A Guide for Foreigners Starting a Business in Poland: JDG or Sp. z o.o.? - FCHAIN

Poland, with its proximity to the European market and steady economic growth, has become an attractive destination for foreign entrepreneurs. However, one key question for those looking to start a business in Poland is which type of company to choose, how the procedures work, and what obligations exist. Here’s a comprehensive guide for foreigners on JDG (sole proprietorship) and Sp. z o.o. (limited liability company) in Poland.

 

What Are JDG and Sp. z o.o.?

JDG (Jednoosobowa Działalność Gospodarcza – Sole Proprietorship) is ideal for small and medium-sized businesses. Its advantages include quick and easy setup, low accounting costs, and flexible tax options. The main drawback is that the owner is personally liable for all debts and obligations of the business.

Sp. z o.o. (Spółka z ograniczoną odpowiedzialnością – Limited Liability Company), on the other hand, is a separate legal entity. It offers limited liability, making it suitable for larger investments and partnerships. However, it has higher startup costs, more complex accounting, and potential double taxation risks.

 

Which Companies Can Foreigners Open in Poland?

EU/EEA and Swiss Citizens: Can open either JDG or Sp. z o.o. without restrictions.

Non-EU Citizens:

To open a JDG, you need a permanent residence permit, EU long-term resident permit, or a temporary residence permit for business purposes.

Sp. z o.o. can be established without any residence permit; foreign entrepreneurs can always form a limited liability company.

In short, Sp. z o.o. is generally more accessible and safer for foreign entrepreneurs.

 

JDG and Sp. z o.o. Formation Procedures

JDG Setup Steps

1. Complete the CEIDG form (online or at the municipal office).
2. Present your ID, passport, and residence permit.
3. Provide a business address (home or virtual office).
4. Obtain a tax number (NIP) and a statistical number (REGON).
5. Register with ZUS (Social Insurance Institution in Poland) and pay social security contributions.
6. Choose a tax system (ryczałt, linear, or progressive scale).

 

Sp. z o.o. Setup Steps

1. Notarize the company agreement (minimum share capital: 5,000 PLN).
2. Register with the National Court Register (KRS).
3. Obtain a tax number (NIP) and REGON.
4. Open a bank account and deposit the share capital.
5. Register with ZUS if applicable and set up accounting.

Taxes and Social Security Obligations

JDG: ZUS is mandatory, and income tax is paid according to the chosen tax system. As the business grows, both ZUS and tax burdens increase.

Sp. z o.o.: If no management contract is in place, ZUS is not required; taxes are paid at the corporate income tax (CIT) level, which can be advantageous for higher revenues.

 

Business Size and Risk

Small to medium-sized businesses: JDG is suitable due to its speed, simplicity, and low cost.

Large businesses or ventures with investors: Sp. z o.o. is preferred because of limited liability, professional image, and investor confidence.

 

As a JDG grows, the owner’s personal risk (debts, compensation, personal assets) and financial burden increase.

Conclusion

Poland offers foreign entrepreneurs options tailored to business size and goals:

JDG is fast and cost-effective for small and medium-sized businesses.

Sp. z o.o. provides safety, professionalism, and investor appeal for larger operations or high-revenue projects.

 

Careful planning of the business model, financial projections, and tax obligations is crucial before starting.