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Take a break from business

If business operations are not generating the expected profits, instead of closing down the business it is possible to suspend operations for a certain period. How should one go about this in a legal and effective manner?

The rules for suspending business operations in Poland under the Business Freedom Act are discussed below.

Conditions for suspension

A business without employees may suspend operations for a period from 30 days (or just the whole month of February, even though it is less than 30 days) up to 24 months. The period may be defined in days, months, or both.

If business is conducted in the form of an ordinary partnership, all of the partners must suspend operations. If the same partner does business as a partner in several ordinary partnerships, he or she may suspend operations in one or more of the partnerships. A business entity conducting operations in more than one legal form may suspend operations in one of the forms.

The following rules apply to the suspended form of business operations:

  • During the suspension period, the business entity may not perform business operations or generate current revenue from non-agricultural business activity.
  • During the suspension period, the business entity
    • has the right to perform any actions necessary to maintain or secure a source of revenue;
    • has the right to receive payment of receivables and the duty to pay liabilities that arose prior to suspension of operations;
    • has the right to sell its own fixed assets and equipment;
    • has the right or duty to participate in judicial, tax or administrative proceedings related to operations conducted prior to suspension;
    • is required to perform any duties imposed by law;
    • has the right to earn financial income, as well as income from business conducted prior to suspension; and
    • may be required to undergo inspections under the rules provided for persons conducting business activity.

Operations may be suspended or resumed upon application of the business entity.

The suspension period begins on the date indicated in the application for entry of notice of suspension, not earlier than the filing date, and lasts until filing of an application for entry of notice of resumption of operations or other date indicated in the second application, not earlier than the date of filing that application.

With respect to the obligation to pay taxes and other public charges, suspension of operations is legally effective from the date of suspension through the last day preceding resumption of operations.

In the case of entities that are required to be entered in the National Court Register, notice of suspension of operations is published in accordance with regulations governing the National Court Register.

It is clear from these rules that notwithstanding suspension of operations, the business entity is still required to perform duties imposed by law. Contrary to popular belief, suspension of operations does not mean that the business entity ceases to perform any actions whatsoever.

There are certain tax consequences from suspension of operations, as discussed below.

Income tax (PIT/CIT)

Upon written notice to the head of the applicable tax office within 7 days after filing the motion for entry in the National Court Register of a notation on suspension of operations, a company is released from the requirement to pay monthly advances against corporate income tax. After the suspension period, the company will be required to pay CIT advances under the same rules as prior to the suspension.

The approach to personal income tax is similar, but there is no requirement to notify the head of the tax office except in the case of partners in registered partnerships, limited partnerships, and joint-stock limited partnerships that have suspended their operations.

Suspension of operations does not release the taxpayer form the obligation to maintain proper tax records during the suspension period, however, reflecting taxable events occurring during the suspension period. Advances should also reflect revenue and costs booked during the suspension period.

In the case of individuals paying tax at a flat rate on certain types of income, the dates for calculating and paying the tax when they resume operations is set forth in the Act on Fixed-Rate Income Tax on Certain Revenue Earned by Natural Persons.

Real estate tax

Suspension of business operations is grounds for applying lower rates of real estate tax on residential buildings or portions thereof which prior to suspension were subject to the rate applicable to buildings used for business operations. However, exercising the right to suspend business operations does not have the same effect with respect to land, buildings or other structures connected with business operations. Thus the real estate tax rate on such property remains unchanged, although some tax experts take a different view on this issue.


A VAT payer that suspends business operations is released from the obligation to file VAT declarations for the settlement periods covered by the suspension. However, release from the obligation to file VAT declarations does not apply to a fairly extensive group of taxpayers, for example taxpayers making intra-Community acquisition of goods. It is also necessary to file a VAT declaration for the settlement period if the suspension does not cover the whole settlement period.

Resumption of operations requires the taxpayer to resume filing VAT declarations. The first VAT declaration after resumption should be filed for the settlement period in which resumption occurs. However, the taxpayer is not required to notify the tax office that it has resumed business operations.

Accounting Act

Under the Accounting Act, when business operations are suspended for an entire fiscal year, it is generally unnecessary to prepare financial reports for the year, and the unit is released from the requirement to close out its financial accounts for the year, unless it carries out depreciation or other financial or asset-related events occur during the period. Release from the obligation to close out the accounts (and prepare a financial report) does not apply to issuers of securities listed on a regulated market in a member state of the European Economic Area, or companies seeking or intending to seek such a listing.

The lack of an obligation to prepare a financial report means that it is also unnecessary to have the report audited or to carry out related reporting requirements, e.g. with respect to the tax authorities or the National Court Register.

Jacek Bondarewski, Corporate Law practice, Wardyński & Partners

Aldona Leszczyńska-Mikulska, Tax practice, Wardyński & Partners