Entities operating in special economic zones are entitled to exemption of income earned from income tax. The exemption applies not only to taxpayers operating in the form of a limited liability company or joint stock company, but also in the form of partnerships, such as general or limited partnerships. In the case of partnerships, each partner benefits from the exemption separately. Doubts about the rules for using the exemption arise when a new partner joins the partnership or an existing partner withdraws from it.

Example

Four partners operate as a general partnership in the Suwałki special economic zone. The business is conducted on the basis of a permit issued by the Minister responsible for the economy. The income of each partner derived from activity within the zone enjoys exemption from personal income tax. One of the partners intends to withdraw from the partnership. Does a partner's withdrawal from the company cause him to lose his income tax exemption for the period when he was a partner in the company?

The above exemption is provided for by the provision of Article 21, paragraph 1, item 63a of the Act of July 26, 1991 on Income Tax on Natural Persons (consolidated text: Journal of Laws of 2000, No. 14, item 176, as amended), hereinafter referred to as the P.D.o.f. Act. Pursuant to this provision, "taxpayers' income earned from business activities conducted in the special economic zone on the basis of the permit referred to in Article 16, paragraph 1 of the Act of October 20, 1994 on Special Economic Zones (Journal of Laws No. 123, item 600, as amended) is exempt from income tax, however, the amount of public aid granted in the form of this exemption may not exceed the amount of public aid to the entrepreneur, allowed for areas eligible for aid in the highest amount, in accordance with separate regulations."

Regulations on individual special economic zones located in various places in Poland detail the rules for granting exemptions. As a rule, this is regulated in the provision of § 5 of these ordinances. For example, according to the provision of § 5 of the Ordinance of the Council of Ministers of September 14, 2004 on the Suwałki Special Economic Zone (Journal of Laws of 2004, No. 224, item 2271, as amended), an exemption from income tax on the costs of a new investment is granted to an entrepreneur, starting from the month in which he incurred investment expenditures in the period from the date of obtaining a permit, until the exhaustion of permissible regional aid, provided that:

1. will not transfer in any form the ownership of the assets to which the investment expenditures were related - for a period of 5 years from the date of entry into the records of tangible and intangible assets, as defined by the provisions on income tax;
2. will be in business for not less than 5 years.

As can be seen, the provisions on exemptions in both the Law on p.d.o.f. and the provisions in the detailed regulations on individual economic zones do not make the right to grant an exemption dependent on the composition of the company. What is important is that the company conducts its activities in accordance with the rules for conducting business in the special economic zone.

Also, the regulations governing the granting of permits to operate in the special economic zone do not refer to the case of a change in the composition of a general partnership. This means that the withdrawal of a partner from the company will not result in the revocation of the permit for the remaining partners in the company to operate in the zone.

A permit is the basis for operation in a special economic zone. Permits are granted, revoked and amended by the Minister of Economy. The permit is issued on the basis of Article 16 of the Law on Special Economic Zones and specifies the subject of economic activity and conditions concerning, in particular:

1. employment of a certain number of employees by the entrepreneur when conducting business in the zone for a certain period of time.
2. making an investment by an entrepreneur in the zone with a value exceeding a certain amount.

Article 19(3) of the Law on Special Economic Zones stipulates that a permit may be revoked or the scope or subject of activity specified in the permit may be restricted if the entrepreneur:

1. discontinued in the zone the business activity for which he had a permit, or
2. grossly violated the conditions set forth in the permit, or
3. did not remove the deficiencies found in the course of the inspection referred to in Article 18, within the time limit for their removal set in the summons of the Minister responsible for economic affairs.

Whenever a partner withdraws from a general partnership, the situation of the partnership must be resolved in accordance with the provisions of the Law of September 15, 2000. - Commercial Companies Code (Journal of Laws No. 94, item 1037, as amended), hereinafter referred to as the "Commercial Code". It should be examined whether the withdrawal of a shareholder does not result in the dissolution of the company. According to Article 58 of the above-mentioned Commercial Code, dissolution of the company causes:

1. reasons provided for in the articles of association.
2. A unanimous resolution of all shareholders.
3. declaring the company bankrupt.
4. The death of the partner or the declaration of his bankruptcy.
5. termination of the partnership agreement by a partner or a creditor of a partner.
6. A final court decision.

Article 59 of the Commercial Code, however, stipulates that a company shall be deemed to be extended indefinitely if, despite the existence of the reasons for dissolution stipulated in the contract, it carries on its business with the consent of all shareholders.

It should also be borne in mind that if the operating company in the special economic zone is a two-person general partnership, then the withdrawal of a partner is cause for dissolution of the company. This is because a general partnership can exist if there are more than two partners.
Considering the above, from the point of view of tax regulations, the condition for exemption from income tax on income from business activities conducted in a special economic zone is the possession of a permit to conduct business in the zone. The withdrawal from the company of any of the partners will not cause him to lose the right to exemption of income, obtained for the period when he was a partner of the company, from personal income tax,. Entitlement to the exemption shall be vested in the remaining partners of that company during the period of validity of the permit, provided that the company continues to operate after the withdrawal of the partner.
New partners joining a company while it is operating in a special economic zone will also be entitled to exemption from income tax.

Legal basis: the Act of July 26, 1991 on personal income tax (Journal of Laws No. 14, item 176, as amended), the Act of October 20, 1994 on special economic zones (Journal of Laws No. 123, item 600, as amended), the Act of September 15, 2000 on the Code of Commercial Companies. - Code of Commercial Companies (Journal of Laws No. 94, item 1037 as amended).