How to open a branch office of a Ukrainian IT company abroad in 2023?
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In addition to the registration of an ordinary legal entity (company) abroad, you can also consider the registration of a branch office or representative office.
This is not a bad option for IT companies that work in Ukraine but want to move part of their staff abroad or open offices in another country. What is the difference between the two forms, and when it makes sense to think about them, let's analyze them in this article using the example of Poland.
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When does it make sense to think about registering a branch office in Poland?
First of all, it is an effective way to maintain a physical presence (in Poland or another country).
Secondly, if you are not sure that your business will "take off", that is, that it will be successful and give the desired results, before registering a company, it makes sense to consider the trial registration of a representative office or a branch. This will allow saving significantly on the rather expensive maintenance of a separate legal entity, as well as get rid of many formalities (which would have to be satisfied in the case of a legal entity), for example:
- the need to keep a register of beneficiaries and submit this information to the registry;
- the need to obtain electronic signatures, keep the register of shareholders in the case of JSCs, etc.
Thirdly, often many reputable companies (from Britain, the USA, EU), especially in the field of IT or developers, do not want to deal with a business that has Ukrainian registration and does business from Ukraine. But things change dramatically if a Ukrainian company has a representative office in the EU (Poland). Such a company is immediately perceived as almost an EU resident.
Other advantages include significant currency liberalization, lower interest rates in banks, the ability to work with any international payment systems and banks (as a result - to ensure the safety of their funds), etc.
What is a branch office?
A foreign company can open a representative office (branch) in Poland, regardless of whether it is registered in an EU member state or not.
It should be reminded that since January 1, 2021, British companies are no longer members of the EU (due to Brexit).
As in Ukraine, a representative office of a foreign company registered in Poland must operate within the framework of the activities of the parent company (foreign), i.e. it cannot be a separate economic entity and cannot engage in activities different from those of the parent company. It is like an "extension" of the parent company.
A representative office is subject to registration with the National Court Register, just as an ordinary company. But unlike the parent company, a representative office:
- does not become a separate economic entity (is not a separate legal entity);
- cannot independently (in its own name) enter into economic relations with other market participants, sign contracts, etc.
- all its actions shall be performed on behalf of the parent company.
Consequently, a representative office does not have its own (separate) management bodies, there is no authorized capital and there is no charter. There can only be a regulation on the activities of the representative office.
When entering into commercial relations, the representative office must use the name of the parent company, with the legal status translated into Polish and using the phrase "branch in Poland".
The representative office usually has a head of the representative office (who can be a resident or non-resident of Poland), who acts as the head of the representative office on behalf and in the interests of the parent company.
Representative offices of foreign companies are obliged to keep accounting (according to the rules established in the Polish Accounting Act), to prepare and submit financial reports on a regular basis (annually).
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What is a representative office in Poland?
A representative office, unlike a branch office, is not intended to engage in any business activities but has the sole purpose of promoting products and services (of the parent company) and their advertising in the Polish market. Representative offices can, by analogy with the branch office, be registered by a foreign company resident or non-resident of the EU (if the company's statutory documents allow the establishment of a representative office abroad).
Representative offices are subject to registration in a different register than the branch offices - namely, the Register of Representative Offices of Foreign Entrepreneurs, which is maintained by the Ministry of Development, Labor, and Technology. Representative offices are initially registered for 2 years, with the right to extend their activity for another 2 years.
Just like the branch office, the representative office is not a separate business entity, which means that it cannot act as an independent participant in business relations, and it cannot have its own management bodies, charter, and authorized capital. The name of the representative office, in addition to the name of the parent company, must have the prefix "representative office in Poland". The head of the representative office can be a resident or non-resident of Poland.
As well as the branch office, the representative office must keep accounting and file financial statements.
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What is the difference between a Branch Office and a Representative Office?
Their fundamental difference comes from taxation. The branch office pays taxes in Poland because it does business there. A representative office may not pay taxes if it is proved that its activities have only preparatory (advertising), and auxiliary nature (i.e. if there is no sale of goods/services in Poland). However, both forms of representative offices must be registered with the tax authorities, as well as keep accounting and file financial statements.
Taxation: Branch Office vs LLC in Poland
As stated earlier, the branch office always creates a "permanent establishment" for its parent company in Poland, and therefore must keep accounting and pay taxes. As a general rule, the branch office is subject to the same taxes as the LLC. That is, it is automatically subject to the income tax rate of 19%. But depending on the characteristics of the planned business, a simplified taxation system may also be applied.
Thus, in terms of taxation branch offices are almost no different from LLCs.
When choosing between branch offices and LLCs, IT companies should be guided by the general principle: whether the founders are confident that the business will succeed in Poland, or only want to make a try. If there is a certainty that the business will grow and the founders are mainly focused on the Polish market, then you can register an LLC without any doubts. If there is no such confidence, you can try to maintain your presence for some time with the help of the branch office, and then make a conceptual decision.
You can read more about company taxation in Poland here.
- Assistance in choosing the most appropriate legal form (a legal entity, branch, or representative office), depending on the goals of the client;
- Assistance in choosing the most optimal and economical system of taxation;
- Registration of a legal entity / branch / representative office, the appointment of a director;
- Registration of the legal entity / branch / representative office with the tax authorities;
- Opening a bank account;
- Obtaining electronic signatures (if necessary);
- Registration in the Central Register of Beneficial Owners in Poland;
- Assistance in appointing an accountant and assistance with bookkeeping;
- Conclusion of employment agreements / civil law contracts with employees.