Mirosław Fiałek
MFW Fiałek, Warsaw
m.fialek@mfwfialek.com

Mariusz Domagała
MFW Fiałek, Warsaw
m.domagala@mfwfialek.com

Introduction

The new foreign direct investment regime, introduced in Poland in 2020, established a foreign investment screening mechanism enforced by the Polish Competition Authority (PCA). The new foreign direct investment regime, which supplements the investment control regime regulated by the Polish Act on the Control of Certain Investments dated 24 July 2015 (‘the Polish FDI Act’) and enforced by the relevant ministries, involves a limited number of strategic entities and is applicable regardless of the investor’s ‘nationality’. The new regime was introduced in response to the Covid-19 outbreak, for an initial period of two years. However, in mid-2022 the Polish parliament decided to extend this new regime for a further three years, ie, until July 2025.

The foreign entities covered by the new regime

The new foreign direct investment regulations apply when:

1. any individuals who are not citizens of a Member State, where a Member State should be understood as a state that is a member of the European Union (EU), the European Economic Area (EEA) or the Organisation for Economic Co-operation and Development (OECD); or
2. the entities, other than individuals, that do not have, or have not had for at least two years before the date preceding the notification, a registered office in the territory of a Member State;

acquire or achieve significant participation (defined below) in, or acquire dominance (defined below) over, a Polish enterprise.

The new foreign direct investment regulations will therefore not apply when any individuals or entities from the Member States of the EU, the EEA or the OECD acquire or achieve significant participation in, or acquire dominance over, a Polish enterprise.

The Member States of the EU, the EEA or the OECD should only be understood as the member states of these organisations and not, for example, their affiliates or observers. It should also be emphasised that reference is made to entities in general, not only to entrepreneurs. The new foreign investment control regulations, therefore, apply when not only foreign entrepreneurs but also entities who do not have such a status acquire or achieve significant participation in, or acquire dominance over, a Polish enterprise.

It should also be emphasised that the new foreign investment control regulations also allow the president of the PCA to initiate ex officio proceedings against individuals who are citizens of the Member States of the EU, the EEA or the OECD, or legal entities based in the Member States of the EU, the EEA or the OECD, if there are indications of abuse or circumvention of the law. The indications of abuse or circumvention may include, in particular, cases when the entity acquiring or achieving significant participation or acquiring dominance:

1. does not actually conduct business on its own behalf other than the activities related to acquiring or achieving significant participation or acquiring dominance, or
2. does not have a permanent establishment, office or personnel in the territory of the Member State.

Covered entities

The new foreign investment control regulations apply to acquiring or achieving significant participation in, or acquiring dominance over, the following that have their registered office in Poland:

1. an entrepreneur that is a public company regardless of the type and the industry in which it operates, where a public company should be understood as a company at least one share of which is admitted to trading on a regulated market or introduced to trading in an alternative trading system, trading in the territory of the Republic of Poland;
2. an entrepreneur that owns any of the assets disclosed in the uniform list of facilities, installations, equipment and services comprising critical infrastructure referred to in Article 5b.7.1 of the Act on Crisis Management dated 26 April 2007;
3. an entrepreneur that develops or modifies software:
   (i) for controlling power plants, networks or operating the facilities or systems for the supply of electricity, gas, fuel, fuel oil or district heating; or
   (ii) for managing, controlling and automating the drinking water supply or wastewater treatment facilities; or
   (iii) for operating equipment or systems used for voice and data transmission or for data storage and processing; or
   (iv) for operating the equipment or systems used for the provision of cash, card payments, conventional transactions, for settling or managing securities and derivative transactions, or for providing insurance services; or
   (v) for operating hospital information systems, devices or systems used in the sale of prescription drugs, and laboratory information systems or laboratory tests;
   (vi) for operating the equipment or systems used in the transportation of passengers or goods by air, rail, sea or inland waterway, road transportation, public transportation, or in logistics; or
   (vii) for operating equipment or systems used in food supply;
4. an entrepreneur providing cloud computing data collection or processing services; and
5. an entrepreneur that carries on business activity in the following areas:
   (i) the generation of electricity; or
   (ii) the manufacture of motor gasoline or diesel oil; or
   (iii) the transport of crude oil, motor gasolines or diesel oil via pipelines; or
   (iv) the warehousing and storage of motor gasolines, diesel oil, natural gas; or
   (v) the underground storage of crude oil or natural gas; or
   (vi) the manufacture of chemicals, fertilisers and chemical products; or
   (vii) the manufacture and trade in explosives, arms and ammunition, as well as products and technologies for military or police purposes; or
   (viii) natural gas regasification or liquefaction; or
   (ix) the transhipment of crude oil and its products in sea ports; or
   (x) natural gas or electricity distribution; or
   (xi) transhipment in ports of fundamental importance to the national economy within the meaning of Article 2.3 of the Act on Sea Ports and Harbours dated 20 December 1996; or
   (xii) telecommunications activities; or
   (xiii) the transmission of gaseous fuels; or
   (xiv) rhenium production; or
   (xv) mining and processing of metal ores used in the manufacture of explosives, arms and ammunition, as well as products and technologies for military or police purposes; or
   (xvi) the manufacture of medical instruments and supplies; or
   (xvii) the manufacture of medicaments and other pharmaceutical preparations; or
   (xviii) foreign trading in gaseous fuels and gas; or
   (xix) the generation or transmission or distribution of heat; or
   (xx) transhipment in inland ports; or
   (xxi) the processing of meat, milk, cereals and fruit and vegetables.

When assessing whether a Polish entrepreneur carries on any of the abovementioned IT activities or conducts business activities in the industries listed above, one should take into account the business activities actually carried out, regardless of whether they are key or incidental to the company’s operations. However, Polish entrepreneurs are not protected if they carry out any of the abovementioned IT activities or conduct business activities in the industries listed above for their own use.

Revenue threshold

The new foreign investment control regulations apply only to acquiring, or achieving significant participation in, or acquiring dominance over, a covered entity if the revenues of such a covered entity from sales and services in the territory of the Republic of Poland exceed the equivalent of €10,000,000 in any of the two financial years preceding the notification. The Polish FDI Act provides that not all of the entrepreneur’s revenues, but only the part of them that was earned in the territory of the Republic of Poland, should be taken into account. Thus, revenue from the export of goods or services should not be taken into account.

Definition of acquiring or achieving significant participation

The Polish FDI Act defines significant participation in an entity as a situation allowing another entity to influence the activities of such an entity by:

1. holding shares representing at least 20 per cent of the total number of votes; or
2. holding an equity interest in a partnership with a value amounting to at least 20 per cent of the value of all contributions to such partnership; or
3. holding a share in the profits of another entity amounting to at least 20 per cent.

Definition of acquiring dominance

The Polish FDI Act defines a dominant entity as an entity:

1. that holds, directly or indirectly through other entities, a majority of the total number of votes in the bodies of another entity, including through agreements with other persons; or
2. that has the power to appoint or dismiss a majority of the members of the management board (board of directors) or supervisory board of another entity; or
3. in the case of which more than half of the members of the management board (board of directors) of another entity are at the same time the members of the management board (board of directors), proxies or persons performing managerial functions of the first entity or of another entity remaining in a relationship of dependence with the first entity; or
4. that holds an equity interest in a partnership with a value of at least 50 per cent of the value of all the contributions made to such partnership; or
5. that otherwise has the ability to decide on the directions of the activities of another entity, in particular under an agreement providing for the management of that entity or the transfer of profit by that entity.

Situations in which significant participation or dominance are acquired or achieved

The Polish FDI Act lists three main events when significant participation (as defined above) in a covered entity is acquired or achieved, ie:

1. gaining significant participation, as defined above, in the covered entity by acquiring the shares or the rights attached to shares or taking up shares in the covered entity; or
2. achieving or exceeding, respectively, the thresholds of 20 per cent and 40 per cent (i) of the total number of votes in the governing body of a covered entity, (ii) in the profits of the covered entity, or (iii) the equity interest in a partnership that is a covered entity with respect to the value of all the contributions made to such partnership, by acquiring the shares or the rights attaching to the shares or taking up the shares in the covered entity; or
3. acquiring or leasing a business (enterprise) or its organised part from a covered entity.

Acquiring dominance over a covered entity is understood as the acquisition of the status of a dominant entity, as defined above, with respect to a covered entity by:

1. acquiring the shares or the rights attached to the shares or subscribing for shares in a covered entity; or
2. entering into an agreement for managing a covered entity or transferring profits by a covered entity.

The Polish FDI Act also recognises the following events as acquiring or achieving significant participation or acquiring dominance, where:

1. a subsidiary acquires or achieves significant participation in a covered entity or acquires dominance over a covered entity, including on the basis of agreements concluded with a parent company or a subsidiary of such entity; or
2. significant participation in a covered entity or dominance over such an entity is acquired or achieved by an entity whose articles of associations, or other act governing its operation, contain the provisions concerning the right to the assets of a covered entity in the event the covered entity is dissolved or otherwise ceases to exist, including the right to dispose of such assets without acquiring them; or
3. an entity acquires or achieves significant participation in a covered entity or acquires dominance over a covered entity acting on its own behalf, but at the request of another entity, including under a portfolio management agreement within the meaning of the Act on Trading in Financial Instruments dated 29 July 2005; or
4. significant participation in a covered entity or dominance over such an entity is acquired or achieved by an entity with which another entity has entered into an agreement the subject of which is the transfer of the power to exercise the voting rights or other rights attaching to shares or other equity rights of a covered entity;
5. significant participation in a covered entity or dominance over such an entity is acquired or achieved by a group of two or more entities, if at least one of them is an entity with which another entity has entered into an agreement concerning the acquisition of shares in a covered entity or at least concerning the acquisition of shares or assets of entrepreneurs based in the Republic of Poland, if the subject of such agreement is the transfer of the power to exercise the voting rights or other rights to shares or rights attached to the shares of entrepreneurs based in the Republic of Poland; or
6. significant participation in a covered entity or dominance over such an entity is acquired or achieved by an entity acting on the basis of a written or oral agreement concerning the acquisition by the parties to such an agreement of the shares or assets of a covered entity or the acquisition of shares or assets of the entrepreneurs based in the Republic of Poland.

The Polish FDI Act also recognises as acquiring or achieving significant participation or acquiring dominance events where:

1. an entity acquires the status of a parent entity of an entity having a significant participation in a covered entity or a parent entity of a covered entity or of an entity holding title to the enterprise or an organised part of the enterprise of a covered entity; or
2. an entity acquires or achieves significant participation or acquires dominance over a covered entity or achieves or exceeds, respectively, 20 per cent or 40 per cent of the total number of votes in the governing body of a covered entity, a share in the profits of a covered entity or an equity interest in a partnership that is a covered entity with respect to the value of all contributions made to that partnership, as a result of:
   (i) the redemption of the shares of the covered entity or the acquisition of the covered entity’s treasury shares (the entity’s own shares); or
   (ii) the demerger of the covered entity or its merger with another entity; or
   (iii) the amendment to the articles of association of the covered entity with respect to preference of its shares, participation in the profits, granting or modifying or cancelling the rights of particular shareholders or participants of the covered entity.

Notification and sanctions

An entity that intends to acquire or achieve significant participation in, or acquire dominance over, a covered entity must in each case give prior notice to the president of the PCA of its intention to do so, unless this obligation lies with the other entities.

The investment control procedure is based on a two-phase model. The first phase involves preliminary verification proceedings, the purpose of which is to collect information and documents on the basis of which the president of the PCA decides either to discontinue the proceedings at this stage or to continue the proceedings and initiate the second phase, ie, the control proceedings, in order to clarify the matter in more detail. The first phase, ie, the preliminary verification proceedings, should last no longer than 30 business days. Within this period the president of the PCA should issue:

1. a decision refusing to initiate control proceedings and raising no objections to acquiring or achieving significant participation or acquiring dominance; or
2. a decision to initiate control proceedings.

In certain events, the president of the PCA may object to acquiring or achieving significant participation or acquiring dominance over a covered entity, in particular, if there is at least a potential threat to the public order or public security of the Republic of Poland, or public health in the Republic of Poland, in connection with acquiring or achieving significant participation or acquiring dominance.

Depending on the situation, acquiring or achieving significant participation or acquiring dominance without giving notice to the president of the PCA or despite the president of the PCA raising objections thereto will be invalid or no voting rights or other rights attached to the shares of a covered entity may then be exercised. In certain events, the president of the PCA may also order that the shares of a covered entity are to be sold.

Furthermore, the representatives of the entities that acquired or achieved significant participation in or acquired dominance over a covered entity without giving notice to the president of the PCA will be subject to a fine of up to PLN 50,000,000 or imprisonment from six months to five years, or both.