Poland's president has signed into law the bill on supporting new investments
26 june 2018
The new act has revolutionised the concept of an economic zone as an area designated in secondary legislation for new investments and providing tax exemptions. Under the new regulations, state aid may be obtained for any investment project meeting detailed quantitative and qualitative criteria in any location across Poland. In accordance with the announced strategy of “extending economic zones to the whole of Poland”, the government has prepared legal solutions to support less developed regions with higher jobless rates and to motivate investors to undertake commitments with respect to the labour market, modern technologies, as well as science and education.
The concept of “extending economic zones to the whole of Poland” does not accurately reflect investor opportunities, but what appears particularly interesting is the intention to diversify investment locations and to provide equal opportunities to regions. However, in its opening sections the new act sets out exceptions, i.e. locations where no investment projects will be permitted. It is clearly understandable that some local regulations, including local zoning plans, prohibit industrial and warehouse projects in specific locations, but additionally no state aid will be extended to investors in areas of untapped mineral deposits unless a project is related to such deposits.
Now, there is a question that, from a practical point of view, is likely to be an issue to investors: Who is to investigate, assess and qualify a property so that a decision on state aid can be formally issued? If this issue is not properly addressed in detail, any minerals discovered while a project is still underway could, in practice, disqualify the project from the planned state aid system and lead to a decision on state aid being withdrawn.
Other sections of the signed bill and drafted secondary legislation contain many provisions setting out conditions that need to be met to qualify for state aid. An entrepreneur must undertake to engage in an innovation-driven project. And as for human resources, the new act also quite precisely sets out remuneration and employee development standards.
According to the act, an application of an investor applying for state aid will be assessed against multiple criteria. Scores will be awarded against quantitative criteria, i.e. investment value, and qualitative criteria, i.e. compliance with the country’s mid-term growth strategy, including salaries, training, technologies, cooperation with universities and lower-level education institutions.
The planned system appears to be a consistent comprehensive solution enabling the state to support selected investments in less developed areas. It will, however, pose a considerable challenge to an entrepreneur, starting from filing an application. The regulations are very unclear as they do not specify in detail any mechanism of control over and consequences of breaching the conditions of the state aid decision. While fulfilment of quantitative criteria must be guaranteed, which is obvious given the need to ensure project financing (although in many cases investors may decide not to invest in locations that are optimum from their point of view), qualitative criteria set out at the start and controlled later may fail to meet lawmakers’ expectations. I think that initially investors will undertake commitments as planned. They will be persuaded to invest in less developed regions with high unemployment rates, but ultimately, however, could fail to fulfil their obligations in the conditions arising during project execution. If pressurised to modify a project strategy, to risk starting business activity in a less favourable location or to educate and hire staff from a non-industrialised region, the investor is likely to redirect the project to a different country offering more favourable state aid conditions in more developed regions.
I am very concerned about both the efficiency and structure of the new system. Transparent, straightforward and precise legal regulations supporting new factories and projects are essential so that decisions are taken swiftly and without unnecessary risk, and that the direct investments market could grow freely. The new law is, however, complicated and will frequently require legal interpretations for it to be applied in practice, i.e. in investment project management. And on top of that, it will also be hard to explain to overseas investors not only investment differences, restrictions and prohibitions, but also the intricacies of qualitative criteria. Fulfilment of such criteria must be guaranteed prior to any planned investment project in order to obtain a state aid decision on the basis of an application and attached documents.
If we add to this an unclear system of control over decision conditions, related administrative processes and fines for gross violations (although the term “gross” has not been defined), investors – especially large-scale investors – are likely to be prevented from investing where they actually want. And to cap it all, there is also a risk connected with assessment of performance of investor obligations defined as conditions on which the investor is permitted to operate relying on state aid.
We are in for a labour-intensive period so that the implementation of the new system is not slowed down by law imperfections. Industrial real estate project advisors will bear a huge responsibility for protecting investors against losses due to state aid miscalculations and ill-chosen locations. Great challenges lie ahead of managing overseas investment projects. I do hope that the upcoming revolution will not tarnish the brand of Poland as a country that is friendly to capital wanting to invest and plan industrial projects here.