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POLAND: An Introduction to Private Wealth Law

POLAND: Private Wealth Law 

The past year worldwide was a period of huge wealth accumulation. Recovering economies boosted by stock market gains pushed the global High Net Worth Individual (HNWI) population by almost 8%. Poland is still not the leader in this respect. There is an estimation that the number of HNWIs equals around 130,000, which is less than a quarter of Swiss HNWIs in a country which has a population four times greater. However, the entrepreneurial spirit of Polish citizens causes permanent value creation of many businesses in various industries. Unfortunately, COVID and especially the barbarian aggression of Russia and the war in Ukraine have caused lot of uncertainties. The inflation rate in Poland has exceeded 13%. Moreover, as more than 30 years have passed since the transformation from socialism to capitalism, the first generation of entrepreneurs is now focusing on succession and retirement plans. It is worth noticing that the demand on professional private wealth law advice has grown rapidly. Complex cases include succession planning, asset protection and business restructuring, as well as tax compliance.

The war in Ukraine has increased fears and a lot of wealthy Poles are looking for safe havens for their money and themselves. The number of enquiries on the subject of opening new bank accounts in Switzerland has increased dramatically. There is also a higher demand for the acquisition of properties (at least second homes) abroad. The most popular destinations are Spain and Portugal. Some wealthy individuals decided to move out of Poland looking for new countries to live. This increases the demand on multi-jurisdictional advice: income taxes (including exit tax), wealth taxes, gift and inheritance taxes, immigration matters, succession (last wills), and M&A in the case of sales of businesses.

Within recent months the Polish tax system has experienced a lot of turbulence. A significant tax reform came into force on 1 January 2022 which affected millions of taxpayers. Even though assumptions were relatively good, the implementation and reality had a negative effect. The most important outcome was an overcomplicated system which completely overwhelmed accountants and confused taxpayers. Poland dropped in the world ranking of friendly tax systems to become almost the last in Europe. Fortunately, some changes will come into force on 1 July 2022, but this will not help in making the system simple and friendly. This new legislation influences clients as well as their employees and the costs of running of their businesses. Two years of the COVID pandemic have also changed the commercial real estate market, which may have an influence on the expansion of businesses.

However, there are some bright sides. Polish entrepreneurs are innovative and creative, and so they constantly look for opportunities both in Poland and abroad. The number of business acquisitions has increased, which also increases demand for tailor-made international legal advice. Currently Polish companies are more and more in the hands of a younger generation of entrepreneurs, who are educated abroad, speak many foreign languages and are ready for the challenges of de-globalisation and volatility in the world’s economy.

Even though the Polish HNWI group is smaller than in more advanced financial markets, it does extremely well. Polish wealthy individuals have been open to charitable activities. The war in Ukraine even increased a few non-profit initiatives. Generosity and big hearts also need a proper legal framework to ensure for the donor that their money will be spent efficiently. The best practices from abroad are consequently adopted and used by donors and their advisors.

My recent visit to Art Basel assured me that the number of Polish collectors and exhibitors has increased significantly over the last few years. Polish art is more and more popular among the collectors. They are also open to international art and build solid collections. This part of the legal market seems to be more popular and important as the inflow of money goes in this direction. We are observing the increased popularity of art auctions, Polish art breaks higher and higher records and the volume of transactions is soaring. Art Law and art markets will be an important trend in the coming years.

The Polish market is mature enough to have a professional tool for succession planning. Private foundations have been popular for many years also among Polish entrepreneurs, but its foreign locations, as well as the increased running costs, are not always tempting. Moreover, the Polish tax system does not treat foundations as a succession planning vehicle, but rather as a tool for aggressive tax planning. A large number of uncertainties make a proper succession more difficult and require significant attention from the perspective of private wealth lawyers to keep the structures compliant and efficient. The new draft law on Polish family foundations includes clearer provisions and could make the lives of wealthy clients easier. On top of that, there is increased mobility of families. Children go to schools abroad or get married there. As opposed to income taxes, where double taxation may be eliminated because of double tax treaties, inheritance and gift taxes may occur in a few jurisdictions and its total rate may be more than 100% of the value of the inherited wealth.

The group of HNWIs in Poland has become more mature and requires more sophisticated, solid and holistic advice. Clients are more aware of the significance of proper wealth planning and not only wealth management. Therefore, the market is open for experienced lawyers who can present this approach. The legal framework will be even more complicated in the future and agility and vigilance both from the lawyers’ and clients’ perspective will be required.