Poland is becoming more and more interesting for foreigners looking to invest. This is due to Poland’s central location in Central and Eastern Europe and the country’s continuous economic development, making it a place with potential for becoming a focal point for Central European business on the Old Continent.
Introduction: the attractiveness of investing in Poland for foreigners
In such a reality, foreigners, having a prospect of generating profit in Poland, are often inclined to put a substantial amount of capital into investments. This capital is used in particular to finance the acquisition of rights to real property and to carry out a development project on the acquired property, often in the form of construction of state-of-the-art production facilities or office buildings.
However, irrespective of the need to take into account the attractiveness of doing business in Poland, a foreign investor should also consider Polish legal regulations. Apart from creating business opportunities for external capital, the Polish legal system also sets up certain restrictions. These concern in particular the rules according to which foreigners can acquire real property in Poland, including the rules and the options in terms of carrying out a development project on a specific property, regardless of the investor’s nationality.
At the same time, there are a number of exceptions to the legal restrictions in force, which a foreign investor interested in carrying out an investment project in Poland should be familiar with.
Permission for a foreigner to acquire real property
The first thing to point out is the fact that under the still applicable Polish Law of 24 March 1920 on the Acquisition of Real Property by Foreigners (the “LARPF”), the acquisition of real property by a foreigner requires a permission. The permission is granted, in the form of an administrative decision, by the minister competent for internal affairs, if there are no objections from the minister of national defense, and in the case of agricultural property—from the minister competent for the development of rural areas.
Within the meaning of the LARPF, a foreigner is in particular a natural person who is not a Polish citizen, a legal person that has its registered office abroad, or a legal person or a company or partnership that does not have legal personality, is based in Poland, and is controlled by any of the entities listed above.
In the case of a commercial company or partnership, the LARPF defines a controlled company or partnership as one in which foreigners hold directly or indirectly more than 50% of the votes at the general meeting and therefore have real influence over its operations.
The issue of what should be considered direct or indirect control over entities other than commercial companies and partnerships is not regulated in the LARPF. This concerns legal persons based in Poland in which foreigners participate, such as foundations and associations that carry out business activities. By analogy, it could be assumed that an association in which foreigners hold more than 50% of the votes at the general meeting or have influence over the appointment of most of the members of the management board, is a foreigner. By the same token, a foundation based in Poland whose management board is composed, in more than 50%, of foreigners, is also a foreigner. However, in the case of legal persons other than commercial companies and partnerships, direct or indirect control may be a result of circumstances other than the rights to vote or the composition of the management board. These may include for instance the financing of the operations of the entity or be a result of the provisions of the entity’s act of incorporation.
In such a legal state of affairs, it should be pointed out that the overriding principle in the Polish legal system is that the acquisition of real property in Poland by a foreigner requires a permission from the relevant minister. The permission is granted at the request of the foreigner. The request will be accepted if the acquisition of the real property by the foreigner will not cause a threat to national defense, state security, or public order and if welfare policy and the health of society will not be adversely affected. Furthermore, the request will be granted if it is demonstrated that the foreigner has relations with Poland.
Consequently, in a case where the foreign investor is in particular a natural person who does not have Polish citizenship or a legal person based abroad, they will be obliged to take into account, in their investment plans, the need to obtain the relevant permission to acquire real property. Failure to do so will prevent the foreigner from acquiring real property. This means that purchasing a property in violation of the LARPF is null and void. Since the said permission is of crucial importance for a foreigner, the legislator has provided in the LARPF for a possibility of applying for a promise of granting a permission. The promise is valid for one year and during the validity period, the permission will be granted provided that the state of affairs determining the decision has not changed. If the foreigner applies for a promise, this allows for eliminating some of the potential risks and costs related to the transaction of acquiring real property.
Exemption from the obligation to obtain a permission to acquire real property
It is worth noting that Article 8(2) of the LARPF contains a rule that makes it easier for a foreign investor to initiate the process of acquisition of real property in Poland. According to that rule, a foreigner who is a citizen of or an enterprise based in a country that is signatory of the Agreement on the European Economic Area or the Swiss Confederation does not need a permission.
As a result, if an investor that is a foreigner acquires a real property in Poland through a newly incorporated company or partnership based in Poland, there will be no need to obtain the permission referred to in the LARPF. This follows from the fact that the entity making the acquisition of the real property will be an enterprise based in a country that is a party to the Agreement on the European Economic Area.
Consequently, carrying out the transaction of acquisition of real property through a newly incorporated company or partnership based in Poland could be an optimal solution for a foreign investor. Thanks to such a structure, the purchase of real property does not require a permission from the relevant minister. This, in turn, facilitates the starting of an investment in Poland in a situation where the investment requires ownership of real property.
Carrying out of a construction project by a foreigner
Irrespective of the above, the subsequent key stages of the property development process, when carried out by a foreign investor, should also be pointed out. This is because in addition to acquiring the rights to the real property, it is necessary to verify if the planned property development project will be possible to carry out on the given plot of land. Furthermore, the requirements that have to be met in order to begin the project should also be taken into account.
Verification of a local zoning plan by a foreigner
The first step should be to verify the contents and the map attached to the local zoning plan, if the property in question is covered by one. A local zoning plan has the form of a resolution of a city council or a municipality council; the resolution regulates the use of the given land. The plan is an act of local law and applies in the municipality that has adopted it. Additionally, it specifies the intended purpose and the terms of land development, including in terms of erecting new buildings and structures. As a result, the plan is the fundamental act of spatial development of a municipality.
This function of a local zoning plan means that it is of primary importance for any potential investor. If a real property is covered with a plan, any development on the property has to be in compliance with the intended purpose of the property specified in the plan. If the building development is not in line with the intended purpose, the investor will be unable to obtain a construction permit, which is a document required to commence construction on a plot of land. Consequently, the investor should exercise due diligence and verify the above circumstances prior to acquiring the rights to the property. In particular, the intended purpose specified for the property in the local zoning plan should be checked and it should be verified whether it corresponds to the property development project planned by the investor.
Zoning decision for a foreigner
Another option is that the given real property is not covered with a local zoning plan. In such a case, the investor will have to apply (prior to filing an application for a construction permit) for a zoning decision. A zoning decision specifies in particular the type of building development that is acceptable on the property and the intended purpose of the building (e.g. industrial facilities, buildings for the provision of services). What is more, a zoning decision specifies the maximum size of the building, the maximum floor area, the manner of supplying utilities to the property, and the planned access to a public road. It should be emphasized that in the course of the procedure related to issuing the above decision, the administrative authority investigates and takes into account and intended purpose of and the building development on the neighboring plots. The idea behind this is to make sure that the building development in the local area is cohesive. If the property development project planned by the investor does not correspond with the building development on the neighboring plots, there is a risk that the administrative authority will refuse to issue a zoning decision. The same risk exists if there is no building development in the area. If a zoning decision is not obtained, this precludes obtaining a construction permit, making it impossible to carry out any construction activities on the property.
Construction permit for a foreigner
However, if a zoning decision is obtained, a foreign investor will be able to file an application for a construction permit. This will also be possible if the real property is covered by a local zoning plan and the planned development project is in line with the function of the land specified in the plan. In this case, the administrative authority will not be able to refuse to issue a construction permit if the investor demonstrates that the requirements specified in construction law regulations are met. This follows from the fact that every owner of a real property has the right to build on their land.
Changing the status of land in the case of a foreigner
At the same time, it is also important to verify the type of land and its quality class. This allows for checking the designation of the plot, and in particular if its intended to be used as arable land. This issue of crucial importance, as building on arable land of a higher quality class is possible only if the status of the land is first changed to one that excludes agricultural production. For such an exclusion to take place, the relevant administrative procedure has to be carried out and a fee for excluding land from agricultural production has to be paid. The application for excluding land from agricultural production binds the administrative authority only in the case of land of a lower quality class. Consequently, it is necessary to verify if carrying out a development project on the property will require excluding the property from agricultural production.
Recapitulation: acquisition of real property in Poland by a company or partnership that is a foreigner
To sum up, the acquisition by a foreigner of a real property located in Poland requires, in principle, a permission from the minister competent for internal affairs. At the same time, the key aspects related to the property development and construction process have to be taken into account. However, considering the provisions of the Polish Law on the Acquisition of Real Property by Foreigners, it should be pointed out that the said permission is not required in the case of enterprises based in the European Economic Area. Consequently, a foreign investor may take advantage of the option of acquiring real property in Poland through a newly incorporated company or partnership having its registered office in Poland. This solution allows for commencing the investments related to acquiring rights to real properties without the need to obtain additional permissions.
By Mariusz Mielczarek, Lawyer and Senior Associate, KWKR Konieczny Wierzbicki and Partners
