national economy. In May 2018, the Argentine Congress approved a new Defense of Competition Law (Law 27,442), which would have, among other things, established an independent competition agency and tribunal. The new law incorporates anti-competitive conduct regulations and a leniency program to facilitate cartel investigation. The full text of the law can be viewed at: http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do?id=310241 . The Government of Argentina, however, has thus far not taken steps to establish the independent agency or tribunal. In February 2021, a bill introducing amendments to the Defense of Competition Law was passed by the Senate and is currently under study in the Lower House. The main changes are related to the removal of the “Clemency Program,” which encourages public reports of collusive and cartel activities, and the elimination of public hearings to appoint members of the Competition Office. The private sector has expressed concern over this bill, stating these changes are contrary to transparency standards embodied in the Law.
In September 2014, Argentina amended the 1974 National Supply Law to expand the ability of the government to regulate private enterprises by setting minimum and maximum prices and profit margins for goods and services at any stage of economic activity. Private companies may be subject to fines and temporary closure if the government determines they are not complying with the law. Although the law is still in effect, the U.S. Government has not received any reports of it being applied since December 2015. However, the Fernandez administration has expressed its potential use in response to the COVID-19 pandemic.
In March 2020, the Government of Argentina enacted the Supermarket Shelves Law (Law 27,545) that states that any single manufacturer and its associated brands cannot occupy more than 30 percent of a retailer’s shelf space devoted to any one product category. The law’s proponents claim it will allow more space for domestic SME-produced products, encourage competition, and reduce shortages. U.S. companies have expressed concern over the pending regulations, seeking clarification about issues such as whether display space percentages would be considered per brand or per production company, as it could potentially affect a company’s production, distribution, and marketing business model.
Expropriation and Compensation
Section 17 of the Argentine Constitution affirms the right of private property and states that any expropriation must be authorized by law and compensation must be provided. The United States-Argentina BIT states that investments shall not be expropriated or nationalized except for public purposes upon prompt payment of the fair market value in compensation.
Argentina has a history of expropriations under previous administrations. The most recent expropriation occurred in March 2015 when the Argentine Congress approved the nationalization of the train and railway system. A number of companies that were privatized during the 1990s under the Menem administration were renationalized under the Kirchner administrations. Additionally, in October 2008, Argentina nationalized its private pension funds, which amounted to approximately one-third of total GDP, and transferred the funds to the government social security agency.
In May 2012, the Fernandez de Kirchner administration nationalized oil and gas company Repsol-YPF. Most of the litigation between the Government of Argentina and Repsol was settled in 2016. An American hedge fund still holds a claim against YPF and is in litigation in U.S. courts.
ICSID Convention and New York Convention
Argentina is signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitration Awards, which the country ratified in 1989. Argentina is also a party to the International Center for Settlement of Investment Disputes (ICSID) Convention since 1994.
There is neither specific domestic legislation providing for enforcement under the 1958 New York Convention nor legislation for the enforcement of awards under the ICSID Convention. Companies that seek recourse through Argentine courts may not simultaneously pursue recourse through international arbitration.
Investor-State Dispute Settlement
The Argentine government officially accepts the principle of international arbitration. The United States-Argentina BIT includes a chapter on Investor-State Dispute Settlement for U.S. investors.
In the past ten years, Argentina has been brought before the ICSID in 54 cases involving U.S. or other foreign investors. Argentina currently has three pending arbitration cases filed against it by U.S. investors. For more information on the cases brought by U.S. claimants against Argentina, go to: https://icsid.worldbank.org/en/Pages/cases/AdvancedSearch.aspx #.
Local courts cannot enforce arbitral awards issued against the government based on the public policy clause. There is no history of extrajudicial action against foreign investors.
Argentina is a member of the United Nations Commission on International Trade Law (UNCITRAL) and the World Bank’s Multilateral Investment Guarantee Agency (MIGA).
Argentina is also a party to several bilateral and multilateral treaties and conventions for the enforcement and recognition of foreign judgments, which provide requirements for the enforcement of foreign judgments in Argentina, including:
Treaty of International Procedural Law, approved in the South-American Congress of Private International Law held in Montevideo in 1898, ratified by Argentina by law No. 3,192.
Treaty of International Procedural Law, approved in the South-American Congress of Private International Law held in Montevideo in 1939-1940, ratified by Dec. Ley 7771/56 (1956).
Panama Convention of 1975, CIDIP I: Inter-American Convention on International Commercial Arbitration, adopted within the Private International Law Conferences – Organization of American States, ratified by law No. 24,322 (1995).
Montevideo Convention of 1979, CIDIP II: Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitral Awards, adopted within the Private International Law Conferences – Organization of American States, ratified by law No. 22,921 (1983).
International Commercial Arbitration and Foreign Courts
Argentina does not have a specific law governing arbitration, but it has adopted a mediation law (Law 24.573/1995), which makes mediation mandatory prior to litigation. Some arbitration provisions are scattered throughout the Civil Code, the National Code of Civil and Commercial Procedure, the Commercial Code, and three other laws. The following methods of concluding an arbitration agreement are non-binding under Argentine law: electronic communication, fax, oral agreement, and conduct on the part of one party. Generally, all commercial matters are subject to arbitration. There are no legal restrictions on the identity and professional qualifications of arbitrators. Parties must be represented in arbitration proceedings in Argentina by attorneys who are licensed to practice locally. The grounds for annulment of arbitration awards are limited to substantial procedural violations, an ultra petita award (award outside the scope of the arbitration agreement), an award rendered after the agreed-upon time limit, and a public order violation that is not yet settled by jurisprudence when related to the merits of the award. On average, it takes around 21 weeks to enforce an arbitration award rendered in Argentina, from filing an application to a writ of execution attaching assets (assuming there is no appeal). It takes roughly 18 weeks to enforce a foreign award. The requirements for the enforcement of foreign judgments are set out in section 517 of the National Procedural Code.
No information is available as to whether the domestic courts frequently rule in cases in favor of state-owned enterprises (SOE) when SOEs are party to a dispute.
Under the law, debtors are generally able to begin insolvency proceedings when they are no longer able to pay their debts as they mature. Debtors may file for both liquidation and reorganization. Creditors may file for insolvency of the debtor for liquidation only. The insolvency framework does not require approval by the creditors for the selection or appointment of the insolvency representative or for the sale of substantial assets of the debtor. The insolvency framework does not provide rights to the creditor to request information from the insolvency representative, but the creditor has the right to object to decisions by the debtor to accept or reject creditors’ claims. Bankruptcy is not criminalized; however, convictions for fraudulent bankruptcy can carry two to six years of prison time.
Financial institutions regulated by the Central Bank of Argentina (BCRA) publish monthly outstanding credit balances of their debtors; the BCRA National Center of Debtors (Central de Deudores) compiles and publishes this information. The database is available for use of financial institutions that comply with legal requirements concerning protection of personal data. The credit monitoring system only includes negative information, and the information remains on file through the person’s life. At least one local NGO that makes microcredit loans is working to make the payment history of these loans publicly accessible for the purpose of demonstrating credit history, including positive information, for those without access to bank accounts and who are outside of the Central Bank’s system. Equifax, which operates under the local name “Veraz” (or “truthfully”), also provides credit information to financial institutions and other clients, such as telecommunications service providers and other retailers that operate monthly billing or credit/layaway programs.
The World Bank’s 2020 Doing Business Report ranked Argentina 111 out of 190 countries for the effectiveness of its insolvency law, remaining unchanged compared to 2019 ranking. The report notes that it takes an average of 2.4 years and 16.5 percent of the estate to resolve bankruptcy in Argentina.
4. Industrial Policies
Government incentives do not make any distinction between foreign and domestic investors.
The Argentine government offers a number of investment promotion programs at the federal, provincial, and municipal levels to attract investment to specific economic sectors such as capital assets and infrastructure, innovation and technological development, and energy, with no discrimination between national or foreign-owned enterprises. Some of the investment promotion programs require investments within a specific region or locality, industry, or economic activity. Some programs offer refunds on Value-Added Tax (VAT) or other tax incentives for local production of capital goods. The Investment and International Trade Promotion Agency provides cost-free assessment and information to investors to facilitate operations in the country. Argentina’s investment promotion programs and regimes can be found at: https://www.inversionycomercio.org.ar/es/inversores, https://www.investargentina.org.ar/, and https://www.argentina.gob.ar/produccion.
The National Fund for the Development of Micro, Small, and Medium Enterprises provides low- cost credit to small and medium-sized enterprises for investment projects, labor, capital, and energy efficiency improvement with no distinction between national or foreign-owned enterprises. More information can be found at: https://www.argentina.gob.ar/produccion/financiamiento
The Ministry of Productive Development supports employment training programs that are frequently free to the participants and do not differentiate based on nationality.
Foreign Trade Zones/Free Ports/Trade Facilitation
Argentina has two types of tax-exempt trading areas: Free Trade Zones (FTZ), which are located throughout the country, and the more comprehensive Special Customs Area (SCA), which covers all of Tierra del Fuego Province and is scheduled to expire at the end of 2023.
Argentine law defines an FTZ as a territory outside the “general customs area” (GCA, i.e., the rest of Argentina) where neither the inflows nor outflows of exported final merchandise are subject to tariffs, non-tariff barriers, or other taxes on goods. Goods produced within a FTZ generally cannot be shipped to the GCA unless they are capital goods not produced in the rest of the country. The labor, sanitary, ecological, safety, criminal, and financial regulations within FTZs are the same as those that prevail in the GCA. Foreign firms receive national treatment in FTZs.
Merchandise shipped from the GCA to a FTZ may receive export incentive benefits, if applicable, only after the goods are exported from the FTZ to a third country destination. Merchandise shipped from the GCA to a FTZ and later exported to another country is not exempt from export taxes. Any value added in an FTZ or re-export from an FTZ is exempt from export taxes. For more information on FTZ in Argentina see: http://www.afip.gob.ar/zonasFrancas/.
Products manufactured in the SCA may enter the GCA free from taxes or tariffs. In addition, the government may enact special regulations that exempt products shipped through the SCA (but not manufactured therein) from all forms of taxation except excise taxes. The SCA program provides benefits for established companies that meet specific production and employment objectives.
Performance and Data Localization Requirements
The Argentine national government does not have local employment mandates nor does it apply such schemes to senior management or boards of directors. However, certain provincial governments do require employers to hire a certain percentage of their workforce from provincial residents. There are no excessively onerous visa, residence, work permit, or similar requirements inhibiting mobility of foreign investors and their employees. Under Argentine law, conditions to invest are equal for national and foreign investors. As of March 2018, citizens of MERCOSUR countries can obtain legal residence within five months and at little cost, which grants permission to work. Argentina suspended its method for expediting this process in early 2018.
Argentina has local content requirements for specific sectors. Requirements are applicable to domestic and foreign investors equally. Argentine law establishes a national preference for local industry for most government procurement if the domestic supplier’s tender is no more than five to seven percent higher than the foreign tender. The amount by which the domestic bid may exceed a foreign bid depends on the size of the domestic company making the bid. In May 2018, Argentina issued Law 27,437, giving additional priority to Argentine small and medium-sized enterprises and, separately, requiring that foreign companies that win a tender must subcontract domestic companies to cover 20 percent of the value of the work. The preference applies to procurement by all government agencies, public utilities, and concessionaires. There is similar legislation at the sub-national (provincial) level.
In November 2016, the government passed a public-private partnership (PPP) law (27,328) that regulates public-private contracts. The law lowered regulatory barriers to foreign investment in public infrastructure projects with the aim of attracting more foreign direct investment. Several projects under the PPP initiative have been canceled or put on hold due to an ongoing investigation on corruption in public works projects during the last administration. The PPP law contains a “Buy Argentina” clause that mandates at least 33 percent local content for every public project.
Argentina is not a signatory to the WTO Agreement on Government Procurement (GPA), but it became an observer to the GPA in February 1997.
In July 2016, the Ministry of Production and Labor and the Ministry of Energy and Mining issued Joint Resolutions 123 and 313, which allow companies to obtain tax benefits on purchases of solar or wind energy equipment for use in investment projects that incorporate at least 60 percent local content in their electromechanical installations. In cases where local supply is insufficient to reach the 60 percent threshold, the threshold can be reduced to 30 percent. The resolutions also provide tax exemptions for imports of capital and intermediate goods that are not locally produced for use in the investment projects.
In 2016, Argentina passed law 27,263, implemented by Resolution 599-E/2016, which provides tax credits to automotive manufacturers for the purchase of locally-produced automotive parts and accessories incorporated into specific types of vehicles. The tax credits range from 4 percent to 15 percent of the value of the purchased parts. The list of vehicle types included in the regime can be found here: http://servicios.infoleg.gob.ar/infolegInternet/anexos/260000-264999/263955/norma.htm. In 2018, Argentina issued Resolution 28/2018, simplifying the procedure for obtaining the tax credits. The resolution also establishes that if the national content drops below the minimum required by the resolution because of relative price changes due to exchange rate fluctuations, automotive manufacturers will not be considered non-compliant with the regime. However, the resolution sets forth that tax benefits will be suspended for the quarter when the drop was registered.
The Media Law, enacted in 2009 and amended in 2015, requires companies to produce advertising and publicity materials locally or to include 60 percent local content. The Media Law also establishes a 70 percent local production content requirement for companies with radio licenses. Additionally, the Media Law requires that 50 percent of the news and 30 percent of the music that is broadcast on the radio be of Argentine origin. In the case of private television operators, at least 60 percent of broadcast content must be of Argentine origin. Of that 60 percent, 30 percent must be local news and 10 to 30 percent must be local independent content.
Argentina establishes percentages of local content in the production process for manufacturers of mobile and cellular radio communication equipment operating in Tierra del Fuego province. Resolution 66/2018 maintains the local content requirement for products such as technical manuals, packaging, and labeling. The percentage of local content required ranges from 10 percent to 100 percent depending on the process or item. In cases where local supply is insufficient to meet local content requirements, companies may apply for an exemption that is subject to review every six months. A detailed description of local content percentage requirements can be found at: http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do;jsessionid=0CA1B74C2D7EC353E66F1CC6CFD8B41D?id=255494.
There are no requirements for foreign IT providers to turn over source code and/or provide access to encryption, nor does the government prevent companies from freely transmitting customer or other business-related data outside the country’s territory.
Argentina does not have forced localization of content in technology or requirements of data storage in country.
There is no discrimination between domestic and foreign investors in investment incentives. There are no performance requirements. A complete guide of incentives for investors in Argentina can be found at: https://www.inversionycomercio.org.ar/es/inversores.
5. Protection of Property Rights
Secured interests in property, including mortgages, are recognized in Argentina. Such interests can be easily and effectively registered. They also can be readily bought and sold. Argentina manages a national registry of real estate ownership (Registro de la Propiedad Inmueble) at http://www.dnrpi.jus.gov.ar/. No data is available on the percent of all land that does not have clear title. There are no specific regulations regarding land lease and acquisition of residential and commercial real estate by foreign investors. Law 26,737 (Regime for Protection of National Domain over Ownership, Possession or Tenure of Rural Land) establishes the restrictions of foreign ownership on rural and productive lands, including water bodies. Foreign ownership is also restricted on land located near borders.
Legal claims may be brought to evict persons unlawfully occupying real property, even if the property is unoccupied by the lawful owner. However, these legal proceedings can be quite lengthy, and until the legal proceedings are complete, evicting squatters is problematic. The title and actual conditions of real property interests under consideration should be carefully reviewed before acquisition.
Argentine Law 26.160 prevents the eviction and confiscation of land traditionally occupied by indigenous communities in Argentina or encumbered with an indigenous land claim. Indigenous land claims can be found in the land registry. Enforcement is carried out by the National Institute of Indigenous Affairs, under the Ministry of Justice and Human Rights.
Intellectual Property Rights
The Government of Argentina adheres to some treaties and international agreements on intellectual property (IP) and belongs to the World Intellectual Property Organization and the World Trade Organization. The Argentine Congress ratified the Uruguay Round agreements, including the provisions on intellectual property, in Law 24425 in 1995.
The U.S. Trade Representative (USTR) 2021 Special 301 Report listed Argentina on the Priority Watch List. Trading partners on the Priority Watch List present the most significant concerns regarding inadequate or ineffective IP protection or enforcement or actions that otherwise limit market access for persons relying on IP protection. For a complete version of the 2020 Report, see: https://ustr.gov/sites/default/files/2020_Special_301_Report.pdf.
Argentina continues to present long-standing and well-known challenges to intellectual property (IP)-intensive industries, including those from the United States. A key deficiency in the legal framework for patents is the unduly broad limitations on patent eligible subject matter. Pursuant to a highly problematic 2012 Joint Resolution establishing guidelines for the examination of patents, Argentina rejects patent applications for categories of pharmaceutical inventions that are eligible for patentability in other jurisdictions, including in the United States. Additionally, to be patentable, Argentina requires that processes for the manufacture of active compounds disclosed in a specification be reproducible and applicable on an industrial scale. Stakeholders assert that Resolution 283/2015, introduced in September 2015, also limits the ability to patent biotechnological innovations based on living matter and natural substances. These measures have interfered with the ability of companies investing in Argentina to protect their IP and may be inconsistent with international norms.
Another ongoing challenge to the innovative agricultural chemical and pharmaceutical sectors is inadequate protection against the unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for products in those sectors. Finally, Argentina struggles with a substantial backlog of patent applications resulting in long delays for innovators seeking patent protection in the market. Government-wide hiring restrictions that remain in place, going back to a hiring freeze in 2018, have resulted in a limited number of patent examiners. Argentina did not extend the Patent Prosecution Highway signed between the National Institute of Industrial Property’s (INPI) and the U.S. Patent and Trademark Office, which expired in March 2020.
Enforcement of IP rights in Argentina continues to be a challenge, and stakeholders report widespread unfair competition from sellers of counterfeit and pirated goods and services. La Salada in Buenos Aires remains the largest counterfeit market in Latin America and is cited in USTR’s 2020 Review of Notorious Markets for Piracy and Counterfeiting. Argentine police generally do not take ex officio actions, prosecutions can stall and languish in excessive formalities, and, when a criminal case does reach final judgment, criminal infringers rarely receive deterrent sentences. Hard goods counterfeiting and optical disc piracy are widespread, and online piracy continues to grow due to nearly nonexistent criminal enforcement against such piracy. As a result, IP enforcement online in Argentina consists mainly of right holders trying to convince Argentine internet service providers to agree to take down specific infringing works, as well as attempting to seek injunctions in civil cases, both of which can be time-consuming and ineffective. Right holders also cite widespread use of unlicensed software by Argentine private enterprises and the government.
Argentina made limited progress in IP protection and enforcement in a year marked by a severe economic recession aggravated by the consequences of the confinement measures taken to mitigate the COVID-19 pandemic. The pressing economic situation led to an increase of counterfeit products sales in informal markets once the confinement measures were relaxed in the second semester of 2020. Online sales of counterfeit products, especially apparel and footwear spiked amidst the pandemic. The Argentine Confederation of Small and Medium-Sized Enterprises noted an increase of national production of counterfeit sportswear. Flight and border crossing restrictions applied during the COVID-19 health emergency prevented purchases of counterfeit products from China, Paraguay and Bolivia.
INPI began accepting electronic filing of patent, trademark, and industrial designs applications in 2018. During 2020, the agency successfully transitioned to an all-electronic filing system. Argentina continued to improve procedures for trademarks, with INPI reducing the time for a trademark opposition from an average of 3.5 years to one year. On trademarks, the law provides for a fast-track option that reduces the time to register a trademark to four months.
Argentina formally created the Federal Committee to Fight Against Contraband, Falsification of Trademarks, and Designations, formalizing the work on trademark counterfeiting under the National Anti-Piracy Initiative launched in 2017. In November 2020, Argentina and the United States held a virtual bilateral meeting under the Innovation and Creativity Forum for Economic Development, part of the U.S.-Argentina Trade and Investment Framework Agreement, to continue discussions and collaboration on IP topics of mutual interest. The United States intends to monitor all the outstanding issues for progress and urges Argentina to continue its efforts to create a more attractive environment for investment and innovation.
The Argentine Constitution sets as a general principle that foreign investors have the same status and the same rights as local investors. Foreign investors have free access to domestic and international financing.
Argentina’s economic recession began in 2018 and deepened further in 2019 after the presidential primary election. To slow the outflow of dollars from its reserves, in September 2019 the Argentine Central Bank introduced tight capital controls prohibiting transfers and payments that are likely in conflict with IMF Article VIII and tightened them thereafter. The Argentine government also implemented price controls and trade restrictions. In December 2019, the Fernandez administration passed an economic emergency law that created new taxes, increased export duties, and delegated broad powers to the Executive Branch, with the objectives of increasing social spending for the most vulnerable populations and negotiating revised terms for Argentina’s sovereign debt. These measures deteriorated the investment climate for local and foreign investors.
In April 2020, the government issued a decree postponing debt payments (both interest and principal) of dollar-denominated debt issued under local law until December 31, 2020. In May 2020, Argentina recorded its ninth sovereign default.
The government of Argentina restructured international law bonds for $65 billion and domestic law bonds for $42 billion in September 2020 bringing financial relief of $37.7 billion over the period 2020-2030. In August 2020, the government of Argentina formally notified the International Monetary Fund (IMF) of its intent to renegotiate $45 billion due to the Fund from the 2018 Stand-By Arrangement starting in 2021.
The Argentine Securities and Exchange Commission (CNV or Comisión Nacional de Valores) is the federal agency that regulates securities markets offerings. Securities and accounting standards are transparent and consistent with international norms. Foreign investors have access to a variety of options on the local market to obtain credit. Nevertheless, the domestic credit market is small – credit is 16 percent of GDP, according to the World Bank. To mitigate the recessionary impact of the COVID-19 crisis, the government introduced low-cost lending credit lines (carrying negative real interest rates), and the Central Bank reduced banks’ minimum reserve requirements to encourage banks to expand credit, particularly to SMEs. The Buenos Aires Stock Exchange is the organization responsible for the operation of Argentina’s primary stock exchange, located in Buenos Aires city. The most important index of the Buenos Aires Stock Exchange is the MERVAL (Mercado de Valores).
U.S. banks, securities firms, and investment funds are well-represented in Argentina and are dynamic players in local capital markets. In 2003, the government began requiring foreign banks to disclose to the public the nature and extent to which their foreign parent banks guarantee their branches or subsidiaries in Argentina.
Money and Banking System
Argentina has a relatively sound banking sector based on diversified revenues, well-contained operating costs, and a high liquidity level. Argentina’s banking sector has been resilient in the face of a multi-year economic contraction. Supported by government measures during the COVID-19 pandemic, credit to the private sector in local currency (for both corporations and individuals) increased 10 percent in real terms in 2020. Non-performing private sector loans constitute less than four percent of banks’ portfolios. However, the performance of the financial system has largely been driven by a series of temporary counter-cyclical measures, namely subsidized government-backed loans for small businesses. The banking sector is well positioned due to macro and micro-prudential policies introduced since 2002 that have helped to reduce asset-liability mismatches. The sector is highly liquid and its exposure to the public sector is modest, while its provisions for bad debts are adequate.
Private banks have total assets of approximately ARS 6.1 billion (USD $65 billion). Total financial system assets are approximately ARS 9.9 billion (USD $105 billion). The Central Bank of Argentina acts as the country’s financial agent and is the main regulatory body for the banking system.
Foreign banks and branches can establish operations in Argentina. They are subject to the same regulation as local banks. Argentina’s Central Bank has many correspondent banking relationships, none of which are known to have been lost in the past three years.
In November 2020, the Central Bank launched a new payment system, “Transfers 3.0,” seeking to reduce the use of cash. This system will boost digital payments and further financial inclusion in Argentina, expanding the reach of instant transfers to build an open and universal digital payment ecosystem.
The Central Bank has enacted a resolution recognizing cryptocurrencies and requiring that they comply with local banking and tax laws. No implementing regulations have been adopted. Block chain developers report that several companies in the financial services sector are exploring or considering using block chain-based programs externally and are using some such programs internally.
Foreign Exchange and Remittances
Beginning in September 2019 and throughout 2020, the Argentine government and Central Bank issued a series of decrees and norms regulating and restricting access to foreign exchange markets.
As of October 2019, the Central Bank (Notice A6815) limits cash withdrawals made abroad with local debit cards to foreign currency bank accounts owned by the client in Argentina. Pursuant to Notice A6823, cash advances made abroad from local credit cards are limited to a maximum of USD $50 per transaction.
As of September 2020, and pursuant to Notice A7106, Argentine individuals can purchase no more than USD $200 per month on a rolling monthly basis. However, purchases abroad with credit and debit cards will be deducted from the USD $200 per month quota. While no limit on credit/debit card purchases is imposed, if the monthly expenses surpass the USD $200 limit, the deduction will be carried over to subsequent months until the amount acquired is completed. Also, the regulation prohibits individual recipients of government assistance programs and high-ranking federal government officials from purchasing foreign exchange. Purchases above the USD $200 limit require Central Bank approval. Pursuant to Public Emergency Law 27,541, issued December 23, 2019, all dollar purchases and individual expenses incurred abroad, in person or online, including international online purchases from Argentina, paid with credit or debit cards will be subject to a 30 percent tax. Pursuant to AFIP Resolution 4815 a 35 percent withholding tax in advance of the payment of income and/or wealth tax is also applied.
Non-Argentine residents are required to obtain prior Central Bank approval to purchase more than USD $100 per month, except for certain bilateral or international organizations, institutions and agencies, diplomatic representation, and foreign tribunals.
Companies and individuals need to obtain prior clearance from the Central Bank before transferring funds abroad. In the case of individuals, if transfers are made from their own foreign currency accounts in Argentina to their own accounts abroad, they do not need to obtain Central Bank approval.
Per Notice A6869 issued by the Central Bank in January 2020, companies will be able to repatriate dividends without Central Bank authorization equivalent to a maximum of 30 percent of new foreign direct investment made by the company in the country. To promote foreign direct investment the Central Bank announced in October 2020 (Notice A7123) that it will allow free access to the official foreign exchange market to repatriate investments as long as the capital contribution was transferred and sold in Argentine Pesos through the foreign exchange market as of October 2, 2020 and the repatriation takes place at least two years after the transfer and settlement of those funds.
Exporters of goods are required to transfer the proceeds from exports to Argentina and settle in pesos in the foreign currency market. Exporters must settle according to the following terms: exporters with affiliates (irrespective of the type of good exported) and exporters of certain goods (including cereals, seeds, minerals, and precious metals, among others) must convert their foreign currency proceeds to pesos within 15 days (or 30 days for some products) after the issuance of the permit for shipment; other exporters have 180 days to settle in pesos. Despite these deadlines, exporters must transfer the funds to Argentina and settle in pesos within five business days from the actual collection of funds. Argentine residents are required to transfer to Argentina and settle in pesos the proceeds from services exports rendered to non-Argentine residents that are paid in foreign currency either in Argentina or abroad, within five business days from collection of funds.
Payment of imports of goods and services from third parties and affiliates require Central Bank approval if the company needs to purchase foreign currency. Since May 2020, the Central Bank requires importers to submit an affidavit stating that the total amount of payments associated with the import of goods made during the year (including the payment that is being requested). The total amount of payments for importation of goods should also include the payments for amortizations of lines of credit and/or commercial guarantees.
In September 2020, the Central Bank limited companies’ ability to purchase foreign currency to cancel any external financial debt (including other intercompany debt) and dollar denominated local securities offerings. Companies were granted access to foreign currency for up to 40 percent of the principal amount coming due from October 15, 2020 to December 31, 2020. For the remaining 60 percent of the debt, companies had to file a refinancing plan with the Central Bank. In February 2021, the Central Bank extended the regulation to include debt maturing up to December 31, 2021. Indebtedness with international organizations or their associated agencies or guaranteed by them and indebtedness granted by official credit agencies or guaranteed by them are exempted from this restriction.
The Central Bank (Notice A7001) prohibited access to the foreign exchange market to pay for external indebtedness, imports of goods and services, and saving purposes for individuals and companies that have made sales of securities with settlement in foreign currency or transfers of these to foreign depositary entities within the last 90 days. They also should not make any of these transactions for the following 90 days.
Pre-cancellation of debt coming due abroad in more than three business days requires Central Bank approval to purchase dollars.
Per Resolution 36,162 of October 2011, locally registered insurance companies are mandated to maintain all investments and cash equivalents in the country. The Central Bank limits banks’ dollar-denominated asset holdings to 5 percent of their net worth.
In January 2020, the Central Bank presented its monetary policy framework showing that monetary and financial policies will be subject to the government’s objective of addressing current social and economic challenges. In particular, the Central Bank acknowledged that it would continue to provide direct financial support to the government (in foreign and domestic currency) as external credit markets remain closed. The Central Bank determined that a managed exchange rate is a valid instrument to avoid sharp fluctuations in relative prices, international competitiveness, and income distribution. The Central Bank also noted the exchange rate policy should also facilitate the preemptive accumulation of international reserves.
In response to the economic crisis in Argentina, the government introduced capital controls in September 2019 and tightened them in 2020. Under these restrictions, companies in Argentina (including local affiliates of foreign parent companies) must obtain prior approval from the Central Bank to access the foreign exchange market to purchase foreign currency and to transfer funds abroad for the payment of dividends and profits. In January 2020, the Central Bank amended the regime for the payment of dividends abroad to non-residents. The new regime allows companies to access the foreign exchange market to transfer profits and dividends abroad without prior authorization of the Central Bank, provided the following conditions are met:
Profits and dividends are be declared in closed and audited financial statements.
The dividends in foreign currency should not exceed the dividends determined by the shareholders’ meeting in local currency.
The total amount of dividends to be transferred cannot exceed 30 percent of the amount of new capital contributions made by non-residents into local companies since January 2020.
The resident entity must be in compliance with filing the Central Bank Survey of External Assets and Liabilities.
Sovereign Wealth Funds
The Argentine government does not maintain a Sovereign Wealth Fund.
7. State-Owned Enterprises
The Argentine government has state-owned enterprises (SOEs) or significant stakes in mixed-capital companies in the following sectors: civil commercial aviation, water and sanitation, oil and gas, electricity generation, transport, paper production, satellite, banking, railway, shipyard, and aircraft ground handling services.
Through the government’s social security agency (ANSES), the Argentine government owns stakes ranging from one to 31 percent in 46 publicly listed companies. U.S. investors also own shares in some of these companies. As part of the ANSES takeover of Argentina’s private pension system in 2008, the government agreed to commit itself to being a passive investor in the companies and limit the exercise of its voting rights to 5 percent, regardless of the equity stake the social security agency owned. A list of such enterprises can be found at: http://fgs.anses.gob.ar/participacion.
State-owned enterprises purchase and supply goods and services from the private sector and foreign firms. Private enterprises may compete with SOEs under the same terms and conditions with respect to market share, products/services, and incentives. Private enterprises also have access to financing terms and conditions similar to SOEs. SOEs are subject to the same tax burden and tax rebate policies as their private sector competitors. SOEs are not currently subject to firm budget constraints under the law and have been subsidized by the central government in the past. Between 2016 and 2019, the Government of Argentina reduced subsidies in the energy, water, and transportation sectors. However, in 2019 the Government postponed its subsidy reduction program and redesigned it several times, citing pressing macroeconomic issues. During 2020 subsidies increased to maintain a tariff freeze on public services given the COVID-19 pandemic. The 2021 budget targets a reduction in subsidies in an effort to contain spending. Argentina does not have regulations that differentiate treatment of SOEs and private enterprises. Argentina has observer status under the WTO Agreement on Government Procurement and, as such, SOEs are subject to the conditions of Argentina’s observance.
Argentina does not have a specified ownership policy, guideline or governance code for how the government exercises ownership of SOEs. The country generally adheres to the OECD Guidelines on Corporate Governance of SOEs. The practices for SOEs are mainly in compliance with the policies and practices for transparency and accountability in the OECD Guidelines. In 2018, the OECD released a report evaluating the corporate governance framework for the Argentine SOE sector relative to the OECD Guidelines, which can be viewed here: http://www.oecd.org/countries/argentina/oecd-review-corporate-governance-soe-argentina.htm.
Argentina does not have a centralized ownership entity that exercises ownership rights for each of the SOEs. The general rule in Argentina is that requirements that apply to all listed companies also apply to publicly-listed SOEs.
The current administration has not developed a privatization program.
8. Responsible Business Conduct
There is an increasing awareness of corporate social responsibility (CSR) and responsible business conduct (RBC) among both producers and consumers in Argentina. RBC and CSR practices are welcomed by beneficiary communities throughout Argentina. There are many institutes that promote RBC and CSR in Argentina, the most prominent being the Argentine Institute for Business Social Responsibility (http://www.iarse.org/ ), which has been working in the country for more than 18 years and includes among its members many of the most important companies in Argentina.
Argentina is a member of the United Nation’s Global Compact. Established in April 2004, the Global Compact Network Argentina is a business-led network with a multi-stakeholder governing body elected for two-year terms by active participants. The network is supported by the United Nations Development Program (UNDP) Argentina in close collaboration with other UN Agencies. The Global Compact Network Argentina is the most important RBC/CSR initiative in the country with a presence in more than 20 provinces. More information on the initiative can be found at: http://pactoglobal.org.ar .
Foreign and local enterprises tend to follow generally accepted CSR/RBC principles. Argentina subscribed to the Declaration on the OECD Guidelines for Multinational Enterprises in April 1997.
Many provinces, such as Mendoza and Neuquén, have or are in the process of enacting a provincial CSR/RBC law. There have been many previously unsuccessful attempts to pass a CSR/RBC law. Distrust over the State’s role in private companies had been the main concern for legislators opposed to these bills.
Argentina’s legal system incorporates several measures to address public sector corruption. The foundational law is the 1999 Public Ethics Law (Law 25,188), the full text of which can be found at: http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do?id=60847. A March 2019 report by the OECD’s Directorate for Public Governance underscored, however, that the law is heterogeneously implemented across branches of the government and that the legislative branch has not designated an application authority, approved an implementing regulation, or specified sanctions. It also noted that Argentina has a regulation on lobbying, but that it only applies to the executive branch, and only requires officials to disclose meetings with lobbyists. With regards to political parties, the report noted anonymous campaign donations are banned, but 90 percent of all donations in Argentina are made in cash, making it impossible to identify donors. Furthermore, the existing regulations have insufficient controls and sanctions, and leave gaps with provincial regulations that could be exploited.
Within the executive branch, the government institutions tasked with combatting corruption include the Anti-Corruption Office (ACO), the National Auditor General, and the General Comptroller’s Office. Public officials are subject to financial disclosure laws, and the Ministry of Justice’s ACO is responsible for analyzing and investigating federal executive branch officials based on their financial disclosure forms—which require the disclosure of assets directly owned by immediate family members. The ACO is also responsible for investigating corruption within the federal executive branch or in matters involving federal funds, except for funds transferred to the provinces. While the ACO does not have authority to independently prosecute cases, it can refer cases to other agencies or serve as the plaintiff and request that a judge initiate a case.
Argentina enacted a new Corporate Criminal Liability Law in November 2017 following the advice of the OECD to comply with its Anti-Bribery Convention. The full text of Law 27,401 can be found at: http://servicios.infoleg.gob.ar/infolegInternet/anexos/295000-299999/296846/norma.htm . The new law entered into force in early 2018. It extends anti-bribery criminal sanctions to corporations, whereas previously they only applied to individuals; expands the definition of prohibited conduct, including illegal enrichment of public officials; and allows Argentina to hold Argentines responsible for foreign bribery. Sanctions include fines and blacklisting from public contracts. Argentina also enacted an express prohibition on the tax deductibility of bribes.
Official corruption remains a serious challenge in Argentina. In its March 2017 report, the OECD expressed concern about Argentina’s enforcement of foreign bribery laws, inefficiencies in the judicial system, politicization and perceived lack of independence at the Attorney General’s Office, and lack of training and awareness for judges and prosecutors. According to the World Bank’s worldwide governance indicators, corruption remains an area of concern in Argentina. In the latest Transparency International Corruption Perceptions Index (CPI), Argentina ranked 78 out of 180 countries in 2020, dropping 12 places compared to 2019. Allegations of corruption in provincial as well as federal courts remained frequent. Few Argentine companies have implemented anti-foreign bribery measures beyond limited codes of ethics.
In September 2016, Congress passed a law on public access to information. The law explicitly applies to all three branches of the federal government, the public justice offices, and entities such as businesses, political parties, universities, and trade associations that receive public funding. It requires these institutions to respond to citizen requests for public information within 15 days, with an additional 15-day extension available for “exceptional” circumstances. Sanctions apply for noncompliance. As mandated by the law, the executive branch created the Agency for Access to Public Information in 2017, an autonomous office that oversees access to information. In early 2016, the Argentine government reaffirmed its commitment to the Open Government Partnership (OGP), became a founding member of the Global Anti-Corruption Coalition, and reengaged the OECD Working Group on Bribery.
Argentina is a party to the Organization of American States’ Inter-American Convention against Corruption. It ratified in 2001 the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (Anti-Bribery Convention). Argentina also signed and ratified the UN Convention against Corruption (UNCAC) and participates in UNCAC’s Conference of State Parties. Argentina also participates in the Mechanism for Follow-up on the Implementation of the Inter-American Convention against Corruption (MESICIC).
Since Argentina became a party to the OECD Anti-Bribery Convention, allegations of Argentine individuals or companies bribing foreign officials have surfaced. A March 2017 report by the OECD Working Group on Bribery indicated there were 13 known foreign bribery allegations involving Argentine companies and individuals as of that date. According to the report, Argentine authorities investigated and closed some of the allegations and declined to investigate others. The authorities determined some allegations did not involve foreign bribery but rather other offenses. Several such allegations remained under investigation.
Demonstrations are common in metropolitan Buenos Aires and in other major cities and rural areas. Nevertheless, political violence is not widely considered a hindrance to the investment climate in Argentina.
Protesters regularly block streets, highways, and major intersections, causing traffic jams and delaying travel. While demonstrations are usually non-violent, individuals sometimes seek confrontation with the police and vandalize private property. Groups occasionally protest in front of the U.S. Embassy or U.S.-affiliated businesses. In February 2016, the Ministry of Security approved a National Anti-Street Pickets Protocol that provides guidelines to prevent the blockage of major streets and public facilities during demonstrations. However, this protocol did not often apply to venues within the City of Buenos Aires (CABA), which fall under the city’s jurisdiction. The CABA government often did not enforce security protocols against illegal demonstrations.
In December 2017, while Congress had called an extraordinary session to address the retirement system reforms, several demonstrations against the bill turned violent, causing structural damage to public and private property, injuries to 162 people (including 88 policemen), and arrests of 60 people. The demonstrations ultimately dissipated, and the government passed the bill.
Union disputes and politicized worker movements are common in CABA and the Provinces. In 2019 and early 2020, foreign-owned diamond mining companies in Neuquén were targeted by work stoppages and insider attacks in failed attempts to intimidate and force employers to increase salaries and benefits. These protesters were seemingly allowed to act without fear of response from local police forces, even after direct requests for assistance had been made. The companies believe the unions and protesters feel emboldened by the government’s stance towards Western companies and were forced to shut down operations for weeks in December 2019 and January 2020, in fear of the safety of their personnel at the local headquarters.
11. Labor Policies and Practices
Argentine workers are among the most highly-educated and skilled in Latin America. Foreign investors often cite Argentina’s skilled workforce as a key factor in their decision to invest in Argentina. Argentina has relatively high social security, health, and other labor taxes, however, high labor costs are among foreign investors’ most often cited operational challenges. The unemployment rate reached 11 percent in 2020, according to official statistics. The government estimated unemployment for workers below 29 years old as more than double the national rate. Exacerbated by the COVID-19 pandemic, analysts estimate informality stands between 20 to 40 percent.
During 2020, the Argentine government implemented measures to alleviate the impact of the COVID-19 pandemic on the economy and employment. The government introduced measures to stimulate the economy and employment through public works and price limits; to protect workers in the workplace by promoting telework and offering leave for workers; and to support jobs and worker income by prohibiting employers from terminating employment. The government also facilitated social dialogue between the private sector and unions. The government has postponed implementation of Argentina’s ambitious Teleworking Contracts Regime, Law 27555, passed by Congress on July 30, 2020 and ratified by President Fernandez on August 14, 2020. This law provides the legal framework for teleworking in employment settings that allow it. However, it is so restrictive that many businesses have said that it deters telework.
Labor laws are comparatively protective of workers in Argentina, and investors cite labor-related litigation as an important factor increasing labor costs in Argentina. For example, one of the first measures passed by President Fernandez after he took office was Decree 34/2019 which established that employees dismissed without cause have the right to double the legal severance payment, the measure was extended until December 31, 2021 through Decree 39/2021. There are no special laws or exemptions from regular labor laws in the Foreign Trade Zones. Organized labor plays an important role in labor-management relations and in Argentine politics. Under Argentine law, the Ministry of Labor recognizes one union per sector per geographic unit (e.g., nationwide, a single province, or a major city) with the right to negotiate a collective bargaining agreement for that sector and geographic area. Roughly 40 percent of Argentina’s formal workforce is unionized. The Ministry of Labor ratifies collective bargaining agreements. Collective bargaining agreements cover workers in a given sector and geographic area whether they are union members or not, so roughly 70 percent of the workforce was covered by an agreement. While negotiations between unions and industry are generally independent, the Ministry of Labor often serves as a mediator. Argentine law also offers recourse to mediation and arbitration of labor disputes.
During 2020, the Ministry of Labor registered 840 labor and collective bargaining agreements. These agreements covered approximately 5.1 million workers. As a result of the COVID-19 pandemic, a large number of the agreements focused on the inability of workers to come to their workplace due to social distancing measures and the inability of employers to terminate employment during the crisis.
Tensions between management and unions occur. Many managers of foreign companies say they have good relations with their unions. Others say the challenges posed by strong unions can hinder further investment by their international headquarters. Depending on how sectors are defined, some activities such as oil and gas production or aviation involve multiple unions, which can lead to inter-union power disputes that can impede the companies’ operations.
The Fernandez government does not intend to pursue a broad labor reform bill, preferring instead to allow firms and workers to negotiate any adjustments to labor conditions through the collective bargaining process. The Ministry of Labor has indicated interest in proposing a “gig economy” bill (ley de plataformas) that would extend basic labor rights to, e.g., delivery workers coordinated through information technology applications. Labor-related demonstrations in Argentina occurred periodically in 2019, due to the pandemic, most Argentines’ outside activities were limited throughout 2020 which also limited demonstrations. Reasons for strikes include job losses, high taxes, loss of purchasing power, and wage negotiations. Labor demonstrations may involve tens of thousands of protestors. Past demonstrations have essentially closed sections of a city for a few hours or impeded traffic.
The Ministry of Labor has hotlines and an online website to report labor abuses, including child labor, forced labor, and labor trafficking. The Superintendent of Labor Risk (Superintendencia de Riesgos del Trabajo) has oversight of health and safety standards. Unions also play a key role in monitoring labor conditions, reporting abuses and filing complaints with the authorities. Argentina has a Service of Mandatory Labor Conciliation (SECLO), which falls within the Ministry of Labor. Provincial governments and the city government of Buenos Aires are also responsible for labor law enforcement.
The minimum age for employment is 16. Children between the ages of 16 and 18 may work in a limited number of job categories and for limited hours if they have completed compulsory schooling, which normally ends at age 18. The law requires employers to provide adequate care for workers’ children during work hours to discourage child labor. The Department of Labor’s 2019 Worst Form of Child Labor for Argentina can be accessed here: https://www.dol.gov/agencies/ilab/resources/reports/child-labor/argentina
Argentine law prohibits discrimination on the grounds of sex, race, nationality, religion, political opinion, union affiliation, or age. The law also prohibits employers, either during recruitment or time of employment, from asking about a worker’s political, religious, labor, and cultural views or sexual orientation. These national anti-discrimination laws also apply to labor relations and other social relations.
Argentina has been a member of the International Labor Organization since 1919.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Host Country Gross Domestic Product (GDP) ($M USD)
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment
Outward Direct Investment
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Debt Securities
14. Contact for More Information
U.S. Embassy Buenos Aires
Avenida Colombia 4300
Buenos Aires, Argentina
The Government of India continued to actively court foreign investment. In the wake of COVID-19, India enacted ambitious structural economic reforms, including new labor codes and landmark agricultural sector reforms, that should help attract private and foreign direct investment. In February 2021, the Finance Minister announced plans to raise $2.4 billion though an ambitious privatization program that would dramatically reduce the government’s role in the economy. In March 2021, parliament further liberalized India’s insurance sector, increasing the foreign direct investment (FDI) limits to 74 percent from 49 percent, though still requiring a majority of the Board of Directors and management personnel to be Indian nationals.
In response to the economic challenges created by COVID-19 and the resulting national lockdown, the Government of India enacted extensive social welfare and economic stimulus programs and increased spending on infrastructure and public health. The government also adopted production linked incentives to promote manufacturing in pharmaceuticals, automobiles, textiles, electronics, and other sectors. These measures helped India recover from an approximately eight percent fall in GDP between April 2020 and March 2021, with positive growth returning by January 2021.
India, however, remains a challenging place to do business. New protectionist measures, including increased tariffs, procurement rules that limit competitive choices, sanitary and phytosanitary measures not based on science, and Indian-specific standards not aligned with international standards, effectively closed off producers from global supply chains and restricted the expansion in bilateral trade.
The U.S. government continued to urge the Government of India to foster an attractive and reliable investment climate by reducing barriers to investment and minimizing bureaucratic hurdles for businesses.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies toward Foreign Direct Investment
Changes in India’s foreign investment rules are notified in two different ways: (1) Press Notes issued by the Department for Promotion of Industry and Internal Trade (DPIIT) for most sectors, and (2) legislative action for insurance, pension funds, and state-owned enterprises in the coal sector. FDI proposals in sensitive sectors, however, require the additional approval of the Home Ministry.
DPIIT, under the Ministry of Commerce and Industry, is India’s chief investment regulator and policy maker. It compiles all policies related to India’s FDI regime into a single document to make it easier for investors to understand, and this consolidated policy is updated every year. The updated policy can be accessed at: http://dipp.nic.in/foreign-direct–investment/foreign–direct–investment-policy. DPIIT, through the Foreign Investment Implementation Authority (FIIA), plays an active role in resolving foreign investors’ project implementation problems and disseminates information about the Indian investment climate to promote investments. The Department establishes bilateral economic cooperation agreements in the region and encourages and facilitates foreign technology collaborations with Indian companies and DPIIT oftentimes consults with lead ministries and stakeholders. There however have been multiple incidents where relevant stakeholders reported being left out of consultations.
Limits on Foreign Control and Right to Private Ownership and Establishment
In most sectors, foreign and domestic private entities can establish and own businesses and engage in remunerative activities. Several sectors of the economy continue to retain equity limits for foreign capital as well as management and control restrictions, which deter investment. For example, the 2015 Insurance Act raised FDI caps from 26 percent to 49 percent, but also mandated that insurance companies retain “Indian management and control.” In the parliament’s 2021 budget session, the Indian government approved increasing the FDI caps in the insurance sector to 74 percent from 49 percent. However, the legislation retained the “Indian management and control” rider. In the August 2020 session of parliament, the government approved reforms that opened the agriculture sector to FDI, as well as allowed direct sales of products and contract farming, though implementation of these changes was temporarily suspended in the wake of widespread protests. In 2016, India allowed up to 100 percent FDI in domestic airlines; however, the issue of substantial ownership and effective control (SOEC) rules that mandate majority control by Indian nationals have not yet been clarified. A list of investment caps is accessible at: http://dipp.nic.in/foreign-direct–investment/foreign-direct–investment-policy.
Screening of FDI
All FDI must be reviewed under either an “Automatic Route” or “Government Route” process. The Automatic Route simply requires a foreign investor to notify the Reserve Bank of India of the investment and applies in most sectors. In contrast, investments requiring review under the Government Route must obtain the approval of the ministry with jurisdiction over the appropriate sector along with the concurrence of DPIIT. The government route includes sectors deemed as strategic including defense, telecommunications, media, pharmaceuticals, and insurance. In August 2019, the government announced a new package of liberalization measures and brought a number of sectors including coal mining and contract manufacturing under the automatic route.
FDI inflows were mostly directed towards the largest metropolitan areas – Delhi, Mumbai, Bangalore, Hyderabad, Chennai – and the state of Gujarat. The services sector garnered the largest percentage of FDI. Further FDI statistics are available at: http://dipp.nic.in/publications/fdi–statistics.
DPIIT is responsible for formulation and implementation of promotional and developmental measures for growth of the industrial sector, keeping in view national priorities and socio- economic objectives. While individual lead ministries look after the production, distribution, development and planning aspects of specific industries allocated to them, DPIIT is responsible for overall industrial policy. It is also responsible for facilitating and increasing the FDI flows to the country.
InvestIndia is the official investment promotion and facilitation agency of the Government of India, which is managed in partnership with DPIIT, state governments, and business chambers. Invest India specialists work with investors through their investment lifecycle to provide support with market entry strategies, industry analysis, partner search, and policy advocacy as required. Businesses can register online through the Ministry of Corporate Affairs website: http://www.mca.gov.in/. After the registration, all new investments require industrial approvals and clearances from relevant authorities, including regulatory bodies and local governments. To fast-track the approval process, especially in the case of major projects, Prime Minister Modi started the Pro-Active Governance and Timely Implementation (PRAGATI initiative) – a digital, multi-modal platform to speed the government’s approval process. As of January 2020, a total of 275 project proposals worth around $173 billion across ten states were cleared through PRAGATI. Prime Minister Modi personally monitors the process to ensure compliance in meeting PRAGATI project deadlines. The government also launched an Inter-Ministerial Committee in late 2014, led by the DPIIT, to help track investment proposals that require inter-ministerial approvals. Business and government sources report this committee meets informally and on an ad hoc basis as they receive reports of stalled projects from business chambers and affected companies.
The Ministry of Commerce’s India Brand Equity Foundation (IBEF) claimed in March 2020 that outbound investment from India had undergone a considerable change in recent years in terms of magnitude, geographical spread, and sectorial composition. Indian firms invest in foreign markets primarily through mergers and acquisition (M&A). According to a Care Ratings study, corporate India invested around $12.25 billion in overseas markets between April and December 2020. The investment was mostly into wholly owned subsidiaries of companies. In terms of country distribution, the dominant destinations were the Unites States ($2.36 billion), Singapore ($2.07 billion), Netherlands ($1.50 billion), British Virgin Islands ($1.37 billion), and Mauritius ($1.30 million).
2. Bilateral Investment Agreements and Taxation Treaties
India adopted a new model Bilateral Investment Treaty (BIT) in December 2015, following several adverse rulings in international arbitration proceedings. The new model BIT does not allow foreign investors to use investor-state dispute settlement methods, and instead requires foreign investors first to exhaust all local judicial and administrative remedies before entering international arbitration. The Indian government also served termination notices for existing BITs with 73 countries.
In September 2018, Belarus became the first country to execute a new BIT with India, based on the new model BIT, followed by the Taipei Cultural & Economic Centre (TECC) in December 2019, and Brazil in January 2020. India has also entered into a BIT negotiation with the Philippines and joint interpretative statements are under discussion with Iran, Switzerland, Morocco, Kuwait, Ukraine, UAE, San Marino, Hong Kong, Israel, Mauritius, and Oman.
Currently 14 BITs are in force. The Ministry of Finance said the revised model BIT will be used for the renegotiation of existing and any future BITs and will form the investment chapter in any Comprehensive Economic Cooperation Agreements (CECAs)/Comprehensive Economic Partnership Agreements (CEPAs)/Free Trade Agreements (FTAs).
Some government policies are written in a way that can be discriminatory to foreign investors or favor domestic industry. For example, approval in 2021 for higher FDI thresholds in the insurance sector came with a requirement of “Indian management and control.” On most occasions the rules are framed after thorough discussions by government authorities and require the approval of the cabinet and, in some cases, the Parliament as well. Policies pertaining to foreign investments are framed by DPIIT, and implementation is undertaken by lead federal ministries and sub-national counterparts. However, in some instances the rules have been framed without following any consultative process.
In 2017, India began assessing a six percent “equalization levy,” or withholding tax, on foreign online advertising platforms with the ostensible goal of “equalizing the playing field” between resident service suppliers and non-resident service suppliers. However, its provisions did not provide credit for taxes paid in other countries for services supplied in India. In February 2020, the FY 2020-21 budget included an expansion of the “equalization levy,” adding a two percent tax to the equalization levy on foreign e-commerce and digital services provider companies. Neither the original 2017 levy, nor the additional 2020 two percent tax applied to Indian firms. In February 2021, the FY 2021-22 budget included three amendments “clarifying” the 2020 equalization levy expansion that will significantly extend the scope and potential liability for U.S. digital and e-commerce firms. The changes to the levy announced in 2021 will be implemented retroactively from April 2020. The 2020 and 2021 changes were enacted without prior notification or an opportunity for public comment.
The Indian Accounting Standards were issued under the supervision and control of the Accounting Standards Board, a committee under the Institute of Chartered Accountants of India (ICAI), and has government, academic, and professional representatives. The Indian Accounting Standards are named and numbered in the same way as the corresponding International Financial Reporting Standards. The National Advisory Committee on Accounting Standards recommends these standards to the Ministry of Corporate Affairs, which all listed companies must then adopt. These can be accessed at: http://www.mca.gov.in/MinistryV2/Stand.html
International Regulatory Considerations
India is a member of the South Asia Association for Regional Cooperation (SAARC), an eight- member regional block in South Asia. India’s regulatory systems are aligned with SAARC’s economic agreements, visa regimes, and investment rules. Dispute resolution in India has been through tribunals, which are quasi-judicial bodies. India has been a member of the WTO since 1995, and generally notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade; however, at times there are delays in publishing the notifications. The Governments of India and the United States cooperate in areas such as standards, trade facilitation, competition, and antidumping practices.
Legal System and Judicial Independence
India adopted its legal system from English law and the basic principles of the Common Law as applied in the UK are largely prevalent in India. However, foreign companies need to make adaptations for Indian Law and the Indian business culture when negotiating and drafting contracts in India to ensure adequate protection in case of breach of contract. The Indian judiciary provides for an integrated system of courts to administer both central and state laws. The judicial system includes the Supreme Court as the highest national court, as well as a High Court in each state or a group of states which covers a hierarchy of subordinate courts. Article 141 of the Constitution of India provides that a decision declared by the Supreme Court shall be binding on all courts within the territory of India. Apart from courts, tribunals are also vested with judicial or quasi-judicial powers by special statutes to decide controversies or disputes relating to specified areas.
Courts have maintained that the independence of the judiciary is a basic feature of the Constitution, which provides the judiciary institutional independence from the executive and legislative branches.
4. Industrial Policies
The regulatory environment in terms of foreign investment has been eased to make it investor friendly. The measures taken by the Government are directed to open new sectors for foreign direct investment, increase the sectoral limit of existing sectors, and simplifying other conditions of the FDI policy. The Indian government has issued guarantees to investments but only in cases of strategic industries.
Foreign Trade Zones/Free Ports/Trade Facilitation
The government established several foreign trade zone initiatives to encourage export-oriented production. These include Special Economic Zones (SEZs), Export Processing Zones (EPZs), Software Technology Parks (STPs), and Export Oriented Units (EOUs). EPZs are industrial parks with incentives for foreign investors in export-oriented businesses. STPs are special zones with similar incentives for software exports. EOUs are industrial companies, established anywhere in India, that export their entire production and are granted the following: duty-free import of intermediate goods, income tax holidays, exemption from excise tax on capital goods, components, and raw materials, and a waiver on sales taxes. According to the Ministry of Commerce and Industry, as of October 2020, 426 SEZ’s have been approved and 262 SEZs were operational. SEZs are treated as foreign territory — businesses operating within SEZs are not subject to customs regulations nor have FDI equity caps. They also receive exemptions from industrial licensing requirements and enjoy tax holidays and other tax breaks. In 2018, the Indian government announced guidelines for the establishment of the National Industrial and Manufacturing Zones (NIMZs), envisaged as integrated industrial townships to be managed by a special purpose vehicle and headed by a government official. So far, three NIMZs have been accorded final approval and 13 have been accorded in-principal approval. In addition, eight investment regions along the Delhi-Mumbai Industrial Corridor (DIMC) have also been established as NIMZs. These initiatives are governed by separate rules and granted different benefits, details of which can be found at: http://www.sezindia.nic.in, https://www.stpi.in/ http://www.fisme.org.in/export_schemes/DOCS/B–
The GOI’s revised Foreign Trade Policy, which will be effective for five years starting April 1, 2021, is expected to include a new regionally focused District Export Hubs initiative in addition to existing SEZs and NIMZs
Performance and Data Localization Requirements
Preferential Market Access (PMA) for government procurement has created substantial challenges for foreign firms operating in India. State-owned “Public Sector Undertakings” and the government accord a 20 percent price preference to vendors utilizing more than 50 percent local content. However, PMA for government procurement limits access to the most cost effective and advanced ICT products available. In December 2014, PMA guidelines were revised and reflect the following updates:
1. Current guidelines emphasize that the promotion of domestic manufacturing is the objective of PMA, while the original premise focused on the linkages between equipment procurement and national security.
2. Current guidelines on PMA implementation are limited to hardware procurement only. Former guidelines were applicable to both products and services.
3. Current guidelines widen the pool of eligible PMA bidders, to include authorized distributors, sole selling agents, authorized dealers or authorized supply houses of the domestic manufacturers of electronic products, in addition to OEMs, provided they comply with the following terms:
a. The bidder shall furnish the authorization certificate by the domestic manufacturer for selling domestically manufactured electronic products.
b. The bidder shall furnish the affidavit of self-certification issued by the domestic manufacturer to the procuring agency declaring that the electronic product is domestically manufactured in terms of the domestic value addition prescribed.
c. It shall be the responsibility of the bidder to furnish other requisite documents required to be issued by the domestic manufacturer to the procuring agency as per the policy.
4. The current guidelines establish a ceiling on fees linked with the complaint procedure. There would be a complaint fee of INR 200,000 ($3,000) or one percent of the value of the Domestically Manufactured Electronic Product being procured, subject to a maximum of INR 500,000 ($7,500), whichever is higher.
In January 2017, the Ministry of Electronics & Information Technology (MeitY) issued a draft notification under the PMA policy, stating a preference for domestically manufactured servers in government procurement. A current list of PMA guidelines, notified products, and tendering templates can be found on MeitY’s website: http://meity.gov.in/esdm/pma.
Research and Development
The Government of India allows for 100 percent FDI in research and development through the automatic route.
Data Storage & Localization
In April 2018, the RBI, announced, without prior stakeholder consultation, that all payment system providers must store their Indian transaction data only in India. The RBI mandate went into effect on October 15, 2018, despite repeated requests by industry and U.S. officials for a delay to allow for more consultations. In July 2019, the RBI, again without prior stakeholder consultation, retroactively expanded the scope of its 2018 data localization requirement to include banks, creating potential liabilities going back to late 2018. RBI policy overwhelmingly and disproportionately has affected U.S. banks and investors, who depend on the free flow of data to both achieve economies of scale and to protect customers by providing global real-time monitoring and analysis of fraud trends and cybersecurity. U.S. payments companies have been able to implement the mandate for the most part, though at great cost and potential damage to the long-term security of their Indian customer base, which will receive fewer services and no longer benefit from global fraud detection and anti-money-laundering/combatting the financing of terrorism (AML/CFT) protocols. Similarly, U.S. banks have been able to comply with RBI’s expanded mandate, though incurring significant compliance costs and increased risk of cybersecurity vulnerabilities.
In addition to the RBI data localization directive for payments companies and banks, the government formally introduced its draft Personal Data Protection Bill (PDPB) in December 2019 which has remained pending in Parliament. The PDPB would require “explicit consent” as a condition for the cross-border transfer of sensitive personal data, requiring users to fill out separate forms for each company that held their data. Additionally, Section 33 of the bill would require a copy of all “sensitive personal data” and “critical personal data” to be stored in India, potentially creating redundant local data storage. The localization of all “sensitive personal data” being processed in India could directly impact IT exports. In the current draft no clear criteria for the classification of “critical personal data” has been included. The PDPB also would grant wide authority for a newly created Data Protection Authority to define terms, develop regulations, or otherwise provide specifics on key aspects of the bill after it becomes a law. Reports on Non-Personal Data and the implementation of a New Information Technology Rule 2021 with Intermediary Guidelines and Digital Media Ethics Code added further uncertainty to how existing rules will interact with the PDPB and how non-personal data will be handled. 5.Protection of Property Rights
The outbreak of the COVID-19 pandemic interrupted almost 30 years of economic expansion in Poland. In 2020, Poland experienced a recession, although one of the least severe in the European Union, as policy actions including broad fiscal measures and unprecedented monetary support cushioned the socio-economic impact of the pandemic. Despite pandemic-related challenges and the deterioration of some aspects of the investment climate, Poland remained an attractive destination for foreign investment. Solid economic fundamentals and promising post-COVID recovery macroeconomic forecasts continue to draw foreign, including U.S., capital. Poland’s GDP growth declined by only 2.7 percent in 2020 and is currently projected to rebound at a rate of 3-5 percent in 2021 and 2022. The Family 500+ program and additional pension payments continued in 2020. The government increased the minimum wage and the labor market remained relatively strong, supported by a generous package of measures known as the “Anti-Crisis Shield.” This package includes the “Financial Shield” introduced by the Polish Development Fund (PFR) to protect the economy, mitigate the effects of the COVID-19 pandemic, and stimulate investment.
Implemented and proposed legislation dampened optimism in some sectors (e.g., retail, media, energy, digital services, and beverages). Investors also point to lower predictability and the outsized role of state-owned and state-controlled companies in the Polish economy as an impediment to long-term balanced growth. Despite a polarized political environment following the conclusion of a series of national elections in 2019 and 2020 and a few less business-friendly sector-specific policies, the broad structures of the Polish economy are solid. Prospects for future growth, driven by external and domestic demand and inflows of EU funds from the Recovery and Resilience Fund and future financial frameworks, as well as COVID-19 related government aid programs, are likely to continue to attract investors seeking access to Poland’s market of over 38 million people, and to the broader EU market of over 500 million.
The Ministry of Development, Labor, and Technology has finished public consultations on its Industry Development White Paper, which identifies the government’s views on the most significant barriers to industrial activity and serves as the foundation for Poland’s Industrial Policy (PIP) – a strategic document, setting the directions for long-term industrial development. The PIP will focus on five areas: digitization, security, industrial production location, the Green Deal, and modern society.
Poland’s well-diversified economy reduces its vulnerability to external shocks, although it depends heavily on the EU as an export market. Foreign investors also cite Poland’s well-educated work force as a major reason to invest, as well as its proximity to major markets such as Germany. U.S. firms represent one of the largest groups of foreign investors in Poland. The volume of U.S. investment in Poland is estimated at around $5 billion by the National Bank of Poland in 2019 and around $25 billion by the Warsaw-based American Chamber of Commerce (AmCham). With the inclusion of indirect investment flows through subsidiaries, it may reach as high as $62.7 billion, according to KPMG and AmCham. Historically, foreign direct investment (FDI) was largest in the automotive and food processing industries, followed by machinery and other metal products and petrochemicals. “Shared office” services such as accounting, legal, and information technology services, including research and development (R&D), is Poland’s fastest-growing sector for foreign investment. The government seeks to promote domestic production and technology transfer opportunities in awarding defense-related tenders. There are also investment and export opportunities in the energy sector—both immediate (natural gas), and longer term (nuclear, hydrogen, energy grid upgrades, photovoltaics, and offshore wind)—as Poland seeks to diversify its energy mix and reduce air pollution. Biotechnology, pharmaceutical, and health care industries might open wider to investments and exports as a result of the COVID-19 experience. In 2020, venture capital transactions increased by 70 percent on annual terms exceeding $500 million; a quarter of these transactions were investments in the sector of medical technologies.
Defense remains a promising sector for U.S. exports. The Polish government is actively modernizing its military inventory, presenting good opportunities for the U.S. defense industry. In February 2019, the Defense Ministry announced its updated technical modernization plan listing its top programmatic priorities, with defense modernization budgets forecasted to increase from approximately $3.3 billion in 2019 to approximately $7.75 billion in 2025. Information technology and cybersecurity along with infrastructure also show promise, as Poland’s municipalities focus on smart city networks. A $10 billion central airport project may present opportunities for U.S. companies in project management, consulting, communications, and construction. The government seeks to expand the economy by supporting high-tech investments, increasing productivity and foreign trade, and supporting entrepreneurship, scientific research, and innovation through the use of domestic and EU funding. The Polish government is interested in the development of green energy, especially in the utilization of the large amounts of EU funding earmarked for this purpose in coming years and decades.
The Polish government plans to allocate money from the EU Recovery Fund to pro-development investments in such areas as economic resilience and competitiveness, green energy and the reduction of energy intensity, digital transformation, the availability and quality of the health care system, and green and intelligent mobility. A major EU project is to synchronize the Baltic States’ electricity grid with that of Poland and the wider European network by 2025. A government strategy aims for a commercial fifth generation (5G) cellular network to become operational in all cities by 2025, although planned spectrum auctions have been repeatedly delayed.
Some organizations, notably private business associations and labor unions, have raised concerns that policy changes have been introduced quickly and without broad consultation, increasing uncertainty about the stability and predictability of Poland’s business environment. For example, the government announced an “advertising tax” on media companies with only a few months warning after firms had already prepared budgets for the current year. Broadcasters are concerned the tax, if introduced, could irreparably harm media companies weakened by the pandemic and limit independent journalism. Other proposals to introduce legislation on media de-concentration and limitations on foreign ownership raised concern among foreign investors in the sector; however, those proposals seem to have stalled for the time being.
The Polish tax system underwent many changes over recent years, including more effective tax auditing and collection, with the aim of increasing budget revenues. Through updated regulations in November 2020, Poland has adopted a range of major changes concerning the taxation of doing business in the country. The changes include the double taxation of some partnerships; deferral of corporate income tax (CIT) for small companies owned by individuals; an obligation to publish tax strategies by large companies; and a new model of taxation for real estate companies. In the financial sector, legal risks stemming from foreign exchange mortgages constitute a source of uncertainty for some banks. The Polish government has supported taxing the income of Internet companies, proposed by the European Commission in 2018, and considers it a possible new source of financing for the post-COVID-19 economic recovery. A tax on video-on-demand services which went into effect on July 1, 2020, and the proposed advertising tax, which would also impact digital advertising and would go into effect on July 1, 2021, are two examples of this trend.
The “Next Generation EU” recovery package will benefit the Polish economic recovery with sizeable support. Under the 2021-2027 European Union budget, Poland will receive $78.4 billion in cohesion funds as well as approximately $27 billion in grants and $40 billion in loan access from the EU Recovery and Resilience Facility. The Polish government projects this injection of funds, amounting to around 4.5 percent of Poland’s 2020 GDP, should contribute significantly to the country’s growth over the period 2021-2026. As the largest recipient of EU funds (which have contributed an estimated 1 percentage point to Poland’s GDP growth per year), any significant decrease in EU cohesion spending would have a large negative impact on Poland’s economy. A December 2020 compromise on EU budget payments prevented adoption of a clause that would make some EU funds conditional on rule of law.
Observers are closely watching the European Commission’s two open infringement proceedings against Poland regarding rule of law and judicial reforms initiated in April 2019 and April 2020. Concerns include the introduction of an extraordinary appeal mechanism in the enacted Supreme Court Law, which could potentially affect economic interests, in that final judgments issued since 1997 can now be challenged and overturned in whole or in part, including some long-standing judgments on which economic actors have relied. Other issues regard the legitimacy of judicial appointments after a reform of the National Judicial Council that raise concerns about long-term legal certainty and the possible politicization of judicial decisions.
While Poland, similar to other countries, will likely continue to struggle with the pandemic throughout 2021, rating agencies and international organizations, including the OECD and the IMF, agree that Poland has fared relatively well under the COVID-19 pandemic, and has good chances for successful economic growth once the pandemic is over. The government views recovery from the pandemic as an opportunity to foster its structural reforms agenda. In line with the ongoing implementation of the “Strategy for Responsible Development,” the government has been developing a “New Deal” package – an ambitious program of tax breaks, public investments, and social spending proposals aimed at speeding post-COVID-19 economic recovery. The program is currently scheduled to be presented to the public in April 2021.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Toward Foreign Direct Investment
Poland welcomes foreign investment as a source of capital, growth, and jobs, and as a vehicle for technology transfer, research and development (R&D), and integration into global supply chains. The government’s Strategy for Responsible Development identified key goals for attracting investment, including improving the investment climate, a stable macroeconomic and regulatory environment, and high-quality corporate governance, including in state-controlled companies. By the end of 2019, according to IMF and National Bank of Poland data, Poland attracted around $234.9 billion (cumulative) in foreign direct investment (FDI), principally from Western Europe and the United States. In 2019, reinvested profits again dominated the net inflow of FDI to Poland. The greatest reinvestment of profits occurred in services and manufacturing, reflecting the change of Poland’s economy to a more service-oriented and less capital-intensive structure.
Foreign companies generally enjoy unrestricted access to the Polish market. However, Polish law limits foreign ownership of companies in selected strategic sectors, and limits acquisition of real estate, especially agricultural and forest land. Additionally, the current government has expressed a desire to increase the percentage of domestic ownership in some industries such as media, banking and retail which have large holdings by foreign companies, and has employed sectoral taxes and other measures to advance this aim. In March 2018, Sunday trading ban legislation went into effect, which has gradually phased out Sunday retail commerce in Poland, especially for large retailers. From 2020, the trade ban applies to all but seven Sundays a year. In 2020, a law was adopted requiring producers and importers of sugary and sweetened beverages to pay a fee. The government is planning to introduce (in mid-2021) an advertising tax – hailed as a “solidarity fee”- covering a wide array of entities including publishers, tech companies and cinemas. Only small media businesses would be exempt from the new levy. The revenue would support the National Health Fund, the National Fund for the Protection of National Monuments, and establish a new fund, the Media Support Fund for Culture and National Heritage, to support Polish culture and creators struggling due to the pandemic. Polish authorities have also publicly favored introducing a comprehensive digital services tax. The details of such a tax are unknown because no draft has been publicly released, but it would presumably affect mainly large foreign digital companies.
There are a variety of agencies involved in investment promotion:
The Ministry of Development has two departments involved in investment promotion and facilitation: the Investment Development and the Trade and International Relations Departments. The Deputy Minister supervising the Investment Development Department is also the ombudsman for foreign investors. https://www.gov.pl/web/przedsiebiorczosc-technologia/
The Ministry of Foreign Affairs (MFA) promotes Poland’s foreign relations including economic relations, and along with the Polish Chamber of Commerce (KIG), organizes missions of Polish firms abroad and hosts foreign trade missions to Poland. https://www.msz.gov.pl/; https://kig.pl/
The Polish Investment and Trade Agency (PAIH) is the main institution responsible for promotion and facilitation of foreign investment. The agency is responsible for promoting Polish exports, for inward foreign investment and for Polish investments abroad. The agency operates as part of the Polish Development Fund, which integrates government development agencies. PAIH coordinates all operational instruments, such as commercial diplomatic missions, commercial fairs and programs dedicated to specific markets and sectors. The Agency has opened offices abroad including in the United States (San Francisco and Washington, D.C, Los Angeles, Chicago, Houston and New York). PAIH’s services are available to all investors. https://www.paih.gov.pl/en
The American Chamber of Commerce has established the American Investor Desk – an investor-dedicated know-how gateway providing comprehensive information on investing in Poland and investing in the USA: https://amcham.pl/american-investor-desk
Limits on Foreign Control and Right to Private Ownership and Establishment
Poland allows both foreign and domestic entities to establish and own business enterprises and engage in most forms of remunerative activity per the Entrepreneurs’ Law which went into effect on April 30, 2018. Forms of business activity are described in the Commercial Companies Code. Poland does place limits on foreign ownership and foreign equity for a limited number of sectors. Polish law limits non-EU citizens to 49 percent ownership of a company’s capital shares in the air transport, radio and television broadcasting, and airport and seaport operations sectors. Licenses and concessions for defense production and management of seaports are granted on the basis of national treatment for investors from OECD countries.
Pursuant to the Broadcasting Law, a television broadcasting company may only receive a license if the voting share of foreign owners does not exceed 49 percent and if the majority of the members of the management and supervisory boards are Polish citizens and hold permanent residence in Poland. In 2017, a team comprised of officials from the Ministry of Culture and National Heritage, the National Broadcasting Council (KRRiT) and the Office of Competition and Consumer Protection (UOKiK) was created in order to review and tighten restrictions on large media and limit foreign ownership of the media. While no legislation has been introduced, there is concern that possible future proposals may limit foreign ownership of the media sector as suggested by governing party politicians.
Over the past five years, Poland’s ranking on Reporters without Borders’ Press Freedom Index has dropped from 18th to 62nd. The governing Law and Justice (PiS) party aims to decrease foreign ownership of media, particularly outlets critical of their governing coalition. Approaches have included proposals to set caps on foreign ownership, the use of a state-controlled companies to purchase media, and the application of economic tools (taxes, fines, advertising revenue) to pressure foreign and independent media. In the insurance sector, at least two management board members, including the chair, must speak Polish. The Law on Freedom of Economic Activity (LFEA) requires companies to obtain government concessions, licenses, or permits to conduct business in certain sectors, such as broadcasting, aviation, energy, weapons/military equipment, mining, and private security services. The LFEA also requires a permit from the Ministry of Development for certain major capital transactions (i.e., to establish a company when a wholly or partially Polish-owned enterprise has contributed in-kind to a company with foreign ownership by incorporating liabilities in equity, contributing assets, receivables, etc.). A detailed description of business activities that require concessions and licenses can be found here: https://www.paih.gov.pl/publications/how_to_do_business_in_Poland
Polish law restricts foreign investment in certain land and real estate. Land usage types such as technology and industrial parks, business and logistic centers, transport, housing plots, farmland in special economic zones, household gardens and plots up to two hectares are exempt from agricultural land purchase restrictions. Since May 2016, foreign citizens from European Economic Area member states, Iceland, Liechtenstein, and Norway, as well as Switzerland, do not need permission to purchase any type of real estate including agricultural land. Investors from outside of the EEA or Switzerland need to obtain a permit from the Ministry of Internal Affairs and Administration (with the consent of the Defense and Agriculture Ministries), pursuant to the Act on Acquisition of Real Estate by Foreigners, prior to the acquisition of real estate or shares which give control of a company holding or leasing real estate. The permit is valid for two years from the day of issuance, and the ministry can issue a preliminary document valid for one year. Permits may be refused for reasons of social policy or public security. The exceptions to this rule include purchases of an apartment or garage, up to 0.4 hectares of undeveloped urban land, and “other cases provided for by law” (generally: proving a particularly close connection with Poland). Laws to restrict farmland and forest purchases (with subsequent amendments) came into force April 30, 2016 and are addressed in more detail in Section 5, Protection of Property Rights.
Since September 2015, the Act on the Control of Certain Investments has provided for the national security-related screening of acquisitions in high-risk sectors including: energy generation and distribution; petroleum production, processing and distribution; telecommunications; media; mining; and manufacturing and trade of explosives, weapons and ammunition. Poland maintains a list of strategic companies which can be amended at any time, but is updated at least once a year, usually in late December. The national security review mechanism does not appear to constitute a de facto barrier for investment and does not unduly target U.S. investment. According to the Act, prior to the acquisition of shares of strategic companies (including the acquisition of proprietary interests in entities and/or their enterprises) the purchaser (foreign or local) must notify the controlling government body and receive approval. The obligation to inform the controlling government body applies to transactions involving the acquisition of a “material stake” in companies subject to special protection. The Act stipulates that failure to notify carries a fine of up to PLN 100,000,000 ($25,000,000) or a penalty of imprisonment between six months and five years (or both penalties together) for a person acting on behalf of a legal person or organizational unit that acquires a material stake without prior notification.
As part of the COVID-19 Anti-Crisis Shield, on June 24, 2020, new legislation entered into force extending significantly the FDI screening mechanism in Poland for 24 months. An acquisition from a country that is not a member of the EU, the EEA, or the OECD requires prior clearance from the President of the Polish Competition Authority if it targets a company generating turnover exceeding EUR 10 million (almost $12 million) that either: 1) is a publicly-listed company, 2) controls assets classified as critical infrastructure, 3) develops or maintains software crucial for vital processes (e.g., utilities systems, financial transactions, food distribution, transport and logistics, health care systems); 4) conducts business in one of 21 specific industries, including energy, gas and oil production, storage, distribution and transportation; manufacture of chemicals, pharmaceuticals and medical instruments; telecommunications; and food processing. The State Assets Ministry is preparing similar and more permanent measures.
In November 2019, the governing Law and Justice party reestablished a treasury ministry, known as the State Assets Ministry, to consolidate the government’s control over state-owned enterprises. The government dissolved Poland’s energy ministry, transferring that agency’s mandate to the State Assets Ministry. The Deputy Prime Minister and Minister of State Assets announced he would seek to consolidate state-owned companies with similar profiles, including merging Poland’s largest state-owned oil and gas firm PKN Orlen with state-owned Lotos Group. At the same time, the government is working on changing the rules of governing state-owned companies to have better control over the firms’ activities. In September 2020, a new government plenipotentiary for the transformation of energy companies and coal mining was appointed.
Other Investment Policy Reviews
The government has not undergone any third-party investment policy review through a multilateral organization,
In 2020, government activities and regulations focused primarily on addressing challenges related to the outbreak of the pandemic.
The Polish government has continued to implement reforms aimed at improving the investment climate with a special focus on the SME sector and innovations. Poland reformed its R&D tax incentives with new regulations and changes encouraging wider use of the R&D tax breaks. As of January 1, 2019, a new mechanism reducing the tax rate on income derived from intellectual property rights (IP Box) was introduced. Please see Section 5, Protection of Property Rights of this report for more information.
A package of five laws referred to as the “Business Constitution”—intended to facilitate the operation of small domestic enterprises—was gradually introduced in 2018. The main principle of the Business Constitution is the presumption of innocence of business owners in dealings with the government.
Poland made enforcing contracts easier by introducing an automated system to assign cases to judges randomly. Despite these reforms and others, some investors have expressed serious concerns regarding over-regulation, over-burdened courts and prosecutors, and overly burdensome bureaucratic processes. Tax audit methods have changed considerably. For instance, in many cases an appeal against the findings of an audit must now be lodged with the authority that issued the initial finding rather than a higher authority or third party. Poland also enabled businesses to get electricity service faster by implementing a new customer service platform that allows the utility to better track applications for new commercial connections.
The Ministry of Finance and the National Tax Administration have launched an e-Tax Office, available online at https://www.podatki.gov.pl/. The website, which will be constructed in stages through September 2022, will make it possible to settle all tax matters in a single user-friendly digital location. digital location.
In Poland, business activity may be conducted in the forms of a sole proprietor, civil law partnership, as well as commercial partnerships and companies regulated in provisions of the Commercial Partnerships and Companies Code. Sole proprietor and civil law partnerships are registered in the Central Registration and Information on Business (CEIDG), which is housed with the Ministry of Development here: https://prod.ceidg.gov.pl/CEIDG.CMS.ENGINE/?D;f124ce8a-3e72-4588-8380-63e8ad33621f
Commercial companies are classified as partnerships (registered partnership, professional partnership, limited partnership, and limited joint-stock partnership) and companies (limited liability company and joint-stock company). A partnership or company is registered in the National Court Register (KRS) and maintained by the competent district court for the registered office of the established partnership or company. Local corporate lawyers report that starting a business remains costly in terms of time and money, though KRS registration in the National Court Register averages less than two weeks according to the Ministry of Justice and four weeks according to the World Bank’s 2020 Doing Business Report.A 2018 law introduced a new type of company—PSA (Prosta Spółka Akcyjna – Simple Joint Stock Company). PSAs are meant to facilitate start-ups with simpler and cheaper registration procedures. The minimum initial capitalization is 1 PLN ($0.25) while other types of registration require 5,000 PLN ($1,274) or 50,000 PLN ($12,737). A PSA has a board of directors, which merges the responsibilities of a management board and a supervisory board. The provision for PSAs will enter into force in July 2021.
On August 5, 2020, the Government Legislation Center published the detailed assumptions of a draft amendment to the Commercial Companies Code developed by the Commission for Owner Oversight Reform with the Ministry of State Assets. The draft amendment’s primary assumption is to enact a so-called “holding law,” laying down the principles of how a parent company may instruct its subsidiaries, as well as stipulating the parent company’s liability and the principles of creditor, officer, and minority shareholder protections. Apart from introducing the holding law, the draft provides for several additional regulations, including those enhancing the supervisory board’s position, both within the holding law framework and for companies not comprising any group. The amendment is projected to come into force sometime in 2021.
On January 1, 2021, a new law on public procurement entered into force. This law was adopted by the Polish Parliament on September 11, 2019. The new law aims to reorganize the public procurement system and further harmonize it with EU law. The new public procurement law is also more transparent than the previous act.
Beginning in July 2021, an electronic system must be used for all applications submitted in registration proceedings by commercial companies disclosed in the National Court Register, i.e., both applications for registration, deletion, and any changes in the register.
A certified e-signature may be obtained from one of the commercial e-signature providers listed on the following website: https://www.nccert.pl/
The Polish Agency for Investment and Trade (PAIH), under the umbrella of the Polish Development Fund (PFR), plays a key role in promoting Polish investment abroad. More information on PFR can be found in Section 7, State-Owned Enterprises and at its website: https://pfr.pl/
PAIH has 70 offices worldwide, including six in the United States.
PAIH assists entrepreneurs with administrative and legal procedures related to specific projects as well as with the development of legal solutions and with finding suitable locations, and reliable partners and suppliers.
The Agency implements pro-export projects such as “Polish Tech Bridges” dedicated to the outward expansion of innovative Polish SMEs.
Poland is a founding member of the Asian Infrastructure Investment Bank (AIIB). Poland co-founded and actively supports the Three Seas Initiative, which seeks to improve north-south connections in road, energy, and telecom infrastructure in 12 countries on NATO’s and the EU’s eastern flank.
Under the Government Financial Support for Exports Program, the national development bank BGK (Bank Gospodarstwa Krajowego) grants foreign buyers financing for the purchase of Polish goods and services. The program provides the following financing instruments: credit for buyers granted through the buyers’ bank; credit for buyers granted directly from BGK; the purchase of receivables on credit from the supplier under an export contract; documentary letters of credit post-financing; the discounting of receivables from documentary letters of credit; confirmation of documentary letters of credit; and export pre-financing. BGK has international offices in London and Frankfurt.
In May 2019, BGK and the Romanian development bank EximBank founded the Three Seas Fund, a commercial initiative to support the development of transport, energy and digital infrastructure in Central and Eastern Europe. As of March 2021, there were nine core sponsors involved in the Fund.
In July 2019, BGK, the European Investment Bank, and four other development banks (French Deposits and Consignments Fund, Italian Deposits and Loans Fund, the Spanish Official Credit Institute, and German Credit Institute for Reconstruction), began the implementation of the “Joint Initiative on Circular Economy” (JICE), the goal of which is to eliminate waste, prevent its generation and increase the efficiency of resource management. PFR TFI S.A, an entity also under the umbrella of PFR, supports Polish investors planning to or already operating abroad. PFR TFI manages the Foreign Expansion Fund (FEZ), which provides loans, on market terms, to foreign entities owned by Polish entrepreneurs. See https://www.pfrtfi.pl/ and https://pfr.pl/en/offer/foreign-expansion-fund.html
2. Bilateral Investment Agreements and Taxation Treaties
The United States and Poland signed a Treaty Concerning Business and Economic Relations in 1990 that was amended and re-ratified in October 2004 due to Poland’s entrance into the EU. In May 2020, all EU-member states, except Sweden, Finland, Austria and Ireland (Ireland is not a party to any intra-EU BITs), signed an agreement on the termination of intra-EU BITs. This agreement will terminate several intra-EU BITs which Poland still has or terminate the sunset clauses of the treaties already denounced by Poland. Sweden, Finland and Austria have announced their intention to sign bilateral agreements with Poland terminating the “sunset clauses” of the BITs denounced by Poland. Poland has signed double taxation treaties with over 80 countries. The United States shares a double taxation treaty with Poland; an updated bilateral tax treaty was signed in February 2013 and is awaiting U.S. ratification. The “Agreement between the United States of America and the Republic of Poland on Social Security” prevents double taxation, enables resumption of payments to suspended beneficiaries, and allows transfer of benefit eligibility. The double taxation treaty does not cover stock options as part of remuneration packages, according to some investors.The Polish tax system underwent significant changes in 2018, many of which became effective in 2019, 2020 or will become effective in 2021. The most important changes involved:
An obligatory split payment mechanism;
A “White List” of VAT taxpayers (along with their VAT numbers and bank account details) and tax-deductible costs; Relief from income taxes for bad debts;
Major changes to the processes for “withholding tax” (postponed until 30 June 2021);
A new matrix of VAT rates;
The replacement of VAT returns with a new Uniform Control File (JPK) structure;
An agreement on cooperation in tax matters;
Incentives for registering intellectual property, a.k.a. “IP Box” (See Section 5 for more details); and
New rules for accounting for tax loss.
With a regulatory update in November 2020, Poland adopted several major changes on the taxation of businesses. The changes include the double taxation of some partnerships; deferral of corporate income tax (CIT) for small companies owned by individuals; an obligation for large companies to publish their tax strategies; and a new model of taxation for real estate companies.
Limited partnerships: The key update on limited partnerships (spolka komandytowa) imposes the status of “corporate profits taxpayer” for those with a seat or place of management in Poland, which previously had been tax transparent. The model results in double taxation: firstly on the level of the partnership’s profit, and secondly at the level of profit distribution to the partners. Limited partners will be entitled to an exemption on 50% of received distributions, but only up to approximately PLN 60,000 ($16,000 per year per limited partnership.
General partners (those with unlimited liability) will be entitled to credit proportionally for the entire income tax paid by the partnership, but only within five years. Thus, the new system will differentiate the tax position of limited and unlimited partners. The above regulations entered into force on January 1 2021. These rules will also apply to general partnerships (spolka jawaa) but only if the partners are not individuals, or if the taxpayers participating in their profits are not disclosed. General partnerships with disclosed partners will still be tax transparent.
Deferral of corporate income tax: Lump sum taxation, being a sort of deferral of income tax until the moment of dividend distribution, will apply to companies which select such a system for four years. Companies will have to be owned by individuals, have an annual turnover in the preceding year of up to approximately EUR 25 million, and not have shares in other entities or passive income exceeding 50% of turnover. There are other requirements and conditions for this system to apply, including consideration of employment, and investments in new assets.
Tax Strategies: Companies with a turnover exceeding EUR 50 million per year and tax capital groups will be obliged to prepare and publish strategy reports on the execution of their tax policy on their websites within 12 months following the end of the tax year.
Real estate companies – New model of taxation: Real estate companies will have a series of new duties to perform. For example, when a shareholder in the company sells shares, the company is required to pay any capital gains tax. Some real estate companies will be obliged to appoint a formal tax representative, and many will have to report information about their shareholders (those holding over 5 percent of shares).
Other changes include:
Entities operating in special economic zones (SEZs) will not be entitled to change the depreciation rates for new assets.
Losses carried forward will not be possible after further reorganizations.
Transfer pricing documentation will be required when the beneficial owner of the party to a transaction is from a tax haven.
A reduced 9 percent CIT rate will apply to companies with a turnover of up to EUR 2 million (increased from EUR 1.2 million).
As of January 1, 2021, retail outlets with high sales volume are required to pay additional taxes in Poland. While the Retail Sales Tax Act technically entered into force on September 1, 2016, no taxes were collected prior to 2021 due to questions from the European Commission (EC) about the legality of the tax. On March 16, 2021, the Court of Justice of the European Union (ECJ) issued a judgment on the compatibility of Poland’s tax on retail sales with the EU law on state aid. The ECJ found that the Polish retail sales tax does not infringe EU law. The European Commission has announced that it will carefully analyze the ECJ’s verdict. This tax is levied on revenues from retail sales exceeding PLN 17 million ($4.3 million) in a given month. Two tax rates apply:
0.8 percent of the tax base – applicable to revenues between PLN 17 million and PLN 170 million ($43 million);
1.4 percent of the tax base over PLN 170 million ($43 million).
The retail sales tax is payable on a monthly basis, no later than the 25th day of the month following the month in which the revenue was earned.
Some U.S. investors have expressed concern that Poland’s tax authorities do not consistently uphold presumably binding tax decisions and sometimes seek retroactive payments after a reversal. Over the last three years, changes to the regulations on transfer pricing, withholding tax and value added tax (VAT) reporting have significantly increased the obligations on the part of taxpayers, in line with a long-term government strategy of increasing tax collection and the effectiveness of inspections. In 2020, tax offices carried out nearly one-fifth fewer audits than in 2019. Lower activity was the effect of restrictions and staffing problems during the pandemic. Irregularities were found more often, but the amount recovered to the budget was lower. This trend has been observed for a few years and shows that the tax system is being effectively sealed and taxpayers are more accurately selected for audits. The number of tax inspections is likely to increase in 2021 to confirm funds from Anti-Crisis Shield programs were not misused.
On February 2, the Polish government published a draft bill for a tax on revenues earned from digital and conventional advertising. Officially the bill was titled “the Act on additional revenue for the National Health Fund, the National Fund for the Protection of Historical Monuments, and the creation of a Media Support Fund for Culture and National Heritage.” The government has claimed the tax, which it refers to as a “solidarity levy,” is necessary to address the long-term consequences of the COVID-19 pandemic, with economic winners supporting economic losers. The tax would apply rates from 2 to 15 percent of revenues earned and would enter into force on July 1, 2021. Media and digital companies have protested the proposed tax, and some have expressed concern that it could irreparably harm struggling media outlets and adversely affect independent journalism in Poland. The government continues to work on the bill.
3. Legal Regime
Transparency of the Regulatory System
The Polish Constitution contains a number of provisions related to administrative law and procedures. It states administrative bodies have a duty to observe and comply with the law of Poland. The Code of Administrative Procedures (CAP) states rules and principles concerning participation and involvement of citizens in processes affecting them, the giving of reasons for decisions, and forms of appeal and review.
As a member of the EU, Poland complies with EU directives by harmonizing rules or translating them into national legislation. Rule-making and regulatory authority exists at the central, regional, and municipal levels. Various ministries are engaged in rule-making that affects foreign business, such as pharmaceutical reimbursement at the Ministry of Health or incentives for R&D at the Ministry of Development, Labor, and Technology. Regional and municipal level governments can levy certain taxes and affect foreign investors through permitting and zoning.
Polish accounting standards do not differ significantly from international standards. Major international accounting firms provide services in Poland. In cases where there is no national accounting standard, the appropriate International Accounting Standard may be applied. However, investors have complained of regulatory unpredictability and high levels of administrative red tape. Foreign and domestic investors must comply with a variety of laws concerning taxation, labor practices, health and safety, and the environment. Complaints about these laws, especially the tax system, center on frequent changes, lack of clarity, and strict penalties for minor errors.
Poland has improved its regulatory policy system over the last several years. The government introduced a central online system to provide access for the general public to regulatory impact assessments (RIA) and other documents sent for consultation to selected groups such as trade unions and business. Proposed laws and regulations are published in draft form for public comment, and ministries must conduct public consultations. Poland follows OECD recognized good regulatory practices, but investors say the lack of regulations governing the role of stakeholders in the legislative process is a problem. Participation in public consultations and the window for comments are often limited.
New guidelines for RIA, consultation and ex post evaluation were adopted under the Better Regulation Program in 2015, providing more detailed guidance and stronger emphasis on public consultation. Like many countries, Poland faces challenges to fully implement its regulatory policy requirements and to ensure that RIA and consultation comments are used to improve decision making. The OECD suggests Poland extend its online public consultation system and consider using instruments such as green papers more systematically for early-stage consultation to identify options for addressing a policy problem. OECD considers steps taken to introduce ex post evaluation of regulations encouraging.
Bills can be submitted to Parliament for debate as “citizens’ bills” if authors collect 100,000 signatures in support for the draft legislation. NGOs and private sector associations most often take advantage of this avenue. Parliamentary bills can also be submitted by a group of parliamentarians, a mechanism that bypasses public consultation and which both domestic and foreign investors have criticized. Changes to the government’s rules of procedure introduced in June 2016 reduced the requirements for RIA for preparations of new legislation.
Administrative authorities are subject to oversight by courts and other bodies (e.g., the Supreme Audit Chamber – NIK), the Office of the Human Rights Ombudsperson, special commissions and agencies, inspectorates, the Prosecutor and parliamentary committees. Polish parliamentary committees utilize a distinct system to examine and instruct ministries and administrative agency heads. Committees’ oversight of administrative matters consists of: reports on state budgets implementation and preparation of new budgets, citizens’ complaints, and reports from the NIK. In addition, courts and prosecutors’ offices sometimes bring cases to parliament’s attention.
Poland’s budget and information on debt obligations were widely and easily accessible to the general public, including online. The budget was substantially complete and considered generally reliable. NIK audited the government’s accounts and made its reports publicly available, including online. The budget structure and classifications are complex, and the Polish authorities agree more work is needed to address deficiencies in the process of budgetary planning and procedures. State budgets encompass only part of the public finances sector.
The European Commission regularly assesses the public finance sustainability of Member States based on fiscal gap ratios. In 2021, Poland’s public finances will continue to be exposed to a high general government deficit, uncertainty in financial markets resulting primarily from the macroeconomic environment, the effects of the fight against the COVID-19 epidemic, and the monetary policy of the NBP and major central banks, including the European Central Bank and the U.S. Federal Reserve.
International Regulatory Considerations
Since its EU accession in May 2004, Poland has been transposing European legislation and reforming its regulations in compliance with the EU system. Poland sometimes disagrees with EU regulations related to renewable energy and emissions due to its important domestic coal industry.
Poland participates in the process of creation of European norms. There is strong encouragement for non-governmental organizations, such as environmental and consumer groups, to actively participate in European standardization. In areas not covered by European normalization, the Polish Committee for Standardization (PKN) introduces norms identical with international norms, i.e., PN-ISO and PN-IEC. PKN actively cooperates with international and European standards organizations and with standards bodies from other countries. PKN has been a founding member of the International Organization for Standardization (ISO) and a member of the International Electro-technical Commission (IEC) since 1923.
PKN also cooperates with the American Society for Testing and Materials (ASTM) International and the World Trade Organization’s (WTO) Agreement on Technical Barriers to Trade (TBT). Poland has been a member of the WTO since July 1, 1995 and was a member of GATT from October 18, 1967. All EU member states are WTO members, as is the EU in its own right. While the member states coordinate their position in Brussels and Geneva, the European Commission alone speaks for the EU and its members in almost all WTO affairs. PKN runs the WTO/TBT National Information Point in order to apply the provisions of the TBT with respect to information exchange concerning national standardization.
The Polish legal system is code-based and prosecutorial. The main source of the country’s law is the Constitution of 1997. The legal system is a mix of Continental civil law (Napoleonic) and remnants of communist legal theory. Poland accepts the obligatory jurisdiction of the ECJ, but with reservations. In civil and commercial matters, first instance courts sit in single-judge panels, while courts handling appeals sit in three-judge panels. District Courts (Sad Rejonowy) handle the majority of disputes in the first instance. When the value of a dispute exceeds a certain amount or the subject matter requires more expertise (such as those regarding intellectual property rights), Circuit Courts (Sad Okregowy) serve as first instance courts. Circuit Courts also handle appeals from District Court verdicts. Courts of Appeal (Sad Apelacyjny) handle appeals from verdicts of Circuit Courts as well as generally supervise the courts in their region.
The Polish judicial system generally upholds the sanctity of contracts. Foreign court judgements, under the Polish Civil Procedure Code and European Community regulation, can be recognized. There are many foreign court judgments, however, which Polish courts do not accept or accept partially. There can also be delays in the recognition of judgments of foreign courts due to an insufficient number of judges with specialized expertise. Generally, foreign firms are wary of the slow and over-burdened Polish court system, preferring other means to defend their rights. Contracts involving foreign parties often include a clause specifying that disputes will be resolved in a third-country court or through offshore arbitration. (More detail in Section 4, Dispute Settlement.)
Since coming to power in 2015, the PiS government has pursued far-reaching reforms to Poland’s judicial system. The reforms have led to legal disputes with the European Commission over threats to judicial independence. The reforms have also drawn criticism from legal experts, NGOs, and international organizations. Poland’s government contends the reforms are needed to purge the old Communist guard and increase efficiency and democratic oversight in the judiciary.
Observers noted in particular the introduction of an extraordinary appeal mechanism in the 2017 Supreme Court Law. The extraordinary appeal mechanism states: final judgments issued since 1997 can be challenged and overturned in whole or in part for a three-year period starting from the day the legislation entered into force on April 3, 2018. On February 25, 2021, the Sejm passed an amendment to the law on the Supreme Court, which extended by two years (until April 2023) the deadline for submitting extraordinary complaints. The bill is now waiting for review by the opposition-controlled Senate. During 2020, the Extraordinary Appeals Chamber received 217 new complaints. During 2020, the Chamber reviewed 166 complaints, of which 18 were accepted, and 13 were rejected. Seventy-three cases were pending at the end of 2020 the status of the remaining cases was unavailable.
On April 8, 2020, the European Court of Justice (ECJ) issued interim measures ordering the government to suspend the work of the Supreme Court Disciplinary Chamber with regard to disciplinary cases against judges. The ECJ is evaluating an infringement proceeding launched by the European Commission in April 2019 and referred to the ECJ in October 2019. The commission argued that the country’s disciplinary regime for judges “undermines the judicial independence of…judges and does not ensure the necessary guarantees to protect judges from political control, as required by the Court of Justice of the EU.” The commission stated the disciplinary regime did not provide for the independence and impartiality of the Disciplinary Chamber, which is composed solely of judges selected by the restructured National Council of the Judiciary, which is appointed by the Sejm. The ECJ has yet to make a final ruling. The European Commission and judicial experts complained the government has ignored the ECJ’s interim measures.
On April 29, 2020, the European Commission launched a new infringement procedure regarding a law that came into effect on February 14, 2020. The law allows judges to be disciplined for impeding the functioning of the legal system or questioning a judge’s professional state or the effectiveness of his or her appointment. It also requires judges to disclose memberships in associations. The commission’s announcement stated the law “undermines the judicial independence of Polish judges and is incompatible with the primacy of EU law.” It also stated the law “prevents Polish courts from directly applying certain provisions of EU law protecting judicial independence and from putting references for preliminary rulings on such questions to the [European] Court of Justice.” On December 3, the commission expanded its April 29 complaint to include the continued functioning of the Disciplinary Chamber in apparent disregard of the ECJ’s interim measures in the prior infringement procedure. On January 27, 2021, the European Commission sent a reasoned opinion to the Polish government for response. If not satisfied, the Commission noted it would refer the matter to the ECJ.
Laws and Regulations on Foreign Direct Investment
Foreign nationals can expect to obtain impartial proceedings in legal matters. Polish is the official language and must be used in all legal proceedings. It is possible to obtain an interpreter. The basic legal framework for establishing and operating companies in Poland, including companies with foreign investors, is found in the Commercial Companies Code. The Code provides for establishment of joint-stock companies, limited liability companies, or partnerships (e.g., limited joint-stock partnerships, professional partnerships). These corporate forms are available to foreign investors who come from an EU or European Free Trade Association (EFTA) member state or from a country that offers reciprocity to Polish enterprises, including the United States.
With few exceptions, foreign investors are guaranteed national treatment. Companies that establish an EU subsidiary after May 1, 2004 and conduct or plan to commence business operations in Poland must observe all EU regulations. However, in some cases they may not be able to benefit from all privileges afforded to EU companies. Foreign investors without permanent residence and the right to work in Poland may be restricted from participating in day-to-day operations of a company. Parties can freely determine the content of contracts within the limits of European contract law. All parties must agree on essential terms, including the price and the subject matter of the contract. Written agreements, although not always mandatory, may enable an investor to avoid future disputes. Civil Code is the law applicable to contracts.
Useful websites (in English) to help navigate laws, rules, procedures and reporting requirements for foreign investors:
Biznes.gov.pl is intended for people who plan to start a new business in Poland. The portal is designed to simplify the formalities of setting up and running a business. It provides up-to-date regulations and procedures for running a business in Poland and the EU; it supports electronic application submission to state institutions; and it answers questions regarding running a business. Information is available in Polish and English. https://www.biznes.gov.pl/en/przedsiebiorcy/
Competition and Antitrust Laws
Poland has a high level of nominal convergence with the EU on competition policy in accordance with Articles 101 and 102 of the Lisbon Treaty. Poland’s Office of Competition and Consumer Protection (UOKiK) is well within EU norms for structure and functioning, with the exception that the Prime Minister both appoints and dismisses the head of UOKiK. This is supposed to change to be in line with EU norms, however, as of March 2021, the Prime Minister was still exercising his right to remove and nominate UOKiK’s presidents.
The Act on Competition and Consumer Protection was amended in mid-2019. The most important changes, which concern geo-blocking and access to fiscal and banking secrets, came into force on September 17, 2019. Other minor changes took effect in January 2020. The amendments result from the need to align national law with new EU laws.
Starting in January 2020, UOKiK may intervene in cases when delays in payment are excessive. UOKiK can take action when the sum of outstanding payments due to an entrepreneur for three subsequent months amounts to at least PLN 5 million ($1.7 million). In 2022, the minimum amount will decrease to PLN 2 million ($510,000).
The President of UOKiK issues approximately 100 decisions per year regarding practices restricting competition and infringing on collective interests of consumers. Enterprises have the right to appeal against those decisions to the court. In the first instance, the case is examined by the Court of Competition and Consumer Protection and in the second instance, by the Appellate Court. The decision of the Appellate Court may be challenged by way of a cassation appeal filed to the Supreme Court. In major cases, the General Counsel to the Republic of Poland will act as the legal representative in proceedings concerning an appeal against a decision of the President of UOKiK.
As part of new COVID-related measures, the Polish Parliament adopted legislation amending the Act of July 24, 2015, on the Control of Certain Investments, introducing full-fledged foreign direct investment control in Poland and giving new responsibilities to UOKiK. Entities from outside the EEA and/or the OECD have to notify the Polish Competition Authority of the intention to make an investment resulting in acquisition, achievement or obtaining directly or indirectly: “significant participation” (defined briefly as 20 percent or 40 percent of share in the total number of votes, capital, or profits or purchasing or leasing of an enterprise or its organized part) or the status of a dominant entity within the meaning of the Act of July 24, 2015, on the Control of Certain Investments in an entity subject to protection. The new law entered into force on July 24, 2020 and is valid for 24 months.
On October 28, 2020, the government proposed new legislation by virtue of which the tasks pursued by the Financial Ombudsman will be taken over by UOKiK. According to the justification of this legislation, the objective of the draft is to enhance the efficiency of protection, in terms of both group and individual interests of financial market entities’ clients. According to the new regulations, a new position of coordinator conducting out-of-court procedures in matters of resolving disputes between financial market entities and their clients will be established. Such a coordinator will be appointed by UOKiK for a four-year term. Moreover, the new proposal provides for creating the Financial Education Fund (FEF), a special-purpose fund managed by UOKiK.
Additional provisions in the proposed legislation concern the UOKiK’s investigative powers, cooperation between anti-monopoly authorities, and changes to fine imposition and leniency programs. One of the amendments also stipulates that the President of UOKiK will be elected to a 5-year term and the dismissal of the anti-monopoly authority will only be possible in precisely defined situations, such as: legally valid conviction for a criminal offense caused by intentional conduct and the deprivation of public rights or of Polish citizenship. Adoption of these solutions is linked to the implementation of the EU’s ECN+ directive.
All multinational companies must notify UOKiK of a proposed merger if any party to it has subsidiaries, distribution networks or permanent sales in Poland.
The President of UOKiK has the power to impose significant fines on individuals in management positions at companies that violate the prohibition of anticompetitive agreements. The amendment to the law governing UOKiK’s operation, which entered into force on December 15, 2018, provides for a similar power to impose significant fines on the management of companies in the case of violations of consumer rights. The maximum fine that can be imposed on a manager may amount to PLN 2 million ($510,000) and, in the case of managers in the financial sector, up to PLN 5 million ($1.27 million).
Expropriation and Compensation
Article 21 of the Polish Constitution states: “expropriation is admissible only for public purposes and upon equitable compensation.” The Law on Land Management and Expropriation of Real Estate states that property may be expropriated only in accordance with statutory provisions such as construction of public works, national security considerations, or other specified cases of public interest. The government must pay full compensation at market value for expropriated property. Acquiring land for road construction investment and recently also for the Central Airport and the Vistula Spit projects has been liberalized and simplified to accelerate property acquisition, particularly through a special legislative act. Most acquisitions for road construction are resolved without problems. However, there have been a few cases in which the inability to reach agreement on remuneration has resulted in disputes. Post is not aware of any recent expropriation actions against U.S. investors, companies, or representatives.
ICSID Convention and New York Convention
Poland is not a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (Washington Convention). Poland is a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).
Investor-State Dispute Settlement
Poland is party to the following international agreements on dispute resolution, with the Ministry of Finance acting as the government’s representative: the 1923 Geneva Protocol on Arbitration Clauses; the 1961 Geneva European Convention on International Trade Arbitration; the 1972 Moscow Convention on Arbitration Resolution of Civil Law Disputes in Economic and Scientific Cooperation Claims under the U.S.-Poland Bilateral Investment Treaty (BIT) (with further amendments).
The United Nations Conference on Trade and Development (UNCTAD) database for treaty-based disputes lists three cases for Poland involving a U.S. party over the last decade. The majority of Poland’s investment disputes are with companies from other EU member states. According to the UNCTAD database, over the last decade, there have been 16 known disputes with foreign investors.
There is no distinction in law between domestic and international arbitration. The law only distinguishes between foreign and domestic arbitral awards for the purpose of their recognition and enforcement. The decisions of arbitration entities are not automatically enforceable in Poland, but must be confirmed and upheld in a Polish court. Under Polish Civil Code, local courts accept and enforce the judgments of foreign courts; in practice, however, the acceptance of foreign court decisions varies. Investors say the timely process of energy policy consolidation has made the legal, regulatory and investment environment for the energy sector uncertain in terms of how the Polish judicial system deals with questions and disputes around energy investments by foreign investors, and in foreign investor interactions with state-owned or affiliated energy enterprises.
A Civil Procedures Code amendment in January 2016, with further amendments in July 2019, implements internationally recognized arbitration standards and creates an arbitration-friendly legal regime in Poland. The amendment applies to arbitral proceedings initiated on or after January 1, 2016 and introduced one-instance proceedings to repeal an arbitration award (instead of two-instance proceedings). This change encourages mediation and arbitration to solve commercial disputes and aims to strengthen expeditious procedure. The Courts of Appeal (instead of District Courts) handle complaints. In cases of foreign arbitral awards, the Court of Appeal is the only instance. In certain cases, it is possible to file a cassation (or extraordinary) appeal with the Supreme Court of the Republic of Poland. In the case of a domestic arbitral award, it will be possible to file an appeal to a different panel of the Court of Appeal.
International Commercial Arbitration and Foreign Courts
Poland does not have an arbitration law, but provisions in the Polish Code of Civil Procedures of 1964, as amended, are based to a large extent on UNCITRAL Model Law. Under the Code of Civil Procedure, an arbitration agreement must be concluded in writing. Commercial contracts between Polish and foreign companies often contain an arbitration clause. Arbitration tribunals operate through the Polish Chamber of Commerce, and other sector-specific organizations. A permanent court of arbitration also functions at the business organization Confederation Lewiatan in Warsaw and at the General Counsel to the Republic of Poland (GCRP). GCRP took over arbitral cases from external counsels in 2017 and began representing state-owned commercial companies in litigation and arbitration matters for amounts in dispute over PLN 5 million ($1.27 million). The list of these entities includes major Polish state-owned enterprises in the airline, energy, banking, chemical, insurance, military, oil and rail industries as well as other entities such as museums, state-owned media and universities.
The Court of Arbitration at the Polish Chamber of Commerce in Warsaw, the biggest permanent arbitration court in Poland, operates based on arbitration rules complying with the latest international standards, implementing new provisions on expedited procedure. In recent years, numerous efforts have been made to increase use of arbitration in Poland. In 2019, online arbitration courts appeared on the Polish market. Their presence reflects the need for reliable, fast and affordable alternatives to state courts in smaller disputes. Online arbitration is becoming increasingly popular with exporting companies. One of the reasons is the possibility to file claims faster for overdue payments to foreign courts.
Polish state courts generally respect the wide autonomy of arbitration courts and show little inclination to interfere with their decisions as to the merits of the case. The arbitral awards are likely to be set aside only in rare cases. As a rule, in post-arbitral proceedings, Polish courts do not address the merits of the cases decided by the arbitration courts. An arbitration-friendly approach is also visible in other aspects, such as in the broad interpretation of arbitration clauses.
In mid-2018, the Polish Supreme Court introduced a new legal instrument into the Polish legal field: an extraordinary complaint. Although this new instrument does not refer directly to arbitration proceedings, it may be applied to any procedures before Polish state courts, including post-arbitration proceedings (see Section 3 for more details).
Poland’s bankruptcy law has undergone significant change and modernization in recent years. There is now a bankruptcy law and a separate, distinct restructuring law. Poland ranks 25th for ease of resolving insolvency in the World Bank’s Doing Business report 2020. Bankruptcy in Poland is criminalized if a company’s management does not file a petition to declare bankruptcy when a company becomes illiquid for an extended period of time or if a company ceases to pay its liabilities. https://www.paih.gov.pl/polish_law/bankruptcy_law_and_restructuring_proceedings
In order to reduce the risk of overwhelming the bankruptcy courts with an excess of cases resulting from the pandemic, changes have been introduced in the bankruptcy process for consumers, shifting part of the duties to a trustee. A second significant change is the introduction of simplified restructuring proceedings. During restructuring proceedings, a company appoints an interim supervisor and is guaranteed protection against debt collection while seeking approval for specific restructuring plans from creditors. The simplified proceedings enjoy great support among entities at risk of insolvency, but are limited in time until June 30, 2021. Some of the solutions provided in the simplified restructuring procedure are the implementation of recommendations from Directive 2019/1023 of the European Parliament and of the Council (EU) of June 20, 2019. It is likely that, taking advantage of the state of the epidemic, the government is testing new solutions, which may continue to be applied after the economic situation has returned to normal.
4. Industrial Policies
Poland’s Plan for Responsible Development identified eight industries for development and incentives: aviation, defense, automotive parts manufacturing, ship building, information technology, chemicals, furniture manufacturing and food processing. More information about the plan can be found at this link: https://www.gov.pl/web/fundusze-regiony/plan-na-rzecz-odpowiedzialnego-rozwoju. Poland encourages energy sector development through its energy policy, outlined in the November 2018 published draft report “Energy Policy of Poland until 2040” (PEP2040) and finally adopted by the government in February 2021. The policy can be found at: https://www.gov.pl/web/klimat/polityka-energetyczna-polski.
The policy foresees a primary role for fossil fuels until 2040 as well as strong growth in electricity production. The government will continue to pursue developing nuclear energy and offshore wind power generation, as well as distributed generation. The policy remains skeptical of onshore wind. Poland’s National Energy and Climate Plan for years 2021-2030 (NECP PL) developed in line with the EU Regulation on the Governance of the Energy and Climate Action, together with PEP2040, pave the road to the new European Green Deal. Poland may spend approximately $420 billion on the transformation of its energy sector in 2021-2040, according to the energy policy. These investments would include about $230 billion in the fuel and energy sectors and about $90 billion in the generation segment, of which 80 percent will be spent on nuclear energy and renewables investments.
A new economic program called the “New Deal” (Nowy Lad), still awaiting public presentation as of March 2020, is likely to include proposals of significant changes to the tax system including incentives to attract capital to Poland. The government claims the program consists of support schemes for domestic enterprises, new investment and development projects, as well as reforms of the healthcare system, social welfare, education, environmental, and energy policies.
A government strategy aims for a commercial 5G network to be operational in all cities by 2025.
The Ministry of Development has finished public consultations on its Industry Development White Paper, which identifies the government’s views on its most significant barriers to industrial activity. This document will serve as a foundation for Poland’s Industrial Policy (PIP). The majority of public comments received focused on issues related to the education system not being tailored to the needs of industry, a workforce deficit, difficulties in obtaining funding, for R&D, environmental regulations, complex administrative procedures and legislation, labor regulations, and high energy prices. The PIP is slated to become a strategic document, setting the direction for long-term industrial development. The PIP will focus on five areas: digitization, security, industrial production location, the Green Deal, and modern society. The Ministry expects to finalize this strategic plan during the second quarter of 2021. The government has not yet clarified how Poland’s Industrial Policy will align with other strategic documents, including the National Recovery Plan and the New Deal.
A company investing in Poland, either foreign or domestic, may receive assistance from the Polish government. Foreign investors have the potential to access certain incentives such as: income tax and real estate tax exemptions; investment grants of up to 50 percent of investment costs (70 percent for small and medium-sized enterprises); grants for research and development; grants for other activities such as environmental protection, training, logistics, or use of renewable energy sources.
Large priority-sector investments may qualify for the “Program for Supporting Investment of Considerable Importance for the Polish Economy for 2011-2030.” The program, amended in October 2019, is one of the instruments enabling support for new investment projects, particularly relevant for the Polish economy. Its main goal is to increase innovation and the competitiveness of the Polish economy. Under the amended program, it is possible to co-finance large strategic investments as well as medium-sized innovative projects. Projects that adapt modern technologies and provide for research and development activities are awarded. The program is also conducive to establishing cooperation between the economic sector and academic centers. The support is granted in the form of a subsidy, based on an agreement concluded between the Minister of Development and the investor. The agreement regulates the conditions for the payment of subsidies and the investment implementation schedule. Under the program, investment support may be granted in two categories: eligible costs for creating new jobs and investment costs in tangible and intangible assets. Companies can learn more at: https://www.paih.gov.pl/why_poland/investment_incentives/programme_for_supporting_investments_of_major_importance_to_the_polish_economy_for_2011_-_2030
The Polish Investment Zone (PSI), the new system of tax incentives for investors which replaced the previous system of special economic zones (SEZ), was launched September 5, 2018. Under the new law on the PSI, companies can apply for a corporate income tax (CIT) exemption for a new investment to be placed anywhere in Poland. The CIT exemption is calculated based on the value of the investment multiplied by the percentage of public aid allocated for a given region based on its level of development (set percentage). The CIT exemption is for 10-15 years, depending on the location of the investment. Special treatment is available for investment in new business services and research and development (R&D). A point system determines eligibility for the incentives. Entities operating in special economic zones will not be entitled to change the depreciation rates for new assets starting 2021.
The deadline for utilizing available tax credits from the previous SEZ system is the end of 2026 (extended from 2020). The new regulations also contain important changes for entities already operating in SEZs, even if they do not plan new investment projects. This includes the possibility of losing the right to tax incentives in the event of fraud or tax evasion. Investors should consider carefully the potential benefits of the CIT exemption in assessing new investments or expansion of existing investments in Poland.
The Polish government is seeking to increase Poland’s economic competitiveness by shifting toward a knowledge-based economy. Public and private sector investment in R&D has been steadily growing since 2016, supported by EU funds dedicated to R&D and innovation. Businesses may also take advantage of the EU primary research funding program, Horizon 2020 and its successor Horizon Europe. The EU institutions set the 2021–2027 budget for Horizon Europe at EUR 95.5 billion (including EUR 5.4 billion from the Next Generation of the EU Recovery Fund). The first Horizon Europe Strategic Plan (2021-2024), which sets out key strategic orientations for the support of research and innovation, was adopted on March 15, 2021. According to the European Commission, the program will start “as soon as possible in 2021.” A few months’ delay in the start should not have a big impact on potential grantees because the Commission had already been making contingency plans and will still be spending money left over from Horizon 2020 over the next few years. The conditions for participation, funding and other related formalities remain unchanged.
As of January 1, 2019, the Innovation Box, or IP Box, reduces the tax rate applicable to income derived from intellectual property rights to 5 percent. Taxpayers applying the IP Box shall be entitled to benefit from the tax preference until a given right expires (in case of a patented invention – 20 years). In order to benefit from the program, taxpayers will be obliged to separately account for the relevant income. Foreign investors may take advantage of this benefit as long as the relevant IP is registered in Poland.
The update of the National Reform Program (NRP) heralds the introduction of a new incentive measure for enterprises in the form of tax relief related to investments in automation and robotization (robotization relief). According to an announcement from the Ministry of Finance, robotization relief should apply as of the first half of 2021. Robotization relief is intended as a tax incentive available to all entities subject to income tax. At the same time, eligibility for the relief will not depend on the business sector in which the enterprise operates or business size, making this solution available to all. The new tax relief will operate in a similar manner as the existing research & development tax relief enabling taxpayers to make an additional deduction of eligible costs (expenses detailed in an exhaustive list) from the tax base. Within the framework of robotization relief, it will be possible to deduct 50 percent of the eligible costs. According to the draft, the relief will apply within a specific time frame. It has been announced that robotization relief will apply to expenses incurred on business robotization and automation in the years 2021-2025. The deductions can be made in these years and in the six consecutive years thereafter. It means that the last deductions of eligible expenses can be made in 2031.
There are numerous grants, preferential loans, and other financial instruments to encourage investment that protects the environment by increasing energy efficiency and to promote renewable energy sources and cogeneration systems. Incentives are available mostly from EU funds and national funds and can cover up to 85 percent of eligible costs.
The Polish government does not issue sovereign guarantees for FDI projects. Co-financing may be possible for partnering on large FDI projects, such as the planned central airport project or a nuclear power plant project.
Foreign Trade Zones/Free Ports/Trade Facilitation
Foreign-owned firms have the same opportunities as Polish firms to benefit from foreign trade zones (FTZs), free ports, and special economic zones (since January 2019, they make up the Polish Investment Zone). The 2004 Customs Law (with later amendments) regulates operation of FTZs in Poland. The Minister of Finance establishes duty-free zones. The Ministers designate the zone’s managing authorities, usually provincial governors, who issue operating permits to interested companies for a given zone.
Most activity in FTZs involves storage, packaging, and repackaging. As of April 2019, there were seven FTZs: Gliwice, near Poland’s southern border; Terespol, near Poland’s border with Belarus; Mszczonow, near Warsaw; Warsaw’s Frederic Chopin International Airport; Szczecin; Swinoujscie; and Gdansk. Duty-free shops are available only for travelers to non-EU countries.
There are bonded warehouses in: Bydgoszcz-Szwederowo; Krakow-Balice; Wroclaw-Strachowice; Katowice-Pyrzowice; Gdansk-Trojmiasto; Lodz -Lublinek; Poznan-Lawica; Rzeszow-Jasionka, Warszawa-Modlin, Lublin, Szczecin-Goleniow; Radom-Sadkow, Olsztyn-Mazury. Commercial companies can operate bonded warehouses. Customs and storage facilities must operate pursuant to custom authorities’ permission. Only legal persons established in the EU can receive authorization to operate a customs warehouse.
Performance and Data Localization Requirements
Poland has no policy of “forced localization” designed to force foreign investors to use domestic content in goods or technology. Investment incentives apply equally to foreign and domestic firms. Over 40 percent of firms in Special Economic Zones are Polish. There is little data on localization requirements in Poland and there are no requirements for foreign information technology (IT) providers to turn over source code and/or provide access to surveillance (backdoors into hardware and software or turn over keys for encryption). Exceptions exist in sectors where data are important for national security such as critical telecommunications infrastructure and in gambling. The cross-border transfer rules in Poland are reasonable and follow international best practices, although some companies have criticized registration requirements as cumbersome. In Poland, the Telecommunications Law (Act of 16 July 2004 – unified text, Journal of Laws 2018, item 1954) includes data retention provisions. The data retention period is 12 months.
In the telecommunication sector, the Office of Electronic Communication (UKE) ensures telecommunication operators fulfill their obligations. In radio and television, the National Broadcasting Council (KRRiT) acts as the regulator. Polish regulations protect an individual’s personal data that are collected in Poland regardless of where the data are physically stored. The Personal Data Protection Office (UODO) enforces personal data regulations.
Work is underway at the national level on the draft of a new Act on Open Data and Re-use of Public Sector Information. This work follows adoption of the new Open Data Directive (Directive (EU) 2019/1024 on open data and the re-use of public sector information), which should be implemented into Polish law by July 17, 2021.
Post is not aware of excessively onerous visa, residence permit or similar requirements inhibiting mobility of foreign investors and their employees, though investors regularly note long processing times due to understaffing at regional employment offices. U.S. companies have reported difficulties obtaining work permits for their non-EU citizen employees. Both regulatory challenges and administrative delays result in permit processing times of 3 to 12 months. This affects the hiring of new employees as well as the transfer of existing employees from outside Poland. U.S. companies have complained they are losing highly-qualified employees to other destinations, such as Germany, where labor markets are more accessible. The problem is especially acute in southern Poland.
Generally, Poland does not mandate local employment, but there are a few regulations that place de facto restrictions e.g., a certain number of board members of insurance companies must speak Polish.
Polish law limits non-EU citizens to 49 percent ownership of a company’s capital shares in the air transport, radio and television broadcasting sectors as well as airport and seaport operations. There are also legal limits on foreign ownership of farm and forest lands as outlined in Section 2 of this report under Limits on Foreign Control and Right to Private Ownership and Establishment. Pursuant to the Broadcasting Law, a TV broadcasting company may only receive a license if the voting share of its foreign owners does not exceed 49 percent and if they hold permanent residence in Poland. In the insurance sector, at least two members of management boards, including the chair, must speak Polish.
5. Protection of Property Rights
Poland recognizes and enforces secured interests in property, movable and real. The concept of a mortgage exists in Poland, and there is a recognized system of recording such secured interests. There are two types of publicly available land registers in Poland: the land and mortgage register (ksiegi wieczyste), the purpose of which is to register titles to land and encumbrances thereon; and the land and buildings register (ewidencja gruntow i budynkow), the function of which is more technical as it contains information concerning physical features of the land, class of land and its use. Generally, real estate in Poland is registered and legal title can be identified on the basis of entries in the land and mortgage registers which are maintained by relevant district courts. Each register is accessible to the public and excerpts are available on application, subject to a nominal fee. The registers are available online.
Poland has a non-discriminatory legal system accessible to foreign investors that protects and facilitates acquisition and disposition of all property rights, including land, buildings, and mortgages. However, foreigners (both individuals and entities) must obtain a permit to acquire property (See Section 1 Limits on Foreign Control and Right to Private Ownership and Establishment). Many investors, foreign and domestic, complain the judicial system is slow in adjudicating property rights cases. Under the Polish Civil Code, a contract to buy real property must be made in the form of a notary deed. Foreign companies and individuals may lease real property in Poland without having to obtain a permit.
Widespread nationalization of property during and after World War II has complicated the ability to establish clear title to land in Poland, especially in major municipalities. While the Polish government has an administrative system for reviewing claims for the restitution of communal property, former individual property owners must file and pursue claims in the Polish court system in order to receive restitution. There is no general statute of limitations regarding the filing or litigation of private property restitution claims, but there are exceptions for specific cases. For example, in cases involving the communist-era nationalization of Warsaw under the Bierut Decree, there were claims deadlines that have now passed, and under current law, those who did not meet the deadlines would no longer be able to make a claim for either restitution or compensation. During 2020, Warsaw city authorities continued implementing a 2015 Law dubbed the Small Reprivatization Act. This Law aimed to stop the problem of speculators purchasing Warsaw property claims for low values from the original owners or their heirs and then applying for a perpetual usufruct or compensation as the new legal owner. On September 17, 2020, Parliament adopted further amendments to the 2015 law. The revised legislation established new grounds on which the City of Warsaw must refuse the return of properties, for reasons outside claimants’ control. The president signed the legislation on September 29. NGOs and advocacy groups expressed serious concerns that the 2015 law fell short of providing just compensation to former owners who lost property as a result of the nationalization of properties by the communist-era government, and also properties taken during the Holocaust era. Legal experts expressed concern that the law limited the ability of petitioners to reclaim property unjustly taken from their lawful owners. The World Jewish Restitution Organization asserted that the time limits included in the law were insufficient for potential claimants, particularly Holocaust survivors and their heirs, to meet difficult documentary requirements.
Critics state the law might extinguish potential claims by private individuals of properties seized during World War II or the communist era, if no one comes forward to pursue a restitution claim within the time limit. Any potential claimants who come forward within six months after publication of the affected property by the City of Warsaw will have an additional three months to establish their claim. The city began publishing lists in 2017 and continued to do so during 2021. The city’s website contains further information on these cases and the process to pursue a claim: https://bip.warszawa.pl/Menu_podmiotowe/biura_urzedu/SD/ogloszenia/default.htm
It is sometimes difficult to establish clear title to properties. There are no comprehensive estimates of land without clear title in Poland.
The 2016 Agricultural Land Law banned the sale of state-owned farmland under the administration of the National Center for Support of Agriculture (NCSA) for five years. Long-term state-owned farmland leases are available for farmers looking to expand their operations up to 300 hectares. Foreign investors can (and do) lease agricultural land. The 2016 Agricultural Land Law also imposed restrictions on sales of privately-owned farmland, giving the NCSA preemptive right of purchase.
The 2011 amendment to the law of Management of Farmland Administered by NCSA and 2016 Agricultural Land Law adversely affected tenants with long-term state-owned land leases. According to the law, renters who did not return 30 percent of the land under lease to NCSA would not be eligible to have their leases extended beyond the current terms of the contract. Currently, several entities, including U.S. companies, face the prospect of returning some currently leased land to the Polish government over the coming years. Three of these entities appealed to the Ombudsman, who requested the Constitutional Tribunal (CT) to verify the law’s compliance with the constitution, but the cases were dismissed by the CT in the fall of 2020. In June 2019, the Polish Parliament amended the Agricultural Land Law to loosen land sale requirements. The amendment increased the size of private agricultural land, from 0.3 to 1.0 hectare that could be sold without the approval of the NCSA. The new owner is not allowed to sell the land for five years. The 2019 amendment did not change the land lease situation for larger operators, many of whom continue to remain ineligible to have their land leases extended. The Law on Forest Land similarly prevents Polish and foreign investors from purchasing privately-held forests and gives state-owned entities (Lasy Panstwowe) preemptive right to buy privately-held forest land.
On March 9, 2021, the Council of Ministers approved a draft law amending the 2016 Agricultural Land Law. The amendment extends the ban on selling state-owned farmland under the administration of the NCSA for another five years, until May 1, 2026. If the draft amendment of the Agricultural Land Law is approved by Parliament, it will enter into force on May 1, 2021. The 2021 amendment will not change the land lease situation for larger operators, who will remain ineligible to have their land leases extended.
Intellectual Property Rights
Polish intellectual property rights (IPR) law is more strict than European Commission directives require. Poland is a member of the World Intellectual Property Organization (WIPO) and a party to many of its treaties, including the Berne Convention, the Paris Convention, the Patent Cooperation Treaty, the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty. Enforcement is improving across all sectors of Poland’s IPR regime. Physical piracy (e.g., optical discs) is not a significant problem in Poland. However, despite progress in enforcement, online piracy continues to be widespread as site blocking is still not possible in Poland due to lack of implementation of relevant EU legislation. A popular Polish cyberlocker platform is included on the 2020 Notorious Markets List. Poland does not appear in the U.S. Trade Representative’s Special 301 Report.
Polish law requires a rights holder to start the prosecution process. In Poland, authors’ and creators’ organizations and associations track violations and share these with prosecutors. Rights holders express concern that penalties for digital IPR infringement are not high enough to deter violators.
In March 2019, amendments to the Act on Industrial Property Law came into force which are intended to implement EU Trademark Directive 2015/2436. The legislation introduced, inter alia, the abandonment of the graphical representation requirement, a new mechanism for trademark protection renewals, extended licensee’s rights, as well as remedies against counterfeit goods in transit and against infringing preparatory acts. The changes provide new tools to fight against infringement of trademark rights.
In April 2019, the EU adopted two directives on copyright, including: 2019/790 on copyright and related rights in the digital single market and 2019/789 regarding online broadcasting and re-broadcasting. Member states are required to transpose the reforms into national legislation by June 2021. The Ministry of Culture and National Heritage is responsible for drafting and implementing the legislation which has not yet been made available for public consultations.
In February 2020, additional amendments to the Act on Industrial Property entered into force which adapt Polish standards on inventions to those of the EU so as to streamline and speed up proceedings before the Polish Patent Office. The amendments to the Act also extend the exemption from patent and trademark renewal fees to support start-up entrepreneurs. The legislation complies with relevant provisions of the European Patent Convention and the WIPO Patent Cooperation Treaty.
In July 2020, amendments to the Code of Civil Procedure entered into force which, among other things, creates and operationalizes specialized IPR courts. Poland’s new specialized courts will oversee cases related to all types of IPR, including copyright, and trademarks, industrial property rights, and unfair competition. New departments for IPR matters will be created at the District Courts in Gdansk, Katowice, Poznan, and Warsaw, and specialized departments will be established in the Courts of Appeal in Warsaw and Katowice. This will replace the current system in which IPR matters, including those relating to highly specialized issues such as patents, plant varieties, and trademarks, are examined by commercial departments of common courts.
A specialized court that was previously established within the 22nd Department of the District Court in Warsaw for cases involving EU trademarks and community designs will lose the exclusive competence to deal with those cases and will consider IPR claims regarding computer programs, inventions, designs utility, topography of integrated circuits, plant varieties, and trade secrets of a technical nature (i.e., matters of advanced complexity). In order to conduct proceedings in these cases, it will be necessary to have highly trained judges who are familiar with IPR/IT issues. The new rules also require parties in IPR cases to be represented by professional lawyers, legal advisers, and patent attorneys. The changes represent a positive step for the court system, further contributing to the speed and efficiency of proceedings.
Tax incentives for IPR known collectively as “IP Box” or “Innovation Box,” included in the November 2018 tax amendment, have been applicable since January 2019. See Section 4 – Investment Incentives.
Polish customs tracks seizures of counterfeit goods but statistics for the reporting period are currently unavailable.
The Polish regulatory system is effective in encouraging and facilitating portfolio investment. Both foreign and domestic investors may place funds in demand and time deposits, stocks, bonds, futures, and derivatives. Poland’s equity markets facilitate the free flow of financial resources. Poland’s stock market is the largest and most developed in Central Europe. In September 2018, it was reclassified as developed market status by FTSE Russell’s country classification report. The stock market’s capitalization amounts to less than 40 percent of GDP. Although the Warsaw Stock Exchange (WSE) is itself a publicly traded company with shares listed on its own exchange after its partial privatization in 2010, the state retains a significant percentage of shares which allows it to control the company. WSE has become a hub for foreign institutional investors targeting equity investments in the region. It has also become an increasingly significant source of capital.
In addition to the equity market, Poland has a wholesale market dedicated to the trading of treasury bills and bonds (Treasury BondSpot Poland). This treasury market is an integral part of the Primary Dealers System organized by the Finance Ministry and part of the pan-European bond platform. Wholesale treasury bonds and bills denominated in zlotys and some securities denominated in euros are traded on the Treasury BondSpot market. Non-government bonds are traded on Catalyst, a WSE managed platform. The capital market is a source of funding for Polish companies. While securities markets continue to play a subordinate role to banks in the provision of finance, the need for medium-term financial support for the modernization of the electricity and gas sectors is likely to lead to an increase in the importance of the corporate bond market. The Polish government acknowledges the capital market’s role in the economy in its development plan. Foreigners may invest in listed Polish shares, but they are subject to some restrictions in buying large packages of shares. Liquidity remains tight on the exchange.
The Capital Markets Development Strategy, published in 2018, identifies 20 key barriers and offers 60 solutions. Some key challenges include low levels of savings and investment, insufficient efficiency, transparency and liquidity of many market segments, and lack of taxation incentives for issuers and investors. The primary aim of the strategy is to improve access of Polish enterprises to financing. The strategy focuses on strengthening trust in the market, improving the protection of individual investors, the stabilization of the regulatory and supervisory environment and the use of competitive new technologies. The strategy is not a law, but sets the direction for further regulatory proposals. The Ministry of Finance assumes in its development directions for 2021-2024, the liquidation of approximately 50 percent of barriers to the development of the financial market identified in the strategy and an increase in the capitalization of companies listed on the WSE to 50 percent of GDP. The WSE has signed an agreement with the European Bank for Reconstruction and Development (EBRD) on cooperation in the promotion of advanced environmental reporting by listed companies in Poland and the region of Central and Southeast Europe. Poland is one of the most rigorously supervised capital markets in Europe according to the European Commission.
The Employee Capital Plans program (PPK)—which is designed to increase household saving to augment individual incomes in retirement—could provide a boost to Poland’s capital markets and reduce dependence on foreign saving as a source for investment financing. The program has been delayed due to the outbreak of the COVID-19 pandemic.
High-risk venture capital funds are becoming an increasingly important segment of the capital market. The market is still shallow, however, and one major transaction may affect the value of the market in a given year. The funds remain active and Poland is a leader in this respect in Central and Eastern Europe.
In 2020, Poland saw an almost 70 percent increase in venture capital (VC) funding, with around $500 million flowing into Polish startups throughout the year, according to a report by PFR Ventures and Inovo Venture Partners. This marks a new record for Poland, which is increasingly emerging as an important startup hub. According to the report, a quarter of Polish startups that received VC funding in 2020 were involved in or around healthcare.
In 2020, WSE strengthened its position as the global leader when it comes to the number of listed companies from the game developers sector. The WSE’s main and start-up markets list a total of 58 game development companies.
Poland provides full IMF Article VIII convertibility for current transactions. Banks can and do lend to foreign and domestic companies. Companies can and do borrow abroad and issue commercial paper, but the market is less robust than in Western European countries or the United States. The Act on Investment Funds allows for open-end, closed-end, and mixed investment funds, and the development of securitization instruments in Poland. In general, no special restrictions apply to foreign investors purchasing Polish securities.
Credit allocation is on market terms. The government maintains some programs offering below-market rate loans to certain domestic groups, such as farmers and homeowners. Foreign investors and domestic investors have equal access to Polish financial markets. Private Polish investment is usually financed from retained earnings and credits, while foreign investors utilize funds obtained outside of Poland as well as retained earnings. Polish firms raise capital in Poland and abroad.
Recent changes in the governance structure of the Polish Financial Supervisory Authority (KNF) are aimed at increasing cross governmental coordination and a better-targeted response in case of financial shocks, while achieving greater institutional effectiveness through enhanced resource allocation. KNF’s supplementary powers have increased, allowing it to authorize the swift acquisition of a failing or likely to fail lender by a stronger financial institution.
Money and Banking System
The Polish financial sector entered the pandemic with strong capital and liquidity buffers and without significant imbalances. The COVID-19 pandemic presents risks for the Polish financial sector resulting from a sharp economic slowdown and an increase in the number of business failures. Loosening of reserve requirements, government-provided loan guarantees, and fiscal support measures should help to mitigate losses faced by financial sector firms including banks.
The banking sector plays a dominant role in the financial system, accounting for about 70 percent of financial sector assets. The sector is mostly privately owned, with the state controlling about 40 percent of the banking sector and the biggest insurance company. Poland had 30 locally incorporated commercial banks at the end of August 2020, according to KNF. The number of locally-incorporated banks has been declining over the last five years. Poland’s 533 cooperative banks play a secondary role in the financial system, but are widespread. The state owns eight banks. Over the last few years, growing capital requirements, lower prospects for profit generation and uncertainty about legislation addressing foreign currency mortgages has pushed banks towards mergers and acquisitions. KNF welcomes this consolidation process, seeing it as a “natural” way to create an efficient banking sector.
The Polish National Bank (NBP) is Poland’s central bank. At the end of 2020, the banking sector was overall well capitalized and solid. Poland’s banking sector meets European Banking Authority regulatory requirements. The share of non-performing loans is close to the EU average and recently has been rising, but modestly. In December 2020, non-performing loans were 6.8 percent of portfolios. Poland’s central bank is willing and able to provide liquidity support to the banking sector, in local and foreign currencies, if needed. The NBP responded swiftly to the COVID-19 pandemic. It cut rates in early 2020 to 0.1 percent from 1.5 percent over the previous five years and started buying government bonds. To support liquidity in the banking sector, the central bank has lowered reserve requirements, introduced repo operations, and offered bill discount credit aimed at refinancing loans granted to enterprises by banks.
The banking sector is liquid, still profitable, and major banks are well capitalized, although disparities exist among banks. This was confirmed by NBP’s Financial Stability Report and stress tests conducted by the central bank. In 2020, the net profit of the banking sector amounted to PLN 7.8 billion ($2 billion), decreasing on an annual basis by around 44 percent – according to the data of the Polish Financial Supervision Authority. Returns on equity fell to around 3 percent in 2020 vs 6.7 percent in 2019. The level of write-offs and provisions as well as the net commission income increased significantly. The need to make allowances to cover the costs of the pandemic and loans in Swiss francs had a significant impact on the decline in business profitability – the result from impairment losses and provisions increased by 33 percent up to PLN 12.7 billion ($3.2 billion). Profits remain under pressure due to low interest rates, the issue of conversion of Swiss francs mortgage portfolios into Polish zlotys, and a special levy on financial institutions (0.44 percent of the value of assets excluding equity and Polish sovereign bonds).
The ECJ issued a judgement in October 2019 on mortgages in Swiss francs, taking the side of borrowers. The ECJ annulled the loan agreements, noting an imbalance between the parties and the use of prohibited clauses. The legal risk arising from the portfolio of foreign exchange mortgage loans has risen and is substantial. The number of borrowers who have filed lawsuits against banks and the percentage of court rulings in favor of borrowers has increased. In December 2020, the head of Poland’s financial market regulator KNF proposed a plan for banks to convert foreign currency loans into zlotys as if they had been taken out in the local currency originally. This solution could cost the banking sector PLN 34.5 billion ($8.8 billion). While some observers initially expected banks to finalize a plan for such out-of-court settlements before the Supreme Court sitting, scheduled for April 2021, lenders appear to be waiting for guidelines that could prove crucial to clients trying to decide whether they should go to court. An additional financial burden for banks resulted from the necessity to return any additional fees they charged customers who repaid loans ahead of schedule.
Since 2015, the Polish government established an active campaign aiming to increase the market share of national financial institutions. Since 2017, Polish investors’ share in the banking sector’s total assets exceeds the foreign share in the sector. The State controls around 40 percent of total assets, including the two largest banks in Poland. These two lenders control about one third of the market. Rating agencies warn that an increasing state share in the banking sector might impact competitiveness and profits in the entire financial sector. There is concern that lending decisions at state-owned banks could come under political pressure. Nevertheless, Poland’s strong fundamentals and the size of its internal market mean that many foreign banks will want to retain their positions.
The financial regulator has restricted the availability of loans in euros or Swiss francs in order to minimize the banking system’s exposure to exchange risk resulting from fluctuations. Only individuals who earn salaries denominated in these currencies continue to enjoy easy access to loans in foreign currencies.
In 2020, NBP had relationships with 27 commercial and central banks and was not concerned about losing any of them.
The coronavirus-driven recession will likely depress business volumes and increase loan losses, but Polish banks seem to have strong enough capital and liquidity positions to persevere.
Foreign Exchange and Remittances
Poland is not a member of the Eurozone; its currency is the Polish zloty. The current government has shown little desire to adopt the euro (EUR). The Polish zloty (PLN) is a floating currency; it has largely tracked the EUR at approximately PLN 4.2-4.3 to EUR 1 in recent years and PLN 3.7 – 3.8 to $1. Foreign exchange is available through commercial banks and exchange offices. Payments and remittances in convertible currency may be made and received through a bank authorized to engage in foreign exchange transactions, and most banks have authorization. Foreign investors have not complained of significant difficulties or delays in remitting investment returns such as dividends, return of capital, interest and principal on private foreign debt, lease payments, royalties, or management fees. Foreign currencies can be freely used for settling accounts.
Poland provides full IMF Article VIII convertibility for currency transactions. The Polish Foreign Exchange Law, as amended, fully conforms to OECD Codes of Liberalization of Capital Movements and Current Invisible Operations. In general, foreign exchange transactions with the EU, OECD, and European Economic Area (EEA) are accorded equal treatment and are not restricted.
Except in limited cases which require a permit, foreigners may convert or transfer currency to make payments abroad for goods or services and may transfer abroad their shares of after-tax profit from operations in Poland. In general, foreign investors may freely withdraw their capital from Poland, however, the November 2018 tax bill included an exit tax. Full repatriation of profits and dividend payments is allowed without obtaining a permit. A Polish company (including a Polish subsidiary of a foreign company), however, must pay withholding taxes to Polish tax authorities on distributable dividends unless a double taxation treaty is in effect, which is the case for the United States. Changes to the withholding tax in the 2018 tax bill increased the bureaucratic burden for some foreign investors (see Section 2). The United States and Poland signed an updated bilateral tax treaty in February 2013 that the United States has not yet ratified. As a rule, a company headquartered outside of Poland is subject to corporate income tax on income earned in Poland, under the same rules as Polish companies.
Foreign exchange regulations require non-bank entities dealing in foreign exchange or acting as a currency exchange bureau to submit reports electronically to NBP at: http://sprawozdawczosc.nbp.pl.
An exporter may open foreign exchange accounts in the currency the exporter chooses.
Poland does not prohibit remittance through legal parallel markets utilizing convertible negotiable instruments (such as dollar-denominated Polish bonds in lieu of immediate payment in dollars). As a practical matter, such payment methods are rarely, if ever, used.
Sovereign Wealth Funds
The Polish Development Fund (PFR) is often referred to as Poland’s Sovereign Wealth Fund. PFR is an umbrella organization pooling resources of several governmental agencies and departments, including EU funds. A strategy for the Fund was adopted in September 2016, and it was registered in February 2017. PFR supports the implementation of the Responsible Development Strategy. The PFR operates as a group of state-owned banks and insurers, investment bodies, and promotion agencies. The budget of the PFR Group initially reached PLN 14 billion ($3.6 billion), which managers estimate is sufficient to raise capital worth PLN 90-100 billion ($23-25 billion). Various actors within the organization can invest through acquisition of shares, through direct financing, seed funding, and co-financing venture capital. Depending on the instruments, PFR expects different rates of return.
In July 2019, the President of Poland signed the Act on the System of Development Institutions. Its main goal is to formalize and improve the cooperation of institutions that make up the PFR Group, strengthen the position of the Fund’s president and secure additional funding from the Finance Ministry. The group will have one common strategy. The introduction of new legal solutions will increase the efficiency and availability of financial and consulting instruments. An almost four-fold increase in the share capital will enable PFR to significantly increase the scale of investment in innovation and infrastructure and will help Polish companies expand into foreign markets. While supportive of overseas expansion by Polish companies, the Fund’s mission is domestic.
PFR plans to invest PLN 2.2 billion ($560 million) jointly with private-equity and venture-capital firms and PLN 600 million ($153 million) into a so-called fund of funds intended to kickstart investment in midsize companies.
Since its inception, PFR has carried out over 30 capital transactions, investing a total of PLN 8.3 billion ($2.1 billion) directly or through managed funds. PFR, together with the support of other partners, has implemented investment projects with a total value of PLN 26.2 billion ($6.7 billion). The most significant transactions carried out together with state-controlled insurance company PZU S.A. include the acquisition of 32.8 percent of the shares of Bank Pekao S.A. (PFR’s share is 12.8 percent); the acquisition of 100 percent of the shares in PESA Bydgoszcz S.A. (a rolling stock producer); and the acquisition of 99.77 percent of the shares of Polskie Koleje Linowe S.A. PFR has also completed the purchase, together with PSA International Ptd Ltd and IFM Investors, of DCT Gdansk, the largest container terminal in Poland (PFR’s share is 30 percent). Also, 59 funds supported by PFR Ventures have invested almost PLN 3.5 billion ($1.0 billion) () in nearly 400 companies. Over one third of this sum went to innovative, young start-ups and the rest for financing mature companies. In April 2020, the President of Poland signed into law an amendment to the law on development institution systems, expanding the competencies of PFR as part of the government’s Anti-Crisis Shield. The Act assumes that, in the years 2020-2029, the maximum limit of government budget expenditures resulting from the financial effects of the amendment will be PLN 11.7 billion ($3.0 billion).
The amendment expands the competencies of PFR so that it can more efficiently support businesses in the face of the coronavirus epidemic. The fund has been charged with management of the Financial Shield, a loan and subsidies government scheme worth approximately PLN 100 billion ($25.0 billion) for firms to maintain liquidity and protect jobs. The scheme is accessible to small, medium and large firms.
7. State-Owned Enterprises
State-owned enterprises (SOEs) exist mainly in the defense, energy, transport, banking and insurance sectors. The main Warsaw stock index (WIG) is dominated by state-controlled companies. The government intends to keep majority share ownership and/or state-control of economically and strategically important firms and is expanding the role of the state in the economy, particularly in the banking and energy sectors. Some U.S. investors have expressed concern that the government favors SOEs by offering loans from the national budget as a capital injection and unfairly favoring SOEs in investment disputes. Since Poland’s EU accession, government activity favoring state-owned firms has received careful scrutiny from Brussels. Since the Law and Justice government came to power in 2015, there has been a considerable increase in turnover in managerial positions of state-owned companies (although this has also occurred in previous changes of government, but to a lesser degree) and increased focus on building national champions in strategic industries to be able to compete internationally. There have also been cases of takeovers of foreign private companies by state-controlled companies the viability of which has raised doubts. SOEs are governed by a board of directors and most pay an annual dividend to the government, as well as prepare and disclose annual reports.
Among them are companies of “strategic importance” whose shares cannot be sold, including: Grupa Azoty S.A., Grupa LOTOS S.A., KGHM Polska Miedz S.A., Energa S.A, and the Central Communication Port.
The government sees SOEs as drivers and leaders of its innovation policy agenda. For example, several energy SOEs established a company to develop electro mobility. The performance of SOEs has remained strong overall and broadly similar to that of private companies. International evidence suggests, however, that a dominant role of SOEs can pose fiscal, financial, and macro-stability risks.
As of June 2020, there were over 349 companies in partnership with state authorities. Among them there are companies under bankruptcy proceedings and in liquidation and in which the State Treasury held residual shares. Here is a link to the list of companies, including under the control of which ministry they fall: http://nadzor.kprm.gov.pl/spolki-z-udzialem-skarbu-panstwa.
The Ministry of State Assets, established after the October 2019 post-election cabinet reshuffle, has control over almost 180 enterprises. Their aggregate value reaches several dozens of billions of Polish zlotys. Among these companies are the largest chemical, energy, and mining groups; firms in the banking and insurance sectors; and transport companies. This list does not include state-controlled public media, which are under the supervision of the Ministry of Culture or the State Securities Printing Company (PWPW) supervised by the Interior Ministry. Supervision over defense industry companies has been shifted from the Ministry of Defense to the Ministry of State Assets.
According to the latest data from the National Bank of Poland, at the end of September 2019. stocks and shares held by state (and local government) institutions amounted to just over PLN 261 billion ($66 billion).
The same standards are generally applied to private and public companies with respect to access to markets, credit, and other business operations such as licenses and supplies. Government officials occasionally exercise discretionary authority to assist SOEs. In general, SOEs are expected to pay their own way, finance their operations, and fund further expansion through profits generated from their own operations.
On February 21, 2019, an amendment to the Act on the principles of management of state-owned property was adopted, which provides for the establishment of a new public special-purpose fund – the Capital Investment Fund. The Fund is a source of financing for the purchase and subscription of shares in companies. The Fund is managed by the Prime Minister’s office and financed by dividends from state-controlled companies.
A commission for the reform of corporate governance was established on February 10, 2020, by the Minister of State Assets. The commission developed recommendations regarding the introduction of a law on consortia/holdings; changes in the powers of supervisory boards and their members, with particular emphasis on the rights and obligations of parent companies’ supervisory boards; changes in the scope of information obligations of companies towards partners or shareholders; and other changes, including in the Commercial Companies Code. The Ministry of State Assets plans to introduce the regulations of the holding law into the Polish legal system in 2021, which is a part of a draft reform of commercial law prepared by the commission. Some law offices expressed concerns that the solutions provided for in the amendment may impose new obligations on entrepreneurs conducting business activity in this form. Since coming to power in 2015, the governing Law and Justice party (PiS) has increased control over Poland’s banking and energy sectors
Proposed legislation to “deconcentrate” and “repolonize” Poland’s media landscape, including through the possible forced sale of existing investments, has met with domestic and international protest. Critical observers allege that PiS and its allies are running a pressure campaign against foreign and independent media outlets aimed at destabilizing and undermining their businesses. These efforts include blocking mergers through antimonopoly decisions, changes to licensing requirements, and the proposed new advertising tax. Increasing government control over state regulatory bodies, advertising agencies and infrastructure such as printing presses and newsstands, are other possible avenues. Since 2015, state institutions and state-owned and controlled companies have ceased to subscribe to or place advertising in independent media, cutting off an important source of funding for those media companies. At the same time, public media has received generous support from the state budget.
In December 2020, state-controlled energy firm PKN Orlen, headed by PiS appointees, acquired control of Polska Press in a deal that gives the governing party indirect control over 20 of Poland’s 24 regional newspapers. Because this acquisition was achieved without legislative changes, it has not provoked diplomatic repercussions with other EU member states or a head-on collision with Brussels over the rule of law. Having successfully taken over a foreign-owned media company with this model, there are concerns PKN Orlen will continue to be used for capturing independent media not supportive of the government.
OECD Guidelines on Corporate Governance of SOEs
In Poland, the same rules apply to SOEs and publicly-listed companies unless statutes provide otherwise. The state exercises its influence through its rights as a shareholder in proportion to the number of voting shares it holds (or through shareholder proxies). In some cases, an SOE is afforded special rights as specified in the company’s articles, and in compliance with Polish and EU laws. In some non-strategic companies, the state exercises special rights as a result of its majority ownership but not as a result of any specific strategic interest. Despite some of these specific rights, the state’s aim is to create long-term value for shareholders of its listed companies by adhering to the OECD’s SOE Guidelines. State representatives who sit on supervisory boards must comply with the Commercial Companies Code and are expected to act in the best interests of the company and its shareholders. The European Commission noted that “Polska Fundacja Narodowa” (an organization established to promote Polish culture worldwide and funded by Polish SOEs) was involved in the organization and financing of a campaign supporting the controversial judiciary changes by the government. The commission stated this was broadly against OECD recommendations on SOE involvement in financing political activities.
SOE employees can designate two fifths of the SOE’s Supervisory Board’s members. In addition, according to Poland’s privatization law, in wholly state-owned enterprises with more than 500 employees, the employees are allowed to elect one member of the Management Board. SOEs are subject to a series of additional disclosure requirements above those set forth in the Company Law. The supervising ministry prepares specific guidelines on annual financial reporting to explain and clarify these requirements. SOEs must prepare detailed reports on management board activity, plus a report on the previous financial year’s activity, and a report on the result of the examination of financial reports. In practice, detailed reporting data for non-listed SOEs is not easily accessible. State representatives to supervisory boards must go through examinations to be able to apply for a board position. Many major state-controlled companies are listed on the Warsaw Stock Exchange and are subject to the “Code of Best Practice for WSE Listed Companies.”
On September 30, 2015, the Act on Control of Certain Investments entered into force. The law creates mechanisms to protect against hostile takeovers of companies operating in strategic sectors (gas, power generation, chemical, copper mining, petrochemical and telecoms) of the Polish economy (see Section 2 on Investment Screening), most of which are SOEs or state-controlled. In 2020, the government amended the legislation preventing hostile take overs. The amendments will be in force for 24 months. They are a part of the pandemic-related measures introduced by the Polish government. The SOE governance law of 2017 (with subsequent amendments) is being implemented gradually. The framework formally keeps the oversight of SOEs centralized. The Ministry of State Assets exercises ownership functions for the majority of SOEs. A few sector-specific ministries (e.g., Culture and Infrastructure) also exercise ownership for SOEs with public policy objectives. The Prime Minister’s Office oversees development agencies such as the Polish Development Fund and the Industry Development Agency.
The Polish government has completed the privatization of most of the SOEs it deems not to be of national strategic importance. With few exceptions, the Polish government has invited foreign investors to participate in major privatization projects. In general, privatization bidding criteria have been clear and the process transparent.
The majority of SOEs classified as “economically important” or “strategically important” is in the energy, mining, media, telecommunications, and financial sectors. The government intends to keep majority share ownership of these firms, or to sell tranches of shares in a manner that maintains state control. The government is currently focused on consolidating and improving the efficiency of the remaining SOEs.
8. Responsible Business Conduct
The results of the study “CSR in practice – a barometer of the French-Polish Chamber of Commerce” show that the pandemic mobilized not only state institutions, but also businesses which actively joined the fight against COVID-19. Activities focused to a great extent on companies own employees and clients, and every third enterprise was involved in helping hospitals and nursing homes. Fifty-seven percent of companies donated money to fight the pandemic, 59 percent material resources and services, and 67 percent the time and skills of employees. Sixty-one percent of adult Poles expect an active attitude of businesses towards the epidemic.
Poland’s Ministry of Funds and Regional Development supports implementation of responsible business conduct (RBC) and corporate social responsibility (CSR) programs. The Ordinance of the Minister of Investment and Development of May 10, 2018, established working groups responsible for sustainable development and corporate social responsibility. The chief function of the working groups is to create space for dialogue and exchange of experiences between the public administration, social partners, NGOs, and the academic environment in CSR/RBC. Experts cooperate within 5 working groups: 1) Innovation for CSR and sustainable development; 2) Business and human rights; 3) Sustainable production and consumption; 4) Socially responsible administration, and 5) Socially responsible universities. The greater team issues recommendations concerning implementation of the CSR/RBC policy, in particular the objectives of the Strategy for Responsible Development. More information on recent developments in the CSR area and future events is available under this link: https://www.gov.pl/web/fundusze-regiony/spoleczna-odpowiedzialnosc-przedsiebiorstw-csr2
In 2017, on the initiative of the then existent Ministry of Economic Development, a partnership was established for the translation into Polish of the Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector. The parties involved included representatives of the business sector, industry organizations and NGOs. The Polish version of the Guidelines was announced on June 29, 2018. The document, available on the OECD NCP website, is a practical tool explaining how to implement the principles of due diligence, taking into account risks related to child labor, forced labor, water use, hazardous waste, etc.
The mission is not aware of reports of human or labor rights concerns relating to RBC in Poland.
An increasing number of Polish enterprises are implementing the principles of CSR/RBC in their activities. One of these principles is to openly inform the public, employees, and local communities about the company’s activities by publishing non-financial reports. Sharing experience in the field of integration of social and environmental factors in everyday business activities helps build credibility and transparency of the Polish market.
The attitude of Poles to environmental issues is changing, and so are their expectations regarding business. According to a recent study by ARC Rynek i Opinia for the Warsaw School of Economics, 59 percent of Poles consciously choose domestic products more often and 57 percent avoid products that harm the environment. In Poland, provisions relating to responsible business conduct are contained within the Public Procurement law and are the result of transposition of very similar provisions contained in the EU directives. For example, there is a provision for reserved contracts, where the contracting authority may limit competition for sheltered workshops and other economic operators whose activities include social and professional integration of people belonging to socially marginalized groups.
Independent organizations including NGOs, business and employee associations promote CSR in Poland. The Responsible Business Forum (RBF), founded in 2000, is the oldest and largest NGO in Poland focusing on corporate social responsibility: http://odpowiedzialnybiznes.pl/english/. CSR Watch Coalition Poland, part of the OECD Watch international network aims to advance respect for human rights in the context of business activity in Poland in line with the spirit of the UNBHR-GPs and the OECD Guidelines for Multinational Enterprises (MNEs): http://pihrb.org/koalicja/
Research shows that sustainability and CSR are increasingly translating into consumer choices in Poland. According to SW Research for Stena Recycling, nearly 70 percent of Poles would like their favorite products to come from sustainable production and are willing to switch to more sustainably produced products. More than half believe that the circular economy can have a direct, positive impact on the environment. Starting in 2018, approximately 300 Polish companies were required to publish a non-financial information statement alongside their business activity report. This requirement is tied to the January 26, 2017, amendment of the Act on Accounting, which implements the directive 2014/95/UE into Polish law. The rules of the act concern companies that fulfill two out of the three of the following criteria: the average annual number of employed persons numbers over 500; the company’s balance sheet totals over PLN 85 million ($22 million), or gross earnings from the sale of commodities and products for the fiscal year amount to at least PLN 170 million ($43 million). Directive 2014/95/EU will soon be amended and will introduce a uniform European standard of reporting on sustainable development issues. Many companies voluntarily compile CSR activity reports based on international reporting standards.
The European Bank for Reconstruction and Development (EBRD) and the Warsaw Stock Exchange (WSE) have partnered to support Polish and Central and Eastern European listed companies with environmental, social, and governance (ESG) reporting. The EBRD and WSE hope to facilitate engagement with policy makers, regulators, and other stakeholders to ensure development of a coherent, robust, and transparent framework in compliance with legislation and in line with the EU Green Deal for ESG disclosure. The framework will also provide investors with comparability in terms of monitoring different companies.
In February 2020, the Responsible Business Forum presented its 2019 “Responsible Business in Poland. Good Practices” report, which is the most comprehensive CSR review in Poland, with a record number of responsible business activities featured. (The 2020 report is expected to be presented in mid-April 2021.) In total, the 2019 report contains 1,696 practices reported by 214 companies. Environmental practices are the most dynamically growing area – an increase of over 35 percent in relation to the previous report. Examples of activities include activities related to reducing the consumption of plastic, a circular economy, conservation of biodiversity, environmental education, and counteracting the climate crisis. Poland maintains a National Contact Point (NCP) for OECD Guidelines for Multinational Enterprises: https://www.gov.pl/web/fundusze-regiony/krajowy-punkt-kontaktowy-oecd
Starting in March 2021, the EU regulation SFDR 2019/2088 on disclosure of information related to sustainable development (environmental, labor, human rights, and anti-corruption) in the financial services sector will apply in Poland and other EU countries.
The NCP promotes the OECD MNE Guidelines through seminars and workshops. Investors can obtain information about the Guidelines and their implementation through Regional Investor Assistance Centers.
Information on the OECD NCP activities is under this link: https://www.gov.pl/web/fundusze-regiony/oecd-national-contact-point Poland is not a member of the Extractive Industries Transparency Initiative (EITI) or the Voluntary Principles on Security and Human Rights. The primary extractive industries in Poland are coal and copper mining. Onshore, there is also hydrocarbon extraction, primarily conventional natural gas, with limited exploration for shale gas. The Polish government exercises legal authority and receives revenues from the extraction of natural resources and from infrastructure related to extractive industries such as oil and gas pipelines through a concessions-granting system, and in most cases through shareholder rights in state-owned enterprises. The Polish government has two revenue streams from natural resources: 1) from concession licenses; and 2) from corporate taxes on the concession holders. License and tax requirements apply equally to both state-owned and private companies. Natural resources are brought to market through market-based mechanisms by both state-owned enterprises and private companies. Poland was among the original ratifiers of the Montreux Document on Private Military and Security Companies in 2008. One company from Poland is a member of the International Code of Conduct for Private Security Service Providers’ Association (ICoCA).
Poland has laws, regulations, and penalties aimed at combating corruption of public officials and counteracting conflicts of interest. Anti-corruption laws extend to family members of officials and to members of political parties who are members of parliament. There are also anti-corruption laws regulating the finances of political parties. According to a local NGO, an increasing number of companies are implementing voluntary internal codes of ethics. In 2020, the Transparency International (TI) index of perceived public corruption ranked Poland as the 45th (four places lower than in 2019 TI index) least corrupt among 180 countries/territories.
UN Anticorruption Convention, OECD Convention on Combatting Bribery
The Polish Central Anti-Corruption Bureau (CBA) and national police investigate public corruption. The Justice Ministry and the police are responsible for enforcing Poland’s anti-corruption criminal laws. The Finance Ministry administers tax collection and is responsible for denying the tax deductibility of bribes. Reports of alleged corruption most frequently appear in connection with government contracting and the issuance of a regulation or permit that benefits a particular company. Allegations of corruption by customs and border guard officials, tax authorities, and local government officials show a decreasing trend. If such corruption is proven, it is usually punished.
Overall, U.S. firms have found that maintaining policies of full compliance with the U.S. Foreign Corrupt Practices Act (FCPA) is effective in building a reputation for good corporate governance and that doing so is not an impediment to profitable operations in Poland. Poland ratified the UN Anticorruption Convention in 2006 and the OECD Convention on Combating Bribery in 2000. Polish law classifies the payment of a bribe to a foreign official as a criminal offense, the same as if it were a bribe to a Polish official.
On November 9-10, 2020, a high-level mission of the OECD Working Group on Bribery met with senior Polish officials in virtual meetings to urge Poland to reform its laws to ensure it can effectively investigate and prosecute foreign bribery.
The Batory Foundation, as part of a broader operational program (ForumIdei), continues to monitor public corruption, carries out research into this area and publishes reports on various aspects of the government’s transparency. Contact information for Batory Foundation is: firstname.lastname@example.org; 22 536 02 00.
10. Political and Security Environment
Poland is a politically stable country. Constitutional transfers of power are orderly. The last presidential elections took place in June 2020 and parliamentary elections took place in October 2019; observers considered both elections free and fair. The Organization for Security and Cooperation in Europe, which conducted the election observation during June 2020 presidential elections, found the presidential elections were administered professionally, despite legal uncertainty during the electoral process due to the outbreak of the COVID-19 epidemic. Prime Minister Morawiecki’s government was re-appointed in November 2019. Local elections took place in October 2018. Elections to the European Parliament took place in May 2019. The next parliamentary elections are scheduled for the fall of 2023. There have been no confirmed incidents of politically motivated violence toward foreign investment projects in recent years. Poland has neither insurgent groups nor belligerent neighbors. The U.S. International Development Finance Corporation (DFC) provides political risk insurance for Poland but it is not frequently used, as competitive private sector financing and insurance are readily available.
11. Labor Policies and Practices
Poland has a well-educated, skilled labor force. Productivity, however, remains below OECD averages but is rising rapidly and unit costs are competitive. In the last quarter of 2020, according to the Polish Central Statistical Office (GUS), the average gross wage in Poland was PLN 5,458 ($1,390 per month) compared to 5,198 ($1,324) in the last quarter of 2019. Poland’s economy employed roughly 16.512 million people in the third quarter of 2020. Eurostat measured total Polish unemployment at 3.3 percent, with youth unemployment at 11.5 percent in December 2020. GUS reports unemployment rates differently and tends to be higher than Eurostat figures. Unemployment varied substantially among regions: the highest rate was 10.1 percent (according to GUS) in the north-eastern part of Poland (Warmia and Mazury), and the lowest was 3.7 percent (GUS) in the western province of Wielkopolska, at the end of the fourth quarter of 2020. Unemployment was lowest in major urban areas. Polish workers are usually eager to work for foreign companies, in Poland and abroad. Since Poland joined the EU, up to two million Poles have sought work in other EU member states.
According to the Ministry of Development, Labor, and Technology, 1.5 million “simplified procedure” work declarations were registered in 2020, of which 1.3 million were for Ukrainian workers (compared to 1.5 million a year earlier). Under the revised procedure, local authorities may verify if potential employers have actual job positions for potential foreign workers. The law also authorizes local authorities to refuse declarations from employers with a history of abuse, as well as to ban employers previously convicted of human trafficking from hiring foreign workers. The January 2018 revision also introduced a new type of work permit for foreign workers, the so-called seasonal work permit, which allow for legal work up to nine months in agriculture, horticulture, tourism and similar industries. Ministry of Development, Labor, and Technology statistics show that during by August 2020, 137,403 seasonal work permits of this type were issued, of which 135,482 went to Ukrainians. Ministry of Development, Labor, and Technology statistics also show that in 2020, 295,272 thousand Ukrainians received work permits, compared with 330,495 in 2019.
Polish companies suffer from a shortage of qualified workers. According to a 2021 report, “Barometer of Professions,” commissioned by the Ministry of Development, Labor, and Technology, several industries suffer shortages, including the construction, manufacturing, -healthcare, and transportation industries. The most sought-after workers in the construction industry include concrete workers, steel fixers, carpenters, and bricklayers. Manufacturing companies seek electricians, electromechanical engineers, tailors, welders, woodworkers, machinery operators, and locksmiths. Employment has expanded in service industries such as information technology, manufacturing, and administrative and support service activities. The business process outsourcing industry in Poland has experienced dynamic growth. The state-owned sector employs about a quarter of the work force, although employment in coal mining and steel are declining.
Since 2017, the minimum retirement age for men has been 65 and 60 for women. Labor laws differentiate between layoffs and dismissal for cause (firing). In the case of layoffs (when workers are dismissed for economic reasons in companies which employ more than 20 employees), employers are required to offer severance pay. In the case of dismissal for cause, the labor law does not require severance pay.
Most workers hired under labor contracts have the legal right to establish and join independent trade unions and to bargain collectively. Since 2020, the revised law on trade unions has expanded the right to form a union to persons who entered into an employment relationship based on a civil law contract and to persons who were self-employed. Trade union influence is declining, though unions remain powerful among miners, shipyard workers, government employees, and teachers. The Polish labor code outlines employee and employer rights in all sectors, both public and private, and has been gradually revised to adapt to EU standards. However, employers tend to use temporary and contract workers for jobs that are not temporary in nature. Employers have used short-term contracts because they allow firing with two weeks’ notice and without consulting trade unions. Employers also tend to use civil instead of labor contracts because of ease of hiring and firing, even in situations where work performed meets all the requirements of a regular labor contract.
Polish law requires equal pay for equal work and equal treatment with respect to signing labor contracts, employment conditions, promotion, and access to training. The law defines equal treatment as nondiscrimination in any way, directly or indirectly on the grounds of gender, age, disability, race, religion, nationality, political opinion, ethnic origin, denomination, sexual orientation, whether or not the person is employed temporarily or permanently, full time or part time.
The 1991 Law on Conflict Resolution defines the mechanism for labor dispute resolution. It consists of four stages: first, the employer is obliged to conduct negotiations with employees; the second stage is a mediation process, including an independent mediator; if an agreement is not reached through mediation, the third stage is arbitration, which takes place at the regional court; the fourth stage of conflict resolution is a strike.
The Polish government adheres to the International Labor Organization’s (ILO) core conventions and generally complies with international labor standards. However, there are several gaps in enforcing these standards, including legal restrictions on the rights of workers to form and join independent unions. Cumbersome procedures make it difficult for workers to meet all of the technical requirements for a legal strike. The law prohibits collective bargaining for key civil servants, appointed or elected employees of state and municipal bodies, court judges, and prosecutors. There were some limitations with respect to identification of victims of forced labor. Despite prohibitions against discrimination with respect to employment or occupation, such discrimination occurs. Authorities do not consistently enforce minimum wage, hours of work, and occupational health and safety, either in the formal or informal sectors.
The National Labor Inspectorate (NLI) is responsible for identifying possible labor violations; it may issue fines and notify the prosecutor’s office in cases of severe violations. According to labor unions, however, the NLI does not have adequate tools to hold violators accountable and the small fines imposed as punishment are an ineffective deterrent to most employers.
The United States has no FTA or preference program (such as GSP) with Poland that includes labor standards.
In 2020, the provisions on the posting of workers were significantly modified and Poland implemented the EU Posted Workers Directive (2018/957/EU).
In 2020, Poland was among the top 10 countries in the Mastercard Index of Women Entrepreneurs (MIWE) ranking offering women good conditions for running a business. According to the Mastercard report, 28 percent of companies in Poland are run by women. At the end of 2019, however, the share of women on the boards of the 140 largest companies on the Warsaw Stock Exchange was less than 14 percent.
The COVID-19 pandemic dominated 2020, affecting the business world and forcing employers and employees to adapt to new working conditions. Due to the growing popularity of remote work, the Ministry of Development, Labor, and Technology has commenced works aimed at introducing remote work to the provisions of the Labor Code for good. New solutions will be introduced in 2021.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Host Country Gross Domestic Product (GDP) ($M USD)
* Source for Host Country Data: In Poland, the National Bank of Poland (NBP) collects data on FDI. An annual FDI report and data are published at the end of the following year. GDP data are published by the Central Statistical Office. Final annual data are available at the end of May of the following year.
D/ Suppressed to avoid disclosure of data of individual companies.
Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data of, 2019
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment
Outward Direct Investment
Results of table are consistent with the data of the National Bank of Poland (NBP). NBP publishes FDI data in October/November.
A number of foreign countries register businesses in the Netherlands, Luxemburg and Cyprus, hence results for these countries include investments from other countries/economies.
Table 4: Portfolio Investment
Portfolio Investment Assets, as of June 2020
Top Five Partners (Millions, current US Dollars)
Total Debt Securities
* In Poland, the National Bank of Poland (NBP) collects data on FDI. An annual FDI report and data are published at the end of the following year. GDP data are published by the Central Statistical Office. Final annual data are available at the end of May of the following year.
14. Contact for More Information
Trade and Investment Officer
U.S. Embassy Warsaw
Al Ujazdowskie 29/31War
saw, Poland 00-540 +48 22 504 2522
+48 22 504 2522 Loeper-VitiTR@state.gov