Poland: Partnerships to pay corporate income tax beginning in 2021

Poland: Partnerships to pay corporate income tax

Legislation published in the official gazette on 30 November 2020 revises the income tax laws for individuals and corporations (as well as certain other laws) and changes the Polish income tax rules regarding:

  • An extension of corporate income tax treatment to limited partnerships and certain general partnerships
  • A requirement to prepare and publish a report on a tax strategy executed by certain taxpayers
  • The opportunity to apply an alternative corporate income tax scheme (the so-called “Estonian corporate income tax”)

Limited partnerships and certain general partnerships to be treated as corporate income taxpayers

Beginning 1 January 2021 (except limited partnerships can elect a 1 May 2021 effective date), the following entities will pay corporate income tax:

  • Limited partnerships having their registered office or place of management in the territory of Poland
  • Certain general partnerships having their registered office or place of management in Poland

Essentially, this means that the income generated by limited partnerships (and certain general partnerships) which, up to now, have been treated for corporate income tax purposes as tax-transparent entities, are subject by corporate income tax at the partnership level and to the individual income tax or corporate income tax at the partner level.

The new legislation provides a tax exemption on the portion of revenue earned by limited partners through shares in a limited partnership, subject to a cap of PLN 60,000 annually. In turn, general partners will be able to deduct the income tax, calculated based on the income from the participation in the limited partnership's profits, by the amount of tax already paid by the partnership, proportionally encumbering the general partner's profit obtained from the participation in such partnership. However, the exemption will not apply in situations when the nature of relationships between general partners in limited partnerships or the manner in which the limited partnership is managed would suggest that the partners' primary intention is tax optimization.

Report on executed tax strategies

A new requirement for certain taxpayers is to prepare and publish a report on an executed tax strategy, specifically:

  • Taxpayers with revenue exceeded €50 million in the tax year
  • Tax capital groups

The report must include certain information such as controlled transactions, the value of which exceeds 5% of the balance sheet assets and when applications for declaratory and binding rulings, binding rate information, and binding excise information are submitted. The report is to be filed within 12 months from the end of the tax year. This means that taxpayers having the tax year coinciding with the calendar year in general will have to present the information on the tax strategy executed in 2020 by the end of 2021.

Flat rate of tax on income

Other changes, applicable as of 1 January 2021, include the implementation of the solution commonly referred to as “Estonian corporate income tax” (a flat tax rate on income of capital companies).

The Estonian corporate income tax regime can applied by companies satisfying certain criteria, such as:

  • The company filed a notification for flat-rate tax treatment with the applicable tax office by the end of the first month of the first tax year in which the solution is to become applicable.
  • The total operating income in the previous tax year or the value of average operating income did not exceed PLN 100 million.
  • The shareholders are only natural persons.

Other rules provide that these companies may not:

  • Hold shares in other companies’ capital
  • Hold participation units in an investment fund or a mutual fund
  • Hold general rights and obligations in a company that is not a legal person or other property rights related to the right to receive a benefit as an originator/founder or beneficiary of a foundation, trust or other entity
  • Maintain fiduciary relationships

Also, revenue from passive activities (such as interest, sureties and sale or implementation of financial instruments) will need to constitute less than half of total revenues.

Other changes

Other measures in the legislation:

  • Extend the application of the arm's length principle, especially when the beneficial owner is located in a tax haven jurisdiction (i.e., a country or territory employing harmful tax competition)
  • Shift the obligation to pay tax on the sale of shares in real estate companies to the real estate company
  • Increase (from €1.2 million to €2 million) the upper limit of revenue earned in the current fiscal year for taxpayers applying the reduced 9% corporate income tax rate
  • Allow individual income taxpayers to benefit from the tax exemption on revenues from commercial buildings
  • Increase the upper revenue limit for flat-rate taxation to €2 million and the revenue limit entitling for quarterly flat-rate payments

Read a November 2020 report [PDF 250 KB] prepared by the KPMG member firm in Poland

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