Setting up SPZOO and SPK in Poland

I am planning to set up a business in Poland, and I am currently looking at the legal structure. The business will be run by my business partner and me. We will provide services, and do not have a lot of investments and assets. I have been advised to set up a SPZOO (with my business partner and me as share holders) and a SPK. The SPZOO will not do business after the first months (to spend the 5000 pln capital requirement). The SPZOO will be the limitless partner in the SPK, and my business partner and I will be the limited partners. This will effectively bring down our tax rate to 19% (instead of 19% CIT and 19% PIT in case we only run a SPZOO).

Are there any draw backs to this construction? Why is not everybody using this structure?
Is it correct that the 19% tax rate is for the first 85.000 PLN per partner?
Do you have any experience with an accounting office that you can recommend (in Krakow)?
Do you know of a consultant that can arrange the registration of the companies for us (in Krakow)?

Thanks

Did you also receive the advice you will require a third party to be the MD of the S.P Zoo - Spolka Z Ograniczona Odpowiedzialnoscia (Poland: Limited Company)?

The tax rate is the least of your worries for a sp. z o.o - you'll be looking at quite a lot of money in accountancy/court fees simply to maintain the sp. z o.o each year.


I'm almost certain that you won't be allowed to conduct business in this way. I'd be looking at decisions made by the relevant tax office in the past before attempting something like this.


I'm not certain you'll be allowed to do this, for a start. Perhaps you should start by seeking a decision from the relevant tax office as to the legality of the structure before continuing.

Precisely.

It doesn't really matter what one's lawyer says with regard to tax unless one has the money to pay him to challenge the tax office if they have a different opinion. Even if they are wrong, one still has a significant problem. Much better to get the tax office to issue a decision first.

Here is a former PF post with accountants in Krakow:

I contacted the offices that were recommended to me by members on this forum, and also offices which I found via Google. I sent them a mail in Polish, explaining that I was thinking of changing for another accountant and looked for new offers. I copied/pasted the list of tasks, and pricing, from the contract I have with my present accountant. Here is the result so far. Price is without VAT and applies to monthly services. As a rule, annual statements are billed separately, usually at the cost of the equivalent of 1 month. Please bear in mind that those offers were tailored for me and would not necessarily apply to your case.

Trinity-CS
I had a long meeting with them. Great capacity for listening to the customer. English.
- one-time fee for taking over from my previous accountant : 1500zł
- monthly fee : 2000zł

QBilans
I had a meeting with them. Very nice people. Polish only, but I experienced that they would make a minimal effort in English for specific words I would really not understand.

- monthly fee : 800zł + 20zł for each invoice billed to a customer outside Poland (I would have 2 or 3 per months)

Kancelaria-MKM
We had a conversation over the phone. English.
- monthly fee : 800zł, but I think there would be an additional cost for something else which would result in a global fee of 1000zł, I should double-check with him.

Liliana Rawicz Raciborska
She made an offer by e-mail. Polish only.
- monthly fee : from 800 to 900zł

The following offices haven't replied yet :
Katarzyna Sadurska
Biernacki

I still have to contact the following, which I forgot :
Partenaire Pologne

If you do start an SPZoo in poland, make sure you have everything correct in the first place cos to change anything will cost u 650zl and a triop to the court. I have an SP zoo and have had to change company address and a few other things at a great cost.

Wasn't there a rather high profile case not so long ago with someone who was put out of business by the tax office, only for it to be ruled that they were actually wrong - and they refused to pay compensation, even when ordered to do so? I don't recall the details, but...

And to be honest, as a foreigner, I'd steer clear of unusual company structures unless I really had serious money behind me. It's just asking for trouble - if something isn't widely practiced in Poland, there's probably a bloody good reason for it.


Insane. It's a 20 second job to go to the NDP site and check the exchange rate for that day - or if the invoice is in Zloty anyway, there's no extra work involved, unless the company goes over the VAT threshold in another EU country.

This is quite a common structure, especially for larger Polish owned family businesses and is also often used by lawyers, accounting practices etc but you will need to be doing about PLN 350k of profits (so lets say PLN 1m of turnover) to make it pay versus a regular Sp z o.o and it does involve quite a lot of extra admin.

Few pieces of advice

- make sure you accountant speaks English and explains it to you step by step. Of the ones listed Trinity would certainly be able to do that. Not sure about the others.

- make sure you trust your business partner fully and have a strong right of exit in the foundation deed for the SpK.
- Better to start in January rather than December as otherwise you will have a whole bunch of admin for a stub period where you have no profits.

Overall maybe it is better to see if your business model works first and that you will have profits before diving into this structure.

In other words : fine for people with the cash, profits and knowledge to take on the tax office if they get questioned about it. Not so fine for foreigners who would be totally relying on advisors.

Thank you for your replies! This is very helpful.

Why would this structure lead to any legal problems / so much additional accountancy cost? It is quite a common structure in the Netherlands / Germany / ...

I did receive the advise to have a third party MD in the SPZOO, although I don't completely understand why. Will we have liability problems when we have a shareholder / MD combination? Will the SPK face liability issues because of this?

The SPZOO will not conduct any business after the first 1-2 months. All I need for this business is a 0 declaration once a year. This cannot be that expense, can it? This should be billed as a one time fee (say 1 month fee).

The SPK will be the 'vehicle' with the income & expenses and in need of the accounting services.

I have contacted some accounting offices in Krakow, and the rates are very different. There will only be a few transactions every month (10-20) plus the ZUS payments of the 2 partners. I have quotes for a structure with only a SPZOO, and these range from 200 - 800 PLN. This is a huge difference for me. I understand there are quality differences between accountants, but a factor 4?

The easiest way would be to start as a Spółka cywilna, but this means limitless liability which is exactly what I want to avoid.

The turnover in the first year will be nowhere near 1mln (target is around 300K), but this is exactly why I like the SPK single taxation.

Don't make the mistake of comparing developed democracies like the Netherlands and Germany to an emerging democracy like Poland. The two just aren't comparable for the ordinary man in the street.


You'd be surprised. Generally speaking, an sp. z.o.o. in Poland is incredibly expensive to operate, much more so than in many other countries.


Not such a surprise in Poland - professional services do tend to vary widely.

In all honesty - my advice is to start simple. Suck up the tax hit - it's not a bad idea until you understand what's going on in Poland. Trying to get 'cute' with such setups is fine and well in a Western countries with established processes, but in Poland, you could easily find yourself in a lot of trouble - especially if you don't have 'connections'.

I have seen companies which do have the extention SPZOO SPK and was wondering what it meant.( just type krakow spzoo spk and some will appear) but is it something usual i doubt it.

I have nothing against tax optimization but if the whole thing is a" montage" to only lower taxes i doubt the Polish Tax office will buy that and i agree with Delphiandomine( Good to see you back Delphiandomine by the way) that you should


Concerning the fees of accountancy firms in Krakow mentionned by a PF forum, they are outrageously expensive, unbelievable, it should never be above 800 zl a month MAX especially for a start up.

Well do keep us posted about the development of your business, it is very interesting.

ok, let's forget the SPZOO / SPK construction for arguments sake.

Another option would be the spolka cywilna (civic partnership), with 2 partners. This is not a legal entity for the law, which means that my partner and I are personally liable, and that I will be taxed PIT, not CIT. Basically the same rules apply as for a sole proprietorship. This does not have to be a problem, as there are no large liabilities or long term commitments (there will be no risk of personal bankruptcy). If the risk increase at a later stage I can always change the structure of the company.

This would bring the taxation to the same level as the SPK (if I understand it correctly), with the drawback of personal liability. An advantage would be much lower accountancy fees and a easier legal structure to maintain.

Are my assumptions correct?
What is the difference between a spolka cywilna and a spolka jawna (which is a legal entity) as far as running the business is concerned? Signing contracts (e.g. renting an office / phone lines / etc), or conducting business (signing agreements etc) for example?

It depends on the Business you are setting up , a spolka cywilna with personal liability would be risky if you need to borrow a lot of funds or if it implies getting insurance policies( if a client or an employee sues you etc). What kind of business are you setting up?

If i were you i would just start with a spolka cywilna and as soon as i have good prospects and clients i would switch to a Spolka Jawna which just looks more professional and formal.

This way your company will already be "profitable" before modifying the structure because you'll already have clients.
As far as running business is concerned i don't think it a problem to rent an office and phone lines with a spolka cywilna, it might even be quicker especially if you are not Polish and appear as a foreign "businessman".

Same with signing contracts and agreements, why would clients care about whether they are signing with a company that is a spolka cywilna or a spolka jawna?

The legal structure and combination of sp. z o.o. and sp.k. is full safe as regards Polish company law (risk of liability is "0") and may bring many potential tax benefits. I've used this structure many times. The cost of maintenance of such structire are higher in comparison to spolka cywilna (e.g. preparation of yearly financial statements). Anyway, in a case of spolka cywilna your personal liability is unlimited (against tax office,too). Tax benefits are lower if your revenues will be really high. So, I suggest you to compare all risks and benefits and choose the best option. I think that sp. z o.o. and sp. k. would be better solution.

As regards differences between spolka cywilna and spolka jawna I can say that spolka jawna is more formalised but also more transparent than spolka cywilna. None of the legal forms are legal entity! (in Poland only sp. z o.o. and S.A.) but spolka jawna is an entity entitled to sign contracts, etc. Spolka jawna will be subject of rent agreements, etc. Please note that partners by spolka jawna are liable for debts only if assets of company are not sufficient to satisfy debts of the company.

You should go with a Spółka komandytowa .