Limited partnerships to be taxed
as of May 2021 under Corporate Income Tax (CIT) rules
The Minister of Development Funds and Regional Policy announced that as of next year limited partnerships, similarly to companies and limited joint-stock partnerships, will be subject to corporate income tax.
Due to the difficult economic situation entrepreneurs have been given time until the end of April to acquaint themselves with the proposed changes. The new law will be applicable from May, although most of its solutions could take effect as of 1 January 2021. It means that entrepreneurs running limited partnerships will face some big changes in how they conduct their business.
Why limited partnerships will have been taxed under corporate income tax?
According to the Ministry of Finance, such a solution is crucial, as current regulations regarding limited partnerships exhibit inaccuracies. Audits conducted by the Ministry have indicated that those who decide on forming a limited partnership subsequently avoid paying taxes. This, in turn, leads to reducing the competitiveness of companies and lower revenue of the Treasury. However, a stricter control of limited partnerships is not the only benefit of the new law legislators foresee. The new regulation will also include a maximum abolition tax relief deduction amount, as well as the increase of a revenue limit for current fiscal year enabling entrepreneurs to benefit from a reduced corporate income tax rate.
The opponents of the proposed solution point out that avoiding taxation is a rare reason for choosing a limited partnership. They also call for attention to the high risk of bankruptcy and going out of business for those who will have to adjust to the new regulations and pay corporate income tax. At the same time, they argue that the time to familiarize oneself with the new regulations is too short to properly prepare oneself for the changes to come, even if the law should take effect in May 2021. Moreover, the timing of the announcement of the amendment didn’t go unnoticed, as many businesses are and for the next several months will be struggling financially due to the current economic situation caused by the pandemic.
The changes to come
The new regulation involves changes in legislation regarding:
Personal Income Tax Act
Corporate Income Tax Act
Act on the Lump-sum Income Tax on Certain Revenue Earned by Individuals
In accordance with the announcement, entrepreneurs running limited partnerships are going to have to pay income tax in the amount of 19% beginning with May 2021. The proposed changes also include raising the revenue limit for the current fiscal year which allows a lower CIT in the amount of 9% to 2 million EUR. Similarly, the flat rate limit would also be raised to 2 million EUR.
Another change encouraging running business in Poland is the introduction of 1,360 PLN limit on the tax abolition relief. According to the analysis of the Ministry of Finance, current tax abolition relief is not satisfactory enough for the entrepreneurs to conduct profitable business activity in Poland.
For entrepreneurs whose revenue for the previous fiscal year did not exceed 50 million EUR, and for tax capital groups despite their revenue, the proposed changes would mean the obligation to declare their tax accounting method. All of these changes remain a subject of debate with entrepreneurs.