Will new regulations revolutionise special economic zone (SEZ) legislation

The Polish Ministry of Economic Development announced plans to amend SEZ legislation long ago. At the Krynica Economic Forum in September its representatives said that the new regulations would come into force in mid-2018. Indeed, the changes could have revolutionary consequences for entrepreneurs intending to operate in a SEZ and apply for state aid.

The reforms will alter the definition of areas where income tax exemption will be available and modify the requirements for obtaining a permit to operate in such areas.

Investors will be allowed to apply for tax exemptions in all locations across Poland, not only in special economic zones as the law currently provides. However, the site in question must be intended for industrial developments in a local zoning plan. According to the new legislation, special economic zones, offering tax exemptions to investors applying for permits to conduct business operations there, will be no longer established by a regulation of the Ministry of Economic Development, but by a decision of a relevant public body.

Regionally variable quantitative and qualitative factors that determine whether investors can obtain a permit to operate in a SEZ  are also to be introduced. The former will include, for instance, proposed capital expenditure, while the latter will comprise the number of new jobs to be created, proposed technologies or extra employee benefits. In order to meet the criteria in a specific area – most likely a voivodeship – investors will need to score a minimum number of points, depending on the volume of state aid.

Permit validity periods will also change. Permits will be issued for a period of between 10 and 15 years, and may be extended for another five years in the case of investments made in areas currently forming part of a special economic zone. With such solutions in place for some parts of Poland, entrepreneurs will be able to plan business operations in such areas up to twenty years ahead.

The new regulations, which will have to undergo legislative scrutiny, may prove so revolutionary in light of applicable EU legislation that  their acceptance through the notification procedure could take a long time. Let us hope that new projects will not be put on hold or delayed by the introduction of a new system in parallel with the operation of the existing one.

The Ministry of Economic Development has suspended the addition of new areas to special economic zones until the new regulations take effect, which in practice has reduced the availability of development sites. If the suspension period is extended further, Poland is likely to see a decline in investment volumes.

The proposed investment rating system is also a concern. If public officials are to decide whether to approve a project solely on the basis of score in points  and the requested region, they risk losing the investor whose project does not meet boundary conditions and who is offered a site in an alternative location or voivodeship. An investor applying for a permit to operate in a certain location generally has a well-thought-out plan that is in line with the investor’s business objectives. Proposed alternative solutions may entail negative consequences and risks that the investor may not be willing to accept.

In summary, the new tools and regulations proposed by the Polish government to investors could be effective, and Poland’s economy is likely to benefit from the planned parallel operation of two systems in special economic zones. Given both the current solutions and those underway, I am confident that every entrepreneur will be able to find a suitable offer and have an opportunity to obtain state aid in the investment process. I hope, however, that such new regulations will be coherent, clear and compatible with SEZ-related legislation to enable entrepreneurs to take risks without having to interpret such regulations at the initial stage of their operation.