Limited partnerships in Poland – taxation
September 22, 2023
For many years, limited partnerships were one of the most willingly chosen legal forms for conducting business activity. Tax regulations contributed to their great popularity. The change took place in 2021, when limited partnerships became CIT taxpayers.
What is a limited partnership?
A limited partnership is a commercial law company whose rules of establishment and operation are regulated by the provisions of the Commercial Companies Code. Such a company has two types of partners: a limited partner and a general partner. One of the essential features distinguishing the partners from each other is that the limited partner is liable for the affairs of the partnership up to the amount of the limited partnership sum. The general partner is liable for the partnership’s obligations without limitation.
Limited partnership – taxes
As it has already been indicated above, a limited partnership is a taxpayer of corporate income tax – in short: it pays CIT. CIT can be calculated either according to the “basic” CIT rate, i.e. 19%, or based on 9% – if it meets the conditions for being considered a “small taxpayer”. If the partners of a limited partnership are only natural persons, the partnership may consider taxation under the rules of “Estonian CIT”. This solution will be particularly beneficial for those companies which intend to “keep” the profits earned in the company, allocate them for its further development, and not transfer them to shareholders.
Taxation of profit
If the company decides to make a distribution of profit, the method of taxation will depend on the type of shareholder.
The general partner
The general partner may use the so-called deduction mechanism. It consists in the fact that when the profit is paid out, the tax paid by the limited partnership is deducted from the amount of tax that should be withheld at the rate of 19%. If the company is taxed at 19% CIT, the tax on the distributed profit will not be charged, because the deductible CIT amount will always be higher than it. If a limited partnership is taxed with a 9% CIT rate, the real tax burden at the time of profit distribution will be approximately 17%.
The limited partner
In the case of the other partner – a limited partner, a 50% tax exemption may be applied to the distribution of profit, however, up to the amount of PLN 60,000. Moreover, it should be remembered that the exemption will not apply to a limited partner who is a member of the management board of a limited liability company which is the general partner of this limited partnership, holds in such a limited liability company directly or indirectly at least 5% of shares or is an entity related (e.g. a spouse) with a person who is a member of the management board or holds at least 5% of shares in a limited liability company being a general partner of a limited partnership.
Dividend exemption
It is worth noting that in the case of a limited partner, it is possible to use the so-called dividend exemption, i.e. in the simplest terms, no tax will be charged at the time of profit distribution. To benefit from this exemption, the following conditions must be met:
- the limited partnership has its registered office in Poland,
- the limited partner is a company with unlimited tax liability in Poland, an EU or EEA member state,
- the limited partner directly holds at least 10% of the profits of the limited partnership
- the limited partner is not exempt from tax on his total income.
