Entrepreneurs earning income from participation in limited joint-stock partnerships do not have to settle with the tax authorities according to the tax scale. They can opt for a flat tax

The rules for limited joint-stock partnerships are set forth in Articles 125 - 150 of the Commercial Companies Code (CCC). According to them, a limited joint-stock partnership is an unincorporated partnership that combines elements of a limited partnership and a joint-stock company. The general partners are liable to creditors for the company's obligations without limitation, the shareholders are not liable. The latter participate in the company through a capital contribution, for which they receive shares. General partners and shareholders can be both natural and legal persons.

Taxpayers are partners

A limited joint-stock partnership is not subject to corporate income tax. Its partners - both general partners and shareholders - are subject to taxation under the rules set forth in the Personal Income Tax Law (hereinafter the PIT Law). Thus, partners of a limited joint-stock partnership are subject to taxation under the same rules as partners of other partnerships.

Income earned from participation in a limited joint-stock partnership should be determined by the general partners and shareholders in proportion to their share of the partnership's profits, as stated in Article 147 § 1 of the Code of Commercial Partnerships and Companies, unless the Articles of Association provide otherwise. Pursuant to Article 8 of the PIT Law, income from participation in a company that is not a legal entity for each shareholder shall be determined in proportion to his right to share in the profit. These rules apply accordingly to:

• Accounting for deductible expenses, non-deductible expenses and losses,
• Tax benefits related to operations in the form of a non-corporate company.

In practice, the determination of the income of the partners is carried out first by calculating the income for the entire company on the basis of the books of account. Only then is the distribution of the company's income thus determined among the individual partners carried out, according to their share of profits (losses). In the legal sense, it is the partner who earns income and incurs expenses related to the operation of the company, while in practice it is the company that earns income and incurs certain expenses.

Form of taxation

Income earned by partners is treated as business income. Partners may be taxed on a general basis, or they may opt for a 19% flat tax. This possibility was pointed out by the Tax Office of Warsaw - Targówek.

How to calculate income

A limited joint-stock partnership, as a commercial company, is required to keep books of account. It therefore determines the amount of income in the manner provided for in Article 24(1) of the PIT Law. This provision states that for taxpayers who prepare financial statements in accordance with the accounting principles applicable to them, income from business activities is considered to be the income shown on the basis of properly kept books, reduced by tax-free income and increased by expenses that do not constitute tax deductible expenses previously charged to tax expenses.

Advance tax payments

Article 44 of the PIT Law applies to both general partners and shareholders. This provision says that general partners and shareholders are required to pay advance payments of income tax during the year. The advances should be calculated according to the rules set forth in Article 44(3) of the Law and paid by the 20th of the month for the previous month. The advance payment for December must be paid by December 20 of the tax year in the amount due for November.

Income (losses) earned in a tax year shall be reported by general partners and shareholders in tax returns filed with the appropriate tax office by April 30 of the year following the tax year.

Contribution in kind and its valuation

In practice, numerous doubts often arise. They concern, among other things, whether making a contribution-in-kind to a limited joint-stock partnership gives rise to income subject to personal income tax. Article 17(1)(9) of the PIT Act recognizes as income from cash capitals the nominal value of shares (stocks) in an incorporated company or contributions in a cooperative taken in exchange for an in-kind contribution. Since a limited joint-stock partnership is classified as a partnership, the contribution should not result in taxable income.

The initial value of the in-kind contribution shall be determined by the partners as of the date of its contribution, with the proviso, however, that it may not be higher than the market value as of the date of the contribution.

Disposal of assets

Income from the disposal of assets contributed to a limited joint-stock partnership must be allocated to the partner in proportion to his share of the profit. Tax-deductible expenses for the purposes of this transaction shall be determined at the value at which the contribution was valued in the Articles of Incorporation.

Redemption of shares

Due to the personal nature of a limited joint-stock partnership, any income of the partnership's shareholders received as a result of the redemption of their shares through acquisition by the partnership is tax-free. The exemption is available up to the amount of their contribution to the company (Article 21(1)(50) of the PIT Law).

Withdrawal of a partner from the company

If a partner withdraws from the company, there will be an obligation to settle the partner's capital share. This is stated in Article 65 of the Commercial Companies Code. For this purpose, it is necessary to prepare a separate balance sheet, taking into account the value of the company's assets. The capital share calculated in this way should be paid to the shareholder in money, and the things brought in - returned in kind. Only income from returned contributions will be exempt from personal income tax, and only in an amount equal to the value of the contributions made.

Remember to notify the office

Can a shareholder of a limited joint-stock partnership choose to be taxed on income from non-agricultural activities at a 19% flat rate?

According to the Warsaw-Targówek Tax Office, there is no obstacle to taxation at the 19 percent rate for taxpayers who are partners in unincorporated companies (both civil partnerships and commercial partnerships). These companies do not have the status of taxpayers - the partners of these companies are the taxpayers.

According to Article 8(1) of the PIT Law, income from participation in a non-corporate company, joint ownership, joint venture, joint possession or joint use of property or property rights for each taxpayer is determined in proportion to his right to share in the profit. Therefore, there is no obstacle to the taxation of income from non-agricultural business activities at a rate of 19 percent for partners of non-corporate companies. The income of a partner of such a company, being an individual, is included in the source of income, which is non-agricultural business activity.

Taxpayers may choose to tax income from non-agricultural business activities in accordance with the rules set forth in Article 30c of the Law (that is, at a rate of 19 percent). In this case, they are obliged to submit to the competent head of the tax office by January 20 of the tax year (this year by January 21, because the deadline is postponed) a written statement on the choice of this method of taxation, and if the taxpayer begins conducting non-agricultural business activity during the year - by the day preceding the date of commencement of the activity, but no later than the date of obtaining the first income. Lack of such a statement or submission of it after the deadline will result in the taxpayer being taxed in a given tax year according to the scale specified in Article 27 of the PIT Law (Interpretation of March 5, 2007, ref. 1437/ZDD/423/431/HL/2006/2007).