EEC 2019

SEZs like the one in warminsko-mazurskie are repalced with a single, country-wide SEZ

Since the end of June 2018 Poland is officially a single special economic zone. A wishful-thinking or a new economic reality? Right now there seems to be more hope than concerns.

Due to the act on supporting new investments, entrepreneurs will be able to expect similar privileges as those that invested previously in special economic zones (e.g. tax exemptions).

However, not every entrepreneur can count on support – specific types of investments in particular areas will be preferred. Nevertheless, the companies that count on exemptions will have incomparably greater freedom in locating their investments than before.

Special Economic Zones is a mechanism invented in the first half of the 1990s in order to attract capital and investors to areas affected by high unemployment. The first SEZ was established in a city that was in a difficult situation at that time – after the collapse of the Polish aviation industry; it was SEZ Euro Park Mielec. Investors could count on partial or full income tax exemption (PIT or CIT) for a certain period of time.

New chapter 

Initially, the zones were designed for 20 years (until 2014), then the acts extended their operation until 2020, and more recently – an amendment from five years ago – until 2026. Every now and then, the government initiated the discussion about their usefulness; opponents indicated that they constitute a form of unfair competition, that they attract mainly foreign investors, that – after multiple territorial modifications – investors are not interested in areas affected by unemployment…

The new act, regardless of how it works, has already "disarmed" most of the opponents' arguments.

Until the new act entered into force, SEZ occupied approximately 22 thousand ha, i.e. about 0.08 percent of Poland's territory. According to estimates of the Ministry of Entrepreneurship and Technology, from 1994 until the end of last year, nearly PLN 106.6 billion were invested in SEZ. Investors employed a total of over 353 thousand employees. Over 68 percent of the invested capital came from Poland, Germany, the Netherlands, the USA, Luxembourg and Italy. The SEZ model, though not without flaws, proved itself as an efficient project.

– The law could not keep up with the pace of the changing economic situation of the country and the world, which resulted in, among others, regional divisions. Territorial restrictions forced entrepreneurs and public administration bodies to carry out lengthy procedures, which often led to resignation from investments. The time of using tax exemptions was determined by the date that ended the operation of the zones. This compromised Poland's investment competitiveness on the international arena – justified the Minister of entrepreneurship and technology, Jadwiga Emilewicz

That's right. During the discussion on whether the operation of zones should be extended, entrepreneurs did not know how long they would enjoy privileges and withhold their investment decisions until the situation cleared up. The new act gives incomparably greater certainty in this regard.

It is important to note that these fundamental changes do not mean an earthquake for existing investors in SEZ.

– We provide security for over 2 000 investors who employ over 300 000 employees. We will not introduce changes to the rights they have acquired previously, i.e. entrepreneurs with a business license under the act on SEZ will be exempt from tax until 2026 – emphasized Deputy Minister of Entrepreneurship and Technology, Tadeusz Koscinski. – We rely on the existing operation of the zones – we give them the opportunity to become the main point of contact in a given region. Together with the new act, zones will receive tools to create their own plan of investment development and assistance for investors at every stage of the transaction.

A big change for small ones

So far, investments have followed the zones, now zones will – in a sense – follow investments. Investment agreements will continue to be signed with the existing 14 SEZs. The entire area of Poland was already competently divided.

The first signals show that not all SEZs are satisfied with this division (there were times when attractive investment areas passed under the control of the neighbouring zone), but entrepreneurs basically do not care with whom they sign the agreement. 

What does the abolition of territorial restrictions change? A lot – especially for small and medium-sized enterprises. Those that would like to develop their business and, for example, build a second plant, would have to invest hundreds of kilometres away from their headquarters to get exemptions. Now – after fulfilling the criteria – they can count on the support of such an investment in the nearest neighbourhood. 

– The new act provides extraordinary opportunities to micro-, small and medium-sized enterprises. So far, the interest in the SEZ tool was small in this sector – claims the vice president of the Starachowice SEZ, Milosz Pamula.

Entrepreneurs share this view. "This change is particularly important for Polish companies in the SME sector, which until now have not been able to meet excessive capital and locational requirements for the operation in special economic zones" – wrote Business Center Club in their statement.

– Entrepreneurs who want to use the privileges offered by special zones will no longer have to transfer their companies or invest away from their headquarters – emphasizes Lukasz Czucharski, an expert of Employers of Poland.

Another benefit of the new act may be the recognition of less-developed investment areas by entrepreneurs.

More balance

– There are regions in Poland that have lost their competitive advantages when compared to highly industrialized centres. These regions include the Swietokrzyskie province. We expect that a significant part of investors will become more interested in our region – says Milosz Pamula.

– Entrepreneurs from the Warminsko-Mazurskie province and those with whom we are currently talking, look at the new act, just like us, with great hope. We believe that the new act will be beneficial for us. The least-developed regions will have a chance to develop much faster – says Malgorzata Sobieska zu Schwarzenberg, vice-president of the Warminsko-Mazurska SSE. 

And this brings us to another profit from the new act: a more balanced development.

– Thanks to the zones we have a slightly deformed distribution of investments in Poland – said Janusz Michalek, president of the Katowice SEE. – We get tools that make it possible to move these locations.

The move is even more likely, since the existing zones are often "drained" out of the labour force. Until recently, the critics of the current SEZ model also claimed that it contributes to the consolidation of diversification in the country's development. 

– The zones in 1994 were created in areas with structural unemployment that were once dominated by the industry, which also meant that there was infrastructure, developed investment lands – reminded Miroslaw Kaminski, president of the Slupsk SEZ. Let's add: these areas were also occupied by qualified employees. 

What can entrepreneurs count on in today's SEZs? On tax exemptions issued for 10, 12 or 15 years. Not everyone and not everywhere... Support will depend on compliance with the criteria concerning, among others, investment location, unemployment rate at the place of investment (or more precisely: the rate in comparison with the national average), the quality of jobs being created, etc. Surely, if someone wanted to invest in a simple assembly plant in the vicinity of Warsaw, it would not be possible to count on a tax exemption. 

Iwona Chojnowska-Haponik, director of the foreign investment department at PAIH, stresses that the new law provides an opportunity to effectively target investments, to attract investors more desirable for the economy (from the modern technologies sector).

– We have additional privileges for certain groups of investors, for example for companies implementing investments in business services or research and development centres – emphasizes Chojnowska-Haponik. 

Additional points will be awarded to companies from the small and medium-sized enterprise sector, and to companies located in regions with high unemployment rates or medium-sized towns that lose their socio-economic functions.

Exemptions are not everything

Tax exemptions are an important factor in deciding on the location of a given investment, but it is not the only and definitely – especially in case of larger companies – not the most important one. What difference does it make if the company has the prospect of paying smaller taxes for 10 or 15 years, if business analyses indicate that the company may have problems with employment due to the situation on the local labour market?

Of course, in regions with higher unemployment – with additional privileges – the problem with labour force will be smaller, but other problems may be more prevalent – e.g. with communication infrastructure that can lead to higher costs of transporting components for production or finished goods than the obtained tax exemptions.

It may therefore turn out that the new act will help the most neglected regions to a lesser extent than the authors have previously assumed. Investors will continue to invest in regions occupied by qualified employees and good transport connections. Maybe new people will now move to medium-sized cities, for example in the Swietokrzyskie province, but not necessarily to small centres in the Zachodniopomorskie province... And this may mean that investments will be allocated in less obvious places, but still not where they would be most useful. 

– How can we reach potential investors to show them the support opportunities? – wonders Janusz Michalek, president of the Katowice SEZ.

This is an important issue, but let us remember that not everything depends on the zones. Local governments should take care of preparing and providing fully developed investment lands, but they should also – for example – try to attract qualified staff with attractive living conditions or a friendly business environment.

Examples? The Czestochowa Investor Assistance Centre created a new degree course at the local university for one of the investors – Guardian Glass. Anna Mielczarek, director of COI, emphasizes that technical schools in the city are under the care of the centre and ensure constant contact with investors.  

Sometimes central investments may be more important in attracting investors than local initiatives. Miroslaw Kaminski from the Slupsk Special Economic Zone is, for example, disappointed by the problems with the S6 expressway – one has to wait another five years for the connection between Slupsk and Tricity...

The Slupsk Special Economic Zone has already attracted many worthy investors, but... There are 100 000 companies in the Slupsk SEZ but 70 percent of them are... sole proprietorships. Thanks to the new act, many of them may be tempted to expand their business, but will it mean investment prosperity? 

At the end of September, the first agreement was signed under the new act. The beneficiary was Plastica from the TZMO group. It will modernize the plant located near Kowalewo Pomorskie at the expense of PLN 82 million. Thanks to this modernization, the company will be partially exempt from income tax for the next 15 years. 

To sum it up: the act on supporting new investments is perhaps necessary to stimulate an investment boom, but it may be insufficient. The biggest mistake would be to consider the subject of investment as "checked off" by this act and to stop creating a friendly business environment, as well as stable, transparent and predictable legal system. One act, even the best, does not make an investment summer…
The material was printed from © Polskie Towarzystwo Wspierania Przedsiębiorczości (Polish Entrepreneurship Support Association) 1997-2018

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