Double taxation of limited partnerships: how to get out of the problem

As of 1 January 2021, limited partnerships will be subject to CIT in Poland. This means that both the partnership and its partners will have to pay the tax. Many of them are wondering how to avoid double taxation and pay the tax only at the level of partners. Why are not all methods cost-effective? Let’s find out.

Transformation into a registered partnership or a professional partnership

In order to avoid double taxation, many partners in limited partnerships transform it into a registered partnership or a professional partnership.

However, this decision has consequences. Choosing a registered partnership, they will avoid taxation at the level of the partnership, but will have to disclose all of the partners. More importantly, all partners will be liable for the partnership’s obligations with their personal assets.

An advantage of a professional partnership is that the partners do not have to be disclosed. The principles of liability are also different, as a partner is not liable for the partnership’s obligations arising in connection with other partners performing their professions. Unfortunately, a professional partnership is a viable option only for natural persons who perform a so-called liberal profession.

Transformation into a general partner

Another method allowing for decreasing tax burdens, this time at the level of partners, is transforming a limited partner into a general partner and changing his role in the partnership. As a result, the partner will be able to deduct from his tax the tax paid by the limited partnership (and specifically, the product of the partner’s percentage share in the partnership’s profit and the tax due on the income of the partnership). On the downside, a general partner is liable for the partnership’s obligations with his personal assets.

Acquiring the status of an Alternative Investment Company

Another solution is operating a business in the form of a limited partnership having the status of an Alternative Investment Company (AIC). However, this solution is available only to certain entities, as the only area of operations of an AIC may be investment operations. Under Article 17.1.58a of the Polish CIT Law, the status of an AIC allows for income tax exemption. Unfortunately, the exemption applies only to the revenue of an AIC that is generated on selling shares. This means that other income is taxed. It will also be necessary to incorporate a new limited partnership and a managing company or partnership, and to get entered into the relevant register or receive a permission from the Polish Financial Supervision Authority.

Not sure how to deal with double taxation? We will be happy to help. Contact us:

• Paulina Opiełka: paulina.opielka@kwkr.pl; + 48 511 458 139
• Monika Kapijas: monika.kapijas@kwkr.pl; +48 517 546 410
• Dawid Stalmach: dawid.stalmach@kwkr.pl; +48 572 360 631
• Mateusz Sordyl: mateusz.sordyl@kwkr.pl; +48 723 923 405