Successfully investing in Poland

Economies stagnated also in our region. Poland's GDP grew by just 0.2 percent in 2023 to show its second weakest performance in the last 30 years. We were saved from recession primarily by investments but also by a positive balance of foreign trade. This was due to a slight increase in exports amid a collapse in imports to partly reflect the slimming down of stocks.

  

The average annual inflation rate in 2023 was over 11,4 percent and most of that increase was caused, among other things, by the war in Ukraine and the resulting rise in gas prices.

  

However, experts forecast that the current year 2024 will see a rapid acceleration in economic growth, not least because of an expected rebound in consumption. With some delay, namely from 2025 onwards, the economy should see the impact of aid programmes funded by the National Recovery and Resilience Plan (NRRP), which the new government has recently successfully unlocked.

  

Please also note the impact of last year's parliamentary elections on the strong appreciation of the zloty and increased prices of Polish shares and bonds. Following the victory of the pro-EU democratic opposition, the European institutions now have more confidence in the reforms planned in Poland and, therefore, are more willing to transfer funds under the aid programmes provided for Poland.

  

Although the number of foreign direct investments in Europe fell by 4 percent and the number of new jobs by 7 percent last year, Poland remains among the top leaders in the region compared to other European countries, and Poland's rating in investor surveys has increased. This is because in these uncertain times, many investors have opted for nearshoring and reorganisation of supply chains and have moved their investments to countries that are geographically, politically and culturally close to them. Predictability and stability have become more important in many investment decisions than just lower costs. In line with this trend, Poland attracted 229 foreign direct investments in 2023, which meant a 3 percent decrease but coupled with a 21 percent increase in new jobs available compared to the previous year.

The main challenge for German companies is Polish tax law and the fact that it is constantly changing. Starting an investment project in Poland involves several key decisions that have to be made at the very beginning of the investment process and have profound consequences later on, such as which legal form is the most appropriate. This determines the future tax implications and the investor's liability – for example, the CIT Act imposes tax on limited partnerships, thus leading to double taxation of profits earned by the general partner and limited partners. Yet another cause of difficulties is the amendment to the Polish Tax Act which changed the competent tax authorities for settling flat income tax (WHT) withheld from non-residents. 

  

Importantly, considerable incentives and facilities for companies have been introduced, such as preferential conditions for investment activities, i.e. the option to choose between two alternative taxation schemes (Estonian CIT or special investment fund). 

After a year of some economic stagnation, analysts predict a significant economic recovery in 2024 – up to 3 percent (against 0.2 percent last year). The rate of investment growth between 2024 and 2025 is expected to be even higher than GDP as it will be driven by inflation and interest rates lower than in previous years, as well as the unlocking of EU funds earmarked for it.

  

There are also some changes associated with the conflict in Ukraine – an influx of new workers and the relocation of many businesses from the East to Poland. Also the high level of support recently received by Poland from EU funds should greatly stimulate domestic reform, larger and smaller investments in the energy sector, in particular renewable energy, and attract broadly defined innovation by financing research and development activities. Renewable energy sources and other eco-friendly investments, e.g. in low-emission hydrogen production, should gain much significance. Optimistic scenarios suggest significant intensification of economic activity in some sectors, especially those favoured in the European Union, namely decarbonisation, power engineering, research and development of high technologies, digitalisation, robotisation and cybersecurity. 

  

The good news for the future of the Polish economy is that managers of large companies are paying more and more attention to the digital competencies of potential employees; here, Poland has a solid technical infrastructure and a large pool of well-educated and talented engineers, IT specialists and technicians. The influx of Ukrainian citizens may also boost the supply of workers in Poland.

  

Beyond doubt, the major challenge for the government will be to bring inflation under control and stabilise interest rates so that the economic growth achieved in the past few years continues in spite of the temporary recession.