How to convert a foreign branch into a company in Poland? A practical guide for entities planning a reorganisation

Many foreign companies begin their operations in Poland by establishing a branch. This is a fast and relatively simple organisational solution. However, as the business develops, it often becomes apparent that the branch structure no longer meets actual operational and strategic needs. In such circumstances, the natural next step is to establish a Polish capital company, most commonly a limited liability company (sp. z o.o.).

It should be remembered, however, that Polish law does not provide for a straightforward “conversion” of a foreign entrepreneur’s branch into a company. In practice, it is necessary to implement an appropriate reorganisation mechanism, the choice of which has significant legal, tax and business implications.

What is the difference between a foreign branch and a capital company in Poland?

A branch of a foreign entrepreneur does not have legal personality. It is not a separate legal entity but an organisationally separated part of the business activity conducted by the foreign entrepreneur in Poland. This means that:

• all liabilities of the branch are borne directly by the foreign company,
• the branch operates under the business name of the foreign entrepreneur (the parent company),
• its decision-making autonomy is limited.

A capital company (e.g. a limited liability company) is a separate legal entity with its own assets, governing bodies and liability. For many capital groups, this “corporate veil” is the key argument for changing the structure.

Why do companies decide to move away from the branch structure?

From a business perspective, the decision to establish a Polish company is most commonly driven by several factors:

• limiting risk on the side of the foreign entrepreneur (the parent company),
• improving perception among banks, investors and business partners,
• greater autonomy for local management,
• simplification of settlements and commercial relationships,
• preparing the structure for further expansion or a sale of the business.

What are the ways of converting a branch into a company in Poland?

In practice, three principal procedures are used, each of which is suited to a different business profile and operational scale.

Route 1. Deregistration of the branch and incorporation of a new company, the so-called “traditional method”

This solution is most commonly chosen by service businesses with a relatively simple asset structure.

What does the process look like?

The branch is removed from the National Court Register (KRS), while a new Polish company is incorporated simultaneously or subsequently, for example through the S24 system or the Court Registers Portal.

This is the most suitable option where the branch:

• does not hold significant fixed assets,
• does not operate in a regulated sector,
• does not rely on licences or agreements that are difficult to transfer.

It should be remembered, however, that the method of terminating the branch’s operations and its deletion from the KRS requires an individual assessment under both Polish law and the law applicable to the foreign entrepreneur. As a result, the duration, level of formalisation and practical requirements of the procedure may vary depending on the jurisdiction of the foreign entrepreneur (the parent company) and the circumstances of the specific case.

Route 2. Contribution of the assets connected with the branch’s activity to a company as an in-kind contribution (organised part of an enterprise)

This method involves transferring to a newly established capital company the tangible and intangible assets connected with the activity carried on through the branch in exchange for shares issued by that company.

The condition is that the branch qualifies as an Organised Part of an Enterprise (Zorganizowana Część Przedsiębiorstwa, ZCP), meaning a unit that is separated:

• organisationally,
• financially,
• functionally.

Determining whether the assets being transferred from the branch constitute an Organised Part of an Enterprise may be challenging. As this issue is highly significant from a tax perspective, it is worth becoming thoroughly familiar with the definition of an Organised Part of an Enterprise.

Under this route, universal succession does not generally occur. This means that the transfer of individual rights and obligations, particularly those arising from agreements, administrative decisions, securities or relationships governed by specific regulations, should always be assessed against contractual and regulatory requirements. In practice, some relationships may require counterparties’ consent, amendments to agreements or separate transfer arrangements.

This is the best solution for trading and manufacturing companies that possess substantial assets and are prepared to actively manage the contract transfer process.

Route 3. Cross-border division by separation

This is the most advanced and, at the same time, the safest reorganisation mechanism, particularly for holding structures, available since September 2023.

Its primary advantage is universal succession, under which the rights and obligations connected with the separated assets are, as a rule, transferred to the acquiring company or to a newly established company. However, it is always necessary to verify whether specific regulations or the contents of administrative decisions provide for different rules regarding the transfer of concessions, permits, licences or other public-law authorisations.

What limitations should be kept in mind?

• a high degree of formalisation,
• the obligation to prepare a division plan,
• review from the perspective of tax avoidance,
• relatively high costs.

When is this reorganisation method worth choosing?

First and foremost, in regulated sectors where preserving concessions and licences is crucial, and where the scale of operations is such that amending contracts with counterparties (required in the case of an Organised Part of an Enterprise contribution) would be logistically highly complex. Another important factor is that universal succession allows the business to maintain uninterrupted operational continuity, which is of paramount importance for large enterprises.

Formalities after company registration – what must not be overlooked?

Following the company’s registration in the KRS, NIP and REGON numbers are assigned; however, the formalities do not end there. Depending on the circumstances, it may be necessary, among other things, to file the NIP-8 supplementary information form, register for VAT using the VAT-R form before carrying out the first transaction subject to VAT, and properly equip the company’s representatives to use electronic tools. Where foreign management board members are involved, it is also worth considering obtaining a PESEL number. 

In practice, most problems arise not at the registration stage but when synchronising data with the tax authorities and banks.

Which method should you choose?

It depends. There is no single universal solution. The choice of reorganisation route should be preceded by legal, tax, regulatory and, depending on the scale of operations, also operational and employment analyses, taking into account:

• the scale of operations in Poland,
• the nature of the assets,
• regulatory requirements,
• the operating model of the capital group.

Changing the legal form of business activity is not merely a formal exercise – it is a strategic decision affecting the security and development of a business in Poland. To ensure that the process is carried out effectively, it is worth seeking assistance from an experienced team of professionals. Therefore, if you are interested in comprehensive legal support in implementing a reorganisation process, we invite you to contact our specialists from the Corporate Advisory Department.