Legal Differences Between Registering a Subsidiary and a Representative Office of a Foreign Company in Poland
When expanding a foreign company into Poland, one crucial decision to make is whether to establish a subsidiary or a representative office. Each option comes with its unique legal differences and implications. Let's explore these differences to help you make an informed choice.
1. Legal Entity:
Subsidiary: A subsidiary is a separate legal entity from the foreign parent company. It has its own legal rights and obligations, and its liability is usually limited to its own assets.
Representative Office: A representative office is not a separate legal entity. It operates on behalf of the foreign parent company and does not have legal personality in Poland. It cannot enter into contracts or engage in profit-generating activities.
2. Scope of Activities:
Subsidiary: A subsidiary can engage in a wide range of commercial activities, including sales, marketing, production, and service provision. It can generate revenue, sign contracts, and hire local employees.
Representative Office: A representative office has limited activities. It can conduct market research, promote the foreign company's products or services, and provide information. It cannot, however, enter into sales contracts or directly engage in profit-generating activities.
Subsidiary: The liability of a subsidiary is generally limited to its own assets. The parent company's assets are typically protected from the subsidiary's legal issues.
Representative Office: Since a representative office is not a separate legal entity, the foreign parent company is fully liable for its activities in Poland. Any legal issues or obligations of the representative office directly affect the foreign parent company.
4. Name, Registration and Reporting:
Subsidiary: Name of the Subsidiary is freely chosen. The subsidiary must comply with Polish corporate laws, including registering with the National Court Register (KRS) and meeting various reporting requirements.
Representative Office: Representative office shall keep the name of the foreign entity and it’s also registered with the National Court Registry(KRS)
Subsidiary: A subsidiary is a separate tax entity and is subject to Polish corporate income tax. It must prepare and file separate tax returns.
Representative Office: A representative office is not subject to corporate income tax in Poland because it cannot engage in profit-generating activities. However, it may still have tax obligations related to employment and local expenses.
6. Control and Management:
Subsidiary: A subsidiary in Poland can have its own management and decision-making structure. The parent company can exert control through shareholding and governance rights.
Representative Office: A representative office is directly managed and controlled by the foreign parent company. It has limited autonomy in decision-making, yet it should appoint a representative in Poland.
In summary, the choice between establishing a subsidiary and a representative office in Poland depends on the nature of your business activities, liability preferences, and the level of control you want to maintain. Both options have their advantages and limitations, so it's essential to carefully evaluate your business goals and legal responsibilities before making a decision. Consulting with legal and financial professionals who specialize in Polish company registration can also help you navigate the complexities of expanding your foreign business into Poland.