1. September 2006
Spotlight on Poland: tax and investment incentives for Chinese investors

2. Xiamen
Confucius said: In leading a state of a thousand chariots, respect the office and be trustworthy;
Economize in the use of resources and love the people, and employ the people when it is timely*
* The Lun Yu (499 sayings), chapter 1 verse 5

3. Spotlight on Poland
5th most attractive location for foreign investment in the world* and ranked 5th globally on the FDI Confidence Index*
Central location in Europe with access to 750 million relatively wealthy consumers (250 mln within 1,000 km radius)
Member of the European Union (since 2004) and WTO
Stable political, legal and business environment
Young, ambitious, hard-working and well-educated population
Abundant tax and business incentives for foreign investors
Tax-competitive location for business with preferences for foreign direct investment (FDI)
Tax laws and regulatory environment harmonized with the European Union
Recently gaining momentum and popularity with Asian investors (LG-Philips LCD, Huawei)
*Sources: Ernst & Young European Attractiveness Survey 2006; AT Kearney Report 2006

4. Poland – macroeconomics
93 billion USD of FDI
17 %
unemployment rate
5.2 %
GDP
growth
3.4 %
GDP
growth
2 %
Inflation
2 %
Inflation
2005
I Q 2006
2005
2005
Source: Central Statistical Office

5. Young, ambitious, hard-working and well-skilled population
Eighth largest in Europe and the largest in Central Europe (38 million)
26 million work force
6 million in graduate education
35% of population is under 25 and 50% is under 35
With high unemployment, a large pool of specialists and college graduates is on offer at competitive cost
In 2004 Poles worked 600 hours more on average than the French and Germans*
Poles according to foreign investors: hard-working, achievers, positive attitude, willing to learn, creative, disciplined, loyal
*Source: OECD Employment Outlook 2005

6. Poland: highlights of tax system
Major taxes:
Corporation tax (CIT) with one of the lowest rates in Europe of 19%
Value Added Tax (VAT) with standard rate of 22%, fully harmonized with the European Union VAT system
Personal tax (PIT) with progressive rates from 19% to 40%
Other taxes: social security, real estate tax, customs duty, excise
Tax administration:
Monthly or quarterly reporting for tax
Binding rulings to protect companies against tax penalties
Advance pricing agreements to guard prices against tax audit assessment

7. Poland: highlights of tax system
International aspect:
Broad treaty network to facilitate tax-efficient cross-border flow of dividends, interest and royalties (10% under China-Poland treaty)
Part of the EU taxation system
Special features:
Tax consolidation for corporate tax
Deductions and exemptions
Taxation of partnerships
Branch vs. subsidiary
Tax loss carry-forward (5 years)
Transfer pricing (OECD Guidelines are followed)
Interest and f/x loss deduction on cash basis rather than on accruals basis
Statute of limitations for tax liabilities is 5-6 years
Tax and investment incentives

8. Tax and investment incentives
Special Economic Zones:
Exemption from corporate tax equal to 30-50% of investment (increased by 15% for SME’s)
Exemption from real estate tax
Competitive pricing of land (€ 1)
In place until 2017
Re-zoning possible to encompass investor-preferred location
Grants and support programs:
EU budgetary perspective – Poland to receive € 91 bln
Cash grants available (training programs, new employment, innovative investments)
Shared Services Centers / Business Process Offshoring
Poland ranks fifth in terms of offshoring environment*
SSC’s can be located in Special Economic Zone to benefit from tax exemptions
R&D Centers:
Increased tax deductions related to innovative technologies
Increased depreciation rates for high-tech capex
*Source: Economist Intelligence Unit Report 2006

9. Shared Services Centres in Poland
transactions services
… and more – about 50 SSC’s in 2006
human resources
Olsztyn
global competence centre
accounting
Bydgoszcz
outsourcing of IT services, accounting and finance
Warszawa
Poznań
accounting, taxes, salaries, IT, legal division
accounting and finance
Łódź
Wrocław
human resources
accounting and finance
outsourcing of IT services
human resources
Kraków
accounting, payments (salaries), taxes
Bielsko-Biała
accounting and finance
outsourcing of IT services, accounting and finance
accounting
back office support services
Source: Ernst & Young

10. R & D Centres in Poland Gdańsk Bydgoszcz Warszawa Zielona Góra Wrocław
software and hardware research centre dedicated to
Development of software for telecommunication and IT (functional and quality tests).
Gdańsk
communications technology (system architecture, software & hardware development, network quality labs); 150 engineers.
Bydgoszcz
developing software system solutions for digital TV, designing highly advanced set-top boxes; 200 engineers.
Warszawa
software for digital satellite, cable and terrestrial TV (in the future - software development in DVD devices and digital cameras); 600 engineers.
Zielona Góra
Enginering Design Center (design of jet engine, including disks, turbine blades, airfoils, combustors; 150 engineers.
Wrocław
Kraków
Development and integration of customized IT solutions (special competence for German IT market); 140 IT specialists to be employed by 2006.
Software Development Centre – development of GSM, GPRS and UMTS networks; further expansion (from present 270 to 400 engineers).
engineering systems and automation, advanced service and IT diagnostic systems.
software research centre, 380 software engineers.
software development in automotive industry – 480 engineers.
… and more – 36 centers in 2006
Source: Ernst & Young

11. Ernst & Young: one-stop shop for Chinese investors in Poland
E&Y’s one-stop shop <=> advisory services centrally managed by a dedicated project leader – multidisciplinary professional advisory services through one relationship and central project management
E&Y’s one-stop shop <=> multidisciplinary, pro-active, flexible, tailor-made:
tax advisory
regulatory advisory
contacts with government and local authorities, grants & incentives negotiation support
IT systems
risk advisory and management
SOX 404 process implementation
accounting advisory and outsourcing
assistance in financing and hedging strategies and transactions
assistance in local sourcing
internal procedures and controls design and implementation
legal advisory (in cooperation with best-friend law firms)
Tzu Kung asked about the gentleman.
Confucius said: Action takes precedence over words*
* The Lun Yu (499 sayings), chapter 2 verse 13

12. Contact Radoslaw Szczech Partner Tel. +48 22 557 72 93
Address:
Ernst & Young sp. z o.o.
Rondo ONZ 1
Warszawa