Profit received by SP z o.o. Taxed twice-first CIT and then PIT. What is the mechanism and how can it be mitigated?
◾ Taxation of partners in a limited liability company
First of all, the company’s income is Sp. z o.o. (i.e. Excess of income over costs) is subject to corporate tax at the corporate level (CIT) at a rate of 19% or 9%. The rate of 9% was introduced from the 2019 of the year. After the profit tax is paid, the company’s income for the reporting period may be repaid to shareholders as dividends. Partners pay 19% of the dividends paid. Company Sp. z o.o. Responsible for tax collection. The shareholders receive the payment in net amount (net of tax). It should be remembered that payment of dividends to shareholders who are taxpayers of CIT may be exempt from taxation under certain conditions. However, this does not solve the problem, because for each, even the most difficult structure of the holding, there are individuals who cannot take advantage of this exemption.
◾ How to use a single tax?
The simplest “way” to avoid double taxation is not to pay profits to shareholders. The disadvantage of this decision is obvious. From our experience we know that a frequent solution to the problem of double taxation is to provide the company with various services (e.g. marketing or consulting) and to pay the company to shareholders instead of paying dividends for these services. The service fee may be taken into account by the company as a tax expense and, as a consequence, will reduce CIT. Operations between the company and the shareholders, however, are a standard goal for the tax inspectorate and are risky, especially when it is difficult to prove that the partners did provide these services. In our opinion, in most cases the best solution to this problem is to convert Sp. z o.o. To the team community. However, if the conversion to a limited partnership cannot be considered for business reasons, other methods may be used to minimize the tax on the payment of profits placed in the company Sp. z o.o. The shareholders of Sp. z o.o. are not liable for the company’s tax arrears, unless they are also members of the board of Directors. In accordance with the tax code, members of the Board of the company Sp. z o.o. (whether they are named president, Vice-President or member of the board) may be required to pay taxes that the company is not able to pay. A member of the Board may withdraw this responsibility only if he proves that he has filed a timely application for bankruptcy of the company or if he proves that the failure to submit the application was committed without his guilt.