New corporate tax rules for limited companies

From 1 January 2021 limited companies established in the territory of the Republic of Poland have become taxpayers of income tax on the right, with the possibility of deferring the application of new tax rules to 1 May 2021 This revolutionary change, introduced by the laws of 28 November 2020 amending the Personal Income Tax Act, the Corporate Income Tax Act, the Flat-rate Income Tax Act on certain revenues generated by individuals and certain other laws 1 (Further: the amending Act) is expressed primarily in a major modification of the method of taxation of income generated by the shareholders of such companies.

As indicated in the justification for the project, 30 September 2020 Amending Act 2 , The purpose of the changes was to seal the tax system and to respond to the optimization structures created by taxpayers using limited companies, in which the subsidiary is a company with a limited liability and a limited liability – usually a partner or partners who are natural persons.

In the case of such a limited partnership, the associate is responsible for the company's obligations with all its assets, but the liability of the limited partnership is limited to the amount of the limited sum.

In practice, this means that the legal situation and the liability of the limited partnership is similar to the legal situation and the liability of the shareholders of the capital company, for example the limited partnership.

Recognising that there is no rationale for further differentiation of the rules on taxation of a limited partnership with respect to the rules on shareholders of a capital company, the legislature has decided to give the limited company the status of income tax.

1. Until now, rules on taxation of income of limited companies

To 31 December 2020 The limited company was not a separate corporation tax taxpayer, being a so-called transparent tax company.

This means that the income generated by the limited partnership was not taxed by income tax at the level of the company itself (as is the case, for example, in relation to the income of the company from the O.O., the limited liability company or the limited liability partnership) but only at the level of its shareholders, in proportion to the share of the profit held by the shareholder.

At the same time, the tax treatment of income obtained did not affect the status of a partner in a limited partnership, i.e.

the income per shareholder was taxed in the same way, regardless of whether the shareholder had subsidiary status in the company (a partner responsible for the company's obligations with all its assets) or a limited partnership (a partner responsible for the company's liabilities up to the amount of the limited sum).

Example

The limited company achieved in the tax year 2020 revenue from the sale of goods and services of 2,000,000 PLN. The cost of obtaining income was 1,000,000 PLN. The company has two partners, which are natural persons. Each partner was entitled to 50% the profits of the limited partnership. Both partners benefit from the so-called line tax tax 19% (Article 30c(1) Act on 26 July 1991 on personal income tax 3 , Further: u.p.d.o.f.).

The revenue achieved was not subject to (to 31 December 2020) tax at company level (as income of the company), but were shared between shareholders and taxed only at shareholder level (as income of shareholders).

If the shareholder concerned was a partner in several limited companies, some of which were profitable, and second bear a loss or, if, outside the limited partnership, he also carried out a single business activity in which he recorded a loss, for the purposes of clearing the tax on the natural persons of the partner, those revenues and losses combined. This resulted in income obtained from one limited partnership being reduced by a shareholder by a loss from another limited partnership or a loss from one-man economic activity.

2. New rules on taxation of limited companies

2.1. Taxation of income at company level

From 1 January 2021 revenue generated by activities carried out in the form of a limited partnership shall also be taxed at the level of the company itself which has become a corporation tax taxable person. This is due to the revised Article 1(3)(1) Act on 15 February 1992 on corporate income tax 4 (It concerns all limited companies established in the territory of the Republic of Poland, regardless of the amount of income obtained, the legal status of shareholders or the tax year.

The acquisition of a limited partnership within the scope of u.p.d.o.p. means that such a company, as so far as capital companies and limited-stock companies, is currently required:

• 1) for the activities carried out, determine the company’s income to be taxed on corporate income tax, calculated as an excess of revenue from individual sources over the cost of obtaining them,
• 2) calculate and pay a corporate income tax on this income.

The income generated by the company is subject to income tax at the rate 19%. If the limited partnership meets the conditions to be considered as so-called the small taxable person (i.e. the value of the sales revenue generated by the small taxable person incl.

VAT did not exceed 2020 quotas 8,747,000 PLN – quota equivalent 2,000,000 EUR converted into Polish gold by the average euro rate announced by the NBP to first the working day of October of the previous tax year, i.e.

on 1 October 2020), until it is exceeded 2021 net revenue limit of 9,097,000 PLN (quota equivalent 2,000,000 PLN converted into Polish gold by the average euro rate announced by the NBP to first the working day of this year, i.e.

on 4 January 2021), for income other than income from capital gains, the company will be able to apply the tax rate 9%. After exceeding that amount, the limited company is obliged to pay income tax at the rate 19%.

A limited company fulfilling the condition of being a small taxpayer also has the possibility to pay quarterly advances on corporate income tax.

2.2. Taxation of the supplementary income

From 1 January 2021 all shareholders of the limited partnership will qualify their income on the profit share of the limited partnership as income on the profit share of legal persons, i.e. on a similar basis as in the case of dividends from companies with limited liability or limited liability companies. This means that these revenues can no longer be combined with revenues from the so-called other sources, even if the income at the level of the limited partnership was obtained from that source.

In the case of a subsidiary taxable person, corporation tax will apply in this respect Article 22(1a-1e) u.p.d.o.p. according to which:

1. the revenue generated by the subsidiary for the share of profits of a limited partnership established in the territory of the Republic of Poland shall be taxed at 19% revenue obtained,
2. the flat-rate tax thus determined shall be reduced by the amount corresponding to the product of the subsidiary’s percentage share in the profit of that company and the tax due on that company calculated in accordance with the Article 19 u.p.d.o.p. for the tax year from which the profit share income has been obtained, the amount of the deduction shall not exceed the amount of tax calculated in accordance with the general rules.

The above means that if only a limited company would not benefit from the exemption from corporation tax, in practice the supplemental company would not pay flat-rate tax on its share of profit.

Example

The limited company obtained in 2022 income in the amount 1,000,000 PLN. As a corporate tax taxable person, she paid a tax on this income at a rate 19%, i.e. 190,000 PLN. Amount of profit remaining after tax (810,000 PLN) split between partners.

A Complementary with 50% the share of the profit of the limited partnership was profitable in the amount 405,000 PLN.

On this profit, the limited company should deduct the flat-rate income tax calculated as 19% × 405,000 PLN = 76,950 PLN, This amount should be reduced by the subsidiary corporation tax already paid by the company, which in this example amounts to 95,000 PLN (190,000 PLN × 50%).

This means that, in practice, the company will not deduct income tax from its subsidiary’s remuneration (for 76,950 PLN Similar regulations apply when a natural person is a partner of a limited partnership (Article 30a(6a-6e) U.p.d.o.f.), in respect of which the income from the share in the limited partnership will be eligible as income from cash capital (Article 10(1)(7) u.p.d.o.f.).

Important: 1 January 2021 revenue from the participation of a natural person in a limited partnership shall no longer constitute revenue from the source referred to in Article 10(1)(3) u.p.d.o.f., i.e. revenue from a source of non-agricultural economic activity. Therefore, these revenues can no longer be combined with the incomes or losses achieved by the taxable person for the conduct of a single-person business or a participation in a civil, public or partnership.

2.3. Taxing the income of a limited agent

Qualifying income generated from participation in a limited company as income from corporate profit (i.e. income tax on individuals as income from cash capital, respectively, on corporate tax taxable persons

the income from capital gains) will also apply to the income obtained by the consultants.

However, contrary to the profit paid to the subsidiary, in the event of a profit payment to the limited partnership, the limited company will not be able to make a reduction in the flat-rate income tax (depending on the legal status of the limitedary, it will be a flat-rate income tax on individuals or a flat-rate corporation tax) for income tax paid by the company itself.

In this regard, the same income will be taxed twice – once at the level of the limited partnership, second once on the level of a limited agent of such a company.

Example

The limited company obtained in 2022 income in the amount 1,000,000 PLN. As a corporate tax taxable person, she paid a tax on this income at a rate 19%, i.e. 190,000 PLN. Amount of profit remaining after tax (810,000 PLN) split between partners.

A Commandant with 50% the share of the profit of the limited partnership was profitable in the amount 405,000 PLN. On this profit, a limited company, as a payer, should deduct a flat-rate income tax calculated as a product 19% × 405,000 PLN = 76,950 PLN. The net profit achieved by the consultant will be 328,050 PLN.

In order to reduce, to a certain extent, the additional tax burden on the part of the limited partnership as a taxpayer of income tax, the legislator decided to introduce income tax exemption for some of the revenue of the limited partnership. The exemption applies both when the limited liability is a natural person and when it is a legal person. In the case of natural persons, it results from the newly added Article 21(1)(51a) u.p.d.o.f. and in the case of limitedaries who are legal persons, such exemption shall be included in the newly added Article 22(4e) Under these provisions, income tax is exempt:

• 1) amount 50% revenue obtained by a limited partnership for profit participation in a limited partnership established in the territory of the Republic of Poland,
• 2) not more than 60,000 PLN in the tax year, separately for the share of profits in any such limited partnership in which the taxpayer is a limited partnership.

Important: a limited partnership may benefit from a tax exemption of 50% the profit generated by the company, but not more than 60,000 PLN A year. The exemption may be applied separately to any company in which the taxpayer is a limited liability.

However, the above-mentioned exemption will not apply where the relationship between the shareholders of the limited partnership or the way in which the company is managed indicates the ‘optimisation’ nature of the establishment and operation of such a company by the shareholders. According to Article 21(40) u.p.d.o.f., respectively Article 22(4f) U.p.d.o.p. - this will be the case if the commando:

1. possess directly or indirectly at least 5% shares in a company having legal personality or a capital company in a subsidiary organisation in that limited partnership, or
2. is a member of the Management Board of:

(a) a company having legal personality or a capital company in a subsidiary organisation in that limited partnership, or

(b) a company having, directly or indirectly, at least 5% shares in a company having legal personality or a capital company in a subsidiary organisation in that limited partnership, or

1. is a related entity, within the meaning of the transfer pricing provisions, to a member of the board of directors or a member of a company having at least, directly or indirectly, 5% shares in a company having legal personality or a capital company in a subsidiary organisation in that limited partnership.
2. The possibility of deferring the application of new tax rules to 1 May 2021

However, according to Article 12(1) Act amending, in the case of limited companies which have obtained corporate tax taxable persons status on the date 1 January 2021 and in relation to the taxation of revenues and costs obtained from these companies by their shareholders, the new regulations shall apply from 1 January 2021, However, the joint ventures may decide that they and their partners will apply the new rules only from 1 May 2021 This possibility is foreseen Article 12(2) a law amending that a limited company may decide that the new tax rules apply to that company and the revenue and costs associated with its participation from 1 May 2021 In that case, the limited company becomes a corporate tax taxpayer on the date of 1 May 2021

Important: a limited company may decide that the new tax rules apply to that company and the revenues and costs associated with participating in that company from 1 May 2021

No specific form or communication of any information to the tax authority is required for the effectiveness of such a provision.

Due to the provisions of the Law of 15 September 2000 Commercial Companies Code 5 (further: (k.s.h.) it should be considered to adopt such a provision by means of a resolution of the shareholders and, for the sake of safety, to demonstrate that this decision to postpone the date of application of the new provisions was taken before 1 January 2021, i.e.

before the date on which the limited partnership became a corporate tax taxable person by law, it should be considered to submit a copy of the resolution to the tax office or to adopt a resolution in such a way that there is no doubt as to the date of the act (for example, the adoption of a resolution in the presence of a notary or using an electronic signature).

As from the day before the date on which the limited partnership acquired the status of corporate tax taxable person, that company is required to close the accounts.

If the last day of the financial year of the limited partnership is within the period from 31 December 2020 to 31 March 2021, that company may not close the accounts on that date and continue the financial year until 30 April 2021 (Article 12(2)(3) Amending Act).

Concomitant with Article 17 The amending act shows that corporate tax payers whose tax year is different from the calendar and started before 1 January 2021, and finish after 31 December 2020, apply to the end of the tax year adopted by them.

The amending Act also states that the limited company continues to assess the tax value of the assets, in particular as regards the initial value of the fixed assets and the WNiP, the depreciation method adopted, the rates and the depreciation period, as well as the amount of depreciation payments previously made on those fixed assets and the WNiP, and, by applying the provisions of u.p.d.o.f.

and u.p.d.o.p. in their new wording, takes into account events occurring before the date on which it became a corporate income tax taxpayer affecting its corporate tax liability.

4. Revenue from the limited partnership and the solidarity tax

The amendment to the rules on taxation of limited companies with income tax also results in a change in the tax on the profits of shareholders of the limited partnership in the solidarity tax referred to in Article 30h u.p.d.o.f. Solidarity Denmark is paid by persons with income exceeding 1,000,000 PLN A year. It takes 4% above 1,000,000 PLN, and when calculated, account shall be taken of:

• 1) income taxed on a tax scale, e.g. income from work, from business activities, from pensions, pensions, activities carried out in person, from copyright (under the conditions laid down in Article 27(1)(9)(9a) u.p.d.o.f.),
• 2) revenue from capital gains taxed at the rate 19%, i.e. income from the sale of securities and derivatives of financial instruments for sale of shares, shares, etc. (Article 30b u.p.d.o.f.),
• 3) income from economic activity and from special agricultural production departments, taxed by liner tax (Article 30c u.p.d.o.f.) and
• 4) revenue from a foreign controlled company, taxed at a fixed rate 19% (Article 30f u.p.d.o.f.).

The following shall therefore not be taken into account when calculating the solidarity contribution:

• 1) flat-rate tax revenue, e.g. dividends, interest (Article 30a u.p.d.o.f.),
• 2) revenue from the sale of immovable property (Article 30e u.p.d.o.f.),
• 3) foreign income which is exempt from tax in Poland due to the application of the double taxation method in the form of an exemption with progression (Article 27(8) u.p.d.o.f.), as well as
• 4) revenue taxed in the form of a lump sum on recorded revenue and in the form of a tax card.

To the end 2020 the income of the partner of the limited partnership was classified as revenue from a source of non-agricultural economic activity, and as such

are subject to a solidarity tribute. From 1 January 2021, As they will no longer be treated as business revenue but as income from cash capital (from corporate income) these revenues will not be subject to a solidarity tax.

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1 Act of 28 November 2020 amending the Personal Income Tax Act, the Corporate Income Tax Act, the Flat-rate Income Tax Act on certain revenues from individuals and certain other laws, Journal of Laws of 2020, item 2123.

2 Print RP IX No. 642.

3 Act of 26 July 1991 on income tax on individuals, i.e. Journal of Laws of 2020, item 1426 as amended

4 Act of 15 February 1992 on corporate income tax, i.e. Journal of Laws of 2020, item 1406.

5 Act of 15 September 2000 Commercial Companies Code, i.e. Journal of Laws of 2020, item 1526.

Legal basis

Article 1(3)(1), Article 19(22) u.p.d.o.p.

Article 5a(28) point (c), Article 21(30h) u.p.d.o.f.

The article comes from the book C.H. Beck Publishing House “A Review of Tax Changes 2021”, https://www.ksiegarnia.beck.pl/ 19763-tax review-change-2021-Agnieszka-bienkowska