Poland is emerging as a talent hub in Central and Eastern Europe. The country has a relatively young and educated workforce, which has attracted various multinational companies to set up their operations in Poland. The availability of skilled and affordable talent, coupled with its strategic location within Europe, has made Poland an attractive destination for companies looking to expand or outsource their services.
The outbreak of the Ukrainian war affected many facets of political, economic, and social life in Poland. Particularly, the departure from conflict zones has drastically altered the migratory situation in Poland as well as in a number of EU countries. Approximately 3.5 million Ukrainian conflict refugees arrived in Poland between February 24 and mid-May 2022, making Poland the country with the most significant role among those that have taken in these refugees.
Economic growth, trends, and forecasts
Poland has been one of the fastest-growing economies in the European Union. In the years leading up to 2020, it had maintained steady economic growth, driven by a mix of factors, including a large domestic market, competitive labor costs, and foreign direct investment (FDI). However, like many countries, the COVID-19 pandemic caused Poland also the global economic downturn.
Before the pandemic, Poland had been experiencing GDP growth rates above the EU average. Everyone expected it to continue growing in the long term, supported by strong industrial output, export-oriented industries, and a robust services sector.
When the Ukrainian war broke out, inflation increased, and mostly due to higher costs for essentials like gasoline and groceries. In reality, Poland has among of the highest inflation rates in the EU. The Polish government’s decision to stop importing all Russian energy resources by the end of 2022 has accelerated the country’s pursuit of alternative fuels, particularly coal, and boosted investments aimed at increasing the country’s energy diversity. For its part, the Polish government has frozen power rates for the most economically needy people and subsidized coal and other fuel supplies. In 2022, with the help of the United States and South Korea they built Poland’s first two nuclear power facilities. Plus, a significant tax reduction package known as “The Polish Deal” went into effect.
In addition, the underlying premises of the “anti-Putin shield” economic blueprint for containing inflationary pressures were laid forth. The economic “Polish Deal” provides the basis for many of these initiatives. They consist mostly of lowering taxes and simplifying regulations for companies. The so-called anti-inflationary shields have been in place and steadily enlarged since the beginning of 2022.
Business landscape and trends during the Ukrainian war
Poland’s business environment is also steadily improving, with the government implementing reforms to attract foreign investments and support entrepreneurship. However, it might not be at the level of more established business hubs in Western Europe, like London or Frankfurt.
Poland has been fostering a friendly environment for businesses, with various industries experiencing growth and attracting foreign investments. Key sectors include IT and software development, automotive, electronics, food processing, and business process outsourcing (BPO).
In the graph below, it is observable that at least 80% of respondents stated that the negative effects were really minor or even nonexistent.
The Polish IT market can offer a wide range of software development services and specialists for businesses of various sizes – from SMEs to huge international enterprises. However, not all Polish cities have enough capacity to satisfy the needs of enterprise-level companies. Warsaw, the capital city, has been the primary business hub, but other cities like Krakow, Wroclaw, and Poznan have also emerged as important business centers, especially in the tech industry. The Polish IT community accounts for nearly 25% of the entire developer population in the Central and Eastern European Region.
For example, Warsaw, Wroclaw, and Krakow have the highest density of R&D specialists, while Poznan, Katowice and Lodz are better for small and medium companies in nearby countries or on the national market.
Tax Incentives for FDI
To attract foreign investments and encourage the inflow of foreign talent, Poland has offered several tax incentives and other benefits. These incentives might include reduced corporate tax rates for specific industries, grants or subsidies for research and development activities, and special economic zones with tax breaks and other benefits for companies operating within designated areas.
- Foreign tax credit:
Resident corporations are taxed on their worldwide income unless there is an applicable DTT in place between Poland and the country whose foreign income shall be exempt from taxation in Poland. In all other cases, Poland uses the ordinary credit method to avoid double taxation. Therefore, a Polish resident is liable for income tax imposed on its worldwide income. But the tax is proportionately reduced by the income tax paid abroad.
- Polish Investment Zone (PIZ):
At the end of June 2018, new regulations on applying for the income tax exemption due to the new investment implementation entered into force (so-called PIZ). They replaced the previous Special Economic Zones system. The biggest change is that the possibility to obtain a tax incentive does not depend on the location of the new investment. It does not necessarily have to be on the territory of a Special Economic Zone (SEZ).
The amount of the incentive (which is income tax exemption) depends on the:
- value of incurred eligible costs of the investment (investment capital expenditures or two-year labour costs of the new employees)
- state aid intensity in a selected region, and
- size of the enterprise.
Depending on the investment’s location, they grant the right to use the exemption for 10, 12, or 15 years.
- Innovation Box:
As of 2019, a mechanism reducing tax rate to be applied to income derived from intellectual property rights was introduced.
The Innovation Box scheme reduces, to 5%, the tax rate applicable to an income derived from IP rights.
Polish talent pool and quality of life
Poland has a well-educated and skilled workforce, with a strong emphasis on technical and engineering fields. The country’s education system focuses on producing professionals in science, technology, engineering, and mathematics (STEM) disciplines. Additionally, many Polish professionals are fluent in English, making the country attractive for international businesses.
Many businesses that seek software development partners to outsource their IT projects consider Poland as an attractive outsourcing desstination. The reasons for this are quite obvious. The country is 7th among the most successful IT industries across Europe. In fact, with an impressive revenue of 8.8bn euros ($9.3bn) gained in 2022. Plus, an average salary in Poland is around €830 monthly, while software developers’ salaries can be 3 to 7 times higher. Therefore, the number of people interested in software development is growing, increasing the overall tech talent pool. In addition, according to the Growth Perspectives for Polish ICN Sector by 2025 report, the Polish labor market has a qualified labor force with low costs of labor. Much lower than in Sweden, Denmark, Spain, Netherlands, Germany, and others.
The cost of living in Poland is generally lower than in many Western European countries. This can be an advantage for expatriates and foreign workers. Moreover, Poland offers a rich cultural heritage, beautiful landscapes, and a general good quality of life.
Ukrainians were a significant part of Poland’s work force before the Ukrainian war. That’s why it’s safe to assume that hiring a few hundred thousand extra individuals won’t be a problem. As shown in part by the approximately 150,000 recently arriving war refugees who have already joined the Polish job market. A view like that, sadly, might be excessively hopeful.
The recent influx consists primarily of women with children. Whereas prior to the war, Ukrainians in Poland worked predominantly in male-dominated occupations. Thus, there may be disparities between the available talents and the requirements of the labor market. This will necessitate a very high level of training and retraining opportunities tailored to the Ukrainian professional profile. Moreover, additional measures will be in need to prevent threats such as workplace exploitation, abuse, and sexual harassment. High expectations are awaiting given the magnitude of the phenomenon and the limited bargaining power of war refugees.
Even though in the short term tensions can be easily avoided, they will emerge in the long term. Especially people using public services may experience a deterioration in the standard of living due to the presence of a significant number of war refugees, who will also benefit from state support. A similar situation may also take place in the labor market, with possible adverse effects, particularly on the local scale. These risks should be identified, monitored and addressed through well-tailored public policies, including communication campaigns.
The impacts of the Ukrainian war were felt across the Polish economy in 2022. As a result, inflation rose in Poland and new difficulties appeared on the country’s energy market. As a result, Poland’s long-standing program of energy diversification, which has increased energy security by making the country less reliant on Russian supplies, has had to be accelerated. The construction of Poland’s first nuclear power stations was also sped up as a result. Furthermore, rising interest rates were a key issue for Polish borrowers this year. But a significant tax change that will benefit a broad segment of the population went into effect this year.
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