In accordance with the Polish Act of November 28, 2020, published on November 30, 2020 in the Journal of Laws of the Republic of Poland, amending the act on personal income tax, the act on corporate income tax, the act on flat-rate income tax on certain revenues earned by natural persons and certain other acts (Journal of Laws of 2020, item 2123), all limited partnerships with their registered office or management board in Poland will be subject to corporate income tax.

Clients of our accounting firm, PRWT, ask questions related to this change in tax regulations regarding limited partnerships, which is currently being introduced in Poland.

Below are some comments on this issue.

The Polish act will enter into force on January 1, 2021 and from May 1, 2021 at the latest, limited partnerships will become CIT taxpayers. 1 May 2021 at the latest, as the limited partnership may decide that the changes will apply to it from that date. In this case, on the day preceding (April 30, 2021), the company will be required to close the books of accounts. It may do not close the books of accounts at the end of 2020 and continue the financial year until April 30, 2021.

Of course, the income of the partners of the limited partnership from participation in its profits obtained by the date on which it becomes a CIT taxpayer will be taxed under the current rules (the Polish Act also specifies in detail the rules in the future settlement by all partners of losses incurred in the period when the limited partnership does not was a CIT taxpayer).

Therefore, limited partnerships are no longer tax transparent. The limited partnership itself will be a CIT taxpayer (at the rate of 9% or 19%, respectively), and the partners will pay their own tax on account of their share in profits (CIT or PIT respectively).

Revenues of natural persons from limited partnerships will be treated as revenues from participation in the profits of legal persons (and not as revenues from business activity, which was the case so far). They will therefore be taxed with a flat-rate 19% tax (it will no longer be possible to tax according to the scale). Therefore, they will not (as revenues from cash capital) be subject to a solidarity tribute.

Of course, according to Polish regulations, the income of legal persons obtained from participation in the profits of limited partnerships will also be taxed at a flat rate of 19%.

The legal and tax situation of limited partners and general partners of limited partnerships will be different (which is justified by different rules of liability for the obligations of a limited partnership).

With regard to natural persons who are limited partners, the tax exemption (free amount) was introduced in the Polish PIT Act. And so, the amounts constituting 50% of the revenues obtained by the limited partner from the shares in the profits in the limited partnership (having its registered office or management board in Poland) will be free of income, however, up to the maximum amount of PLN 60,000 in the tax year. This limit applies separately to each limited partnership in which a given person is a limited partner.

In accordance with Polish regulations, the objective exemption will not be available to a limited partner who:

– holds (directly or indirectly) at least 5% of shares (stocks) in the company which is a general partner of a given limited partnership, or
– is a member of the management board of a company which is a general partner of a given limited partnership, or,
– is a member of the management board of a company that owns (directly or indirectly) at least 5% of shares (stocks) in a company which are general partner of a given limited partnership,
– is an entity related to a member of the management board or a partner of a company holding (directly or indirectly) at least 5% of shares (stocks) in the company which are general partner of a given limited partnership.

An analogous exemption is provided for limited partners who are CIT taxpayers.

Pursuant to Polish regulations, in the case of general partners, both natural persons and persons subject to CIT, a solution analogous to the one currently applied to general partners of limited joint-stock partnerships will apply. The flat-rate tax on the general partner’s revenues in the profit of a given limited partnership will be reduced by the amount equal to the product of the percentage share of the general partner in the profit of this limited partnership and the CIT due on the profit of this company.

It should also be noted that the withdrawal of the contribution from the limited partnership (withdrawal from the partnership or reduction of the equity participation) will cease to be tax-neutral (so far, the revenue for the partner withdrawing the contribution from the limited partnership was only the surplus over the value of the contribution actually made). It was clearly decided that revenues from cash capital will also constitute revenues from the disposal of all rights and obligations of a partner in a limited partnership, as well as from leaving it and from its liquidation.

The changes in the taxation of limited partnerships justify considering the transformation of certain limited partnerships into general partnerships or limited liability companies, or relatively change in the status of some partners to general partners. However, in this context, a number of factors should be kept in mind, including tax avoidance clauses, increased liability of partners of general partnerships in relation to the liability of limited partners, or taxation of transformation into a limited liability company. in the event of a decision to tax the transformed company with a lump sum on the income of capital companies already in the first year after the transformation.

You run a limited partnership, you can count on professional legal and accounting support from our PRWT accounting company to the extent necessary to cope with legal and tax changes, including assistance in considering whether it would be justified to transform a limited partnership into a general partnership or transform a limited partnership into a   limited liabilitry company. Our accountants working as part of the accounting office and cooperating with PRWT Accounting and Business servicess limited liability company, lawyers will assist in carrying out the analysis allowing to assess the legitimacy of the transformations and in carrying out this process.