Limited partnerships and some registered partnerships to be subject to corporate income tax
The Ministry of Finance intends to impose corporate income tax on limited partnerships, and on registered partnerships whose shareholders (taxpayers participating in their profits) are not disclosed. These types of partnerships will probably become CIT payers starting from 2021.
This information is found in the outline for an act amending the Personal Income Tax Act, the Corporate Income Tax Act and other laws (draft no. UD 126) published in the Polish government’s list of legislative and programme work.
This is the second attempt to impose CIT on limited partnerships. The first attempt was in 2013, but at that time CIT was only extended to joint-stock limited partnerships (spółki komandytowo-akcyjne). The new proposal is designed to close loopholes in the tax system, as failure to impose CIT on these types of partnerships can create a possibility of avoiding taxation of income.
Taxation of limited partnerships through 2020
Currently, limited partnerships (spółki komandytowe) and registered partnerships (spółki jawne) in Poland are pass-through, tax-transparent entities, meaning that they are not taxpayers for CIT purposes. Analogous rules apply to professional partnerships (spółki partnerskie) and simple partnerships (spółki cywilne). The income-tax rules for these entities are similar to those applicable to individual business operators (sole traders). The income generated by these partnerships is taxed by CIT or PIT once, at the level of the shareholders, pro rata to their share in the profits of the partnership.
… and starting from 2021
The proposed changes would mean that income generated by limited partnerships and some registered partnerships would be taxed at the level of the partnership itself as a taxpayer for CIT purposes.
An assessment of the planned amendment of the CIT provisions will not be possible until the draft of the amending act is published.
With respect to the partnerships themselves, there are various possible scenarios. It is not yet known whether limited partnerships and registered partnerships qualifying as CIT payers would be placed on an equal footing with companies (sp. z o.o. or SA), or would enjoy preferential CIT rules (such as the so-called “Estonian CIT”).
With respect to the partners of limited partnerships and registered partnerships subjected to CIT, it is possible that the treatment of general partners will be differentiated from that of limited partners by introducing mechanisms for deducting CIT from the tax on distributions of profit and other income from participation in profits. Guidance may be offered here by the regulations on taxation of partners in a joint-stock limited partnership (SKA), which provide different rules for partners with unlimited liability for the partnership’s obligations (general partners) than for those with limited liability (shareholders):
- A general partner (komplementariusz) in a SKA has a right to reduce the tax on dividends and other income obtained from participation in the profits of the SKA by the amount of the SKA’s income tax for the tax year in which the income from the share in the profits was obtained (pro rata to the general partner’s share in the profits of the SKA).
- A shareholder (akcjonariusz) which is a CIT payer (i.e. another SKA, a limited-liability company or a joint-stock company) may enjoy an exemption from CIT on dividends and other income from participation in the profits of the SKA, upon fulfilment of certain conditions. This exemption is not available to a shareholder who is a natural person.
Other solutions preferential to the partners of limited partnerships and registered partnerships that are subject to CIT may also be adopted, potentially depending on the status of the partners (e.g. as natural persons).
The planned changes do not address the rules for the liability of partners in limited partnerships and registered partnerships. In particular, they do not affect the possibility of limiting a limited partner’s personal liability for the obligations of the partnership to the fixed amount known as the limited partner’s “commandite sum.”
The amending bill is expected to be approved by the government in the third quarter of 2020, which means that the legislative process could be completed in compliance with constitutional requirements later in 2020, and thus limited partnerships (and some registered partnerships) could be subject to corporate income tax from 2021 onward.
Joanna Prokurat, tax adviser, Tax practice, Wardyński & Partners