Taxation of payments from the profit of a limited partnership and the status of the taxpayer
Limited partnership is one of the most popular forms of business activity in Poland. It gained popularity due to the simple form of taxation. It combined taxation with PIT tax with limited liability of limited partners. In the article below, we will check whether it is possible to tax the payment from the profit of a limited partnership earned before it acquires the status of a CIT taxpayer.
At the outset, let us remind you that a limited partnership is a commercial partnership. The limited partnership has legal capacity and capacity to perform acts in law. In practice, this means that it can acquire rights and incur liabilities on its own behalf.
This form of business is a good solution for partners, one of which is involved in the company's affairs, and the other only wants to provide a financial contribution.
A limited partnership may be established by at least two partners, one of which is a limited partner bearing limited liability for the partnership's obligations, and the other a general partner, who is responsible for the obligations of the limited partnership without limitations, i.e. with all his assets.
As a rule, a limited partnership agreement is concluded in the form of a notarial deed. Subsequent amendments to the articles of association of a limited partnership also require the form of a notarial deed.
Currently, the conclusion of a limited partnership agreement is possible without the participation of a notary public, using the agreement template available in the KRS internet system.
Importantly, the limited partnership agreement should also specify the limited liability amount, which is the upper limit of the limited partner's liability for the partnership's obligations, specified in amount.
In a situation where there is more than one limited partner in the company, the limited partner sum is determined separately for each of them.
The limited liability sum has a guarantee function:
to the company's creditors who, within its limits, may expect the limited partnership's obligations to be satisfied from the limited partner's assets;
to a limited partner who, thanks to the limited liability sum, is not liable for the partnership's obligations in an unlimited manner.
Thus, the amount of the limited liability is not specified in the minimum amount.
Taxation of payments from profit in a limited partnership
From January 1, 2021, if the CIT Act mentions participation in the profits of legal persons, this also means participation in the profits of limited partnerships.
Importantly, the same regulation was also added to the Personal Income Tax Act.
From January 1, 2021, whenever the act mentions a share in the profits of legal persons, it also means a share in the profits of limited partnerships (see Article 5a point 31 of the PIT Act).
The above also applies to limited partnerships and limited joint-stock partnerships having their registered office or management board in the territory of the Republic of Poland.
Recall that the dividend income and other income (income) from participation in the profits of legal persons with their registered office or management board in the territory of the Republic of Poland is set at 19% of the obtained income (income).
Preferences for partners of a limited partnership
The flat-rate tax calculated on the revenues obtained by the general partner on account of the participation in the profits of the limited partnership shall be reduced by the amount corresponding to the product of the percentage share of the general partner in the profit of this partnership and the tax due on the profit of this partnership, calculated in accordance with Art. 19 for the tax year from which the profit sharing revenue was obtained.
Therefore, the income obtained by the general partners from the participation in the profits of the limited partnership is not taxed twice. A general partner may deduct from his tax the amount of tax paid by a limited partnership.
The amount of 50% of revenues earned by a limited partner from the profit participation in a limited partnership having its registered office or management board in the territory of the Republic of Poland is exempt from income tax, but not more than PLN 60,000 in a tax year separately for participation in profits in each such company limited partnership, in which the taxpayer is a limited partner.
Thus, in the case of a limited partner, the legislator also introduced a preference that will allow him to avoid double taxation up to the amount of PLN 60,000.
Taxation of profit withdrawals from income before May 1, 2021
It should be noted that the provisions changing the tax status of a limited partnership could be applied to revenues and expenses related to participation in this partnership, starting from May 1, 2021. Pursuant to tax regulations, a limited partnership obtains the status of a corporate income tax payer of May 1, 2021.
The company showed significant profits from January to April 2021. Moreover, in the previous years it also obtained significant profits, which it did not pay out. Importantly, it took advantage of the possibility of obtaining the status of a corporate income tax payer from May 1, 2021. As at the moment of obtaining the status of a taxpayer of corporate income tax, the Company is therefore entitled to retained or retained profits achieved in previous financial years, including for the financial year beginning on January 1, 2020 and ending on December 31, 2020. Importantly, the payment of the indicated profit may take place only after the company obtains the status of a corporate income tax payer, i.e. after May 1, 2021. It should be emphasized that the above profits were already subject to taxation, respectively, with personal income tax.
The company wonders whether if the payment to shareholders of profits made as part of its activities by April 30, 2021 takes place after May 1, 2021, will they be subject to re-taxation as income from participation in the profits of legal persons? Will the company be bound by the obligations of the tax payer in this respect?
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In this case, the transitional provisions contained in the amending act will apply, which stipulate that the profits paid by the limited partnership when it has the status of a taxpayer of corporate income tax, which were earned (achieved) in the period when the partnership was still an entity transparently, are not taxed again with corporate income tax or personal income tax. The payment of such profits from a limited partnership is therefore taxed under the rules in force before January 1, 2021. Importantly, if the company applies a transitional period extending the application of the old legal status until April 30, 2021, these profits will also not be taxed twice. In the discussed situation, the company will obtain the status of a corporate income tax payer after May 1, 2021 and by that date the company should apply the amended regulations.
Summing up, despite the unfavorable changes related to the taxation of limited partnerships, the company will not pay double tax on profits earned before becoming a CIT taxpayer. Therefore, the company will not be subject to the obligations of the payer in this respect.