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Conversion of a limited partnership

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Contact us and check whether conversion of your business into a different corporate form will offer a remedy for your business situation

Conversion of a limited partnership

At the end of October 2020, the lower house of the Polish parliament adopted an amendment to the Corporate Income Tax Act, causing many taxpayers to experience déjà vu. Seven years on, a new set of MPs completed the work begun by their political opponents in 2013, by voting to impose income tax on limited partnerships.

As in 2013, the idea of charging income tax on limited partnerships arose somewhat unexpectedly. The bill has passed the Sejm and is now being considered by the Senate, but its final enactment seems a foregone conclusion. It is highly likely that any revisions by the Senate will be rejected and the bill in its current form will be submitted to the President for signing and publication in the Journal of Laws. Consequently, the anticipated changes will give taxpayers a maximum of half a year to prepare for the new reality—assuming that partnerships and their partners take advantage of the interim provisions and begin applying the new tax rules from 1 May 2021.

Half a year is not long from the perspective of business planning, but we believe this is the right moment to conduct a comprehensive analysis of the tax and legal situation of partnerships and the options for potential restructuring.

Are you a partner in a limited partnership?

If you are wondering about how the planned changes will affect your business and how much additional costs they will generate which you must take into account, contact the experts at KR Group. We offer support in analysing the tax and legal situation of limited partnerships and during the process of any restructuring.

By deciding to work with us, you will gain certainty that the business situation of your firm will be examined comprehensively, and the solutions proposed will be tailored to the needs and capabilities of your business.

What sets us apart?

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Individual approach

holistyczne

Holistic view of the client’s business situation

zminimalizowanie

Minimizing the client’s need to be involved in the process

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Comprehensive tax and legal advice

doswiadczenie

A wealth of experience working with market leaders from a range of industries

koncentracja

Recognizing and understanding the needs and expectations of clients

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Analysis of the tax and legal situation of limited partnerships

Using a calculation based on tax figures for 2019, we will conduct a tax and legal analysis to identify the financial consequences of taxation of the partnership.

During the audit, we will verify the possibilities for limiting tax costs, considering available restructuring options and without carrying out any change in corporate form.

Our aim is to facilitate as much as possible the difficult decision on any potential restructuring. The analysis will provide the members of the limited partnership with a proposal of available solutions, with a breakdown of the financial and tax consequences of each option.

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Restructuring

Based on the results of the analysis and the most optimal solution for your business, we will conduct comprehensive implementation of restructuring measures in your partnership.

As part of our support, we also offer assistance in negotiations with customers, suppliers and lenders, and carry out all aspects of conversion of corporate form.

With the help of KR Group, your partnership will be prepared for the new regulations safely, efficiently, and without disruption to your ongoing operations. All measures taken during restructuring can be preceded with the added security of obtaining individual tax interpretations.

FAQ:

When will the new regulations enter into force?

Generally, the amending act would enter into force on 1 January 2021. However, the interim regulations provide for the possibility of postponing application of the new provisions, and thus postponing the imposition of income tax on limited partnerships. Under Art. 12(2) of the bill, the general partner of a limited partnership may decide that the new provisions will be applied to that partnership, and to the revenue and costs connected with participation in the partnership, only from 1 May 2021. If this decision is taken, the limited partnership will become a payer of corporate income tax on 1 May 2021.

Will the changes impact taxation for earlier periods?

The adopted changes will not affect the manner of taxation of preceding periods in which the limited partnership operated. These changes involve only taxation of income earned by limited partnerships in the future.

How should partnerships settle their taxes for 2020/2021?

Each limited partnership will be required to close out its accounting books at the end of the day before the date when it obtains the status of a payer of corporate income tax. If a limited partnership decides to postpone its taxation until 1 May 2021, and the last day of its financial year falls between 31 December 2020 and 31 March 2021, the partnership may decide not to close out its accounting books on that date, but extend its financial year through 30 April 2021.

How long does the tax and legal analysis take?

The tax and legal analysis is conducted over the course of 10–15 business days. The exact length of the analysis will depend on the complexity of your business and the need to assemble all essential data, documents and information.

How long does the corporate conversion of the partnership take?

Conversion of a limited partnership takes one to three months.

Is conversion the only solution?

Whether conversion of the corporate form of the limited partnership is the best solution for your business will be examined during the comprehensive tax and legal analysis. The ultimate decision will depend on such factors as the complexity of your business and the level of its revenue and costs.

Is taxation of limited partnerships a foregone conclusion?

In line with the legislative process in place in Poland, the bill must still be voted on by the Senate, which has 30 days to adopt amendments to the bill, adopt the bill without amendments, or reject the bill in its entirety. However, amendment or rejection by the Senate will lead to reconsideration of the bill by the Sejm. The Sejm can then reject the Senate’s amendments or the Senate’s refusal to approve the bill. Given the current balance of political forces in the Sejm, it does not appear that the Senate has any real chance to block final adoption of the act. Additionally, because acts amending laws involving taxes settled on an annual basis must be published at least one month before the beginning of the tax year, it should be anticipated that the act will be signed by the President and published in the Journal of Laws by the end of November 2020.

When will the new regulations enter into force?

Generally, the amending act would enter into force on 1 January 2021. However, the interim regulations provide for the possibility of postponing application of the new provisions, and thus postponing the imposition of income tax on limited partnerships. Under Art. 12(2) of the bill, the general partner of a limited partnership may decide that the new provisions will be applied to that partnership, and to the revenue and costs connected with participation in the partnership, only from 1 May 2021. If this decision is taken, the limited partnership will become a payer of corporate income tax on 1 May 2021.

Will the changes impact taxation for earlier periods?

The adopted changes will not affect the manner of taxation of preceding periods in which the limited partnership operated. These changes involve only taxation of income earned by limited partnerships in the future.

How should partnerships settle their taxes for 2020/2021?

Each limited partnership will be required to close out its accounting books at the end of the day before the date when it obtains the status of a payer of corporate income tax. If a limited partnership decides to postpone its taxation until 1 May 2021, and the last day of its financial year falls between 31 December 2020 and 31 March 2021, the partnership may decide not to close out its accounting books on that date, but extend its financial year through 30 April 2021.

How long does the tax and legal analysis take?

The tax and legal analysis is conducted over the course of 10–15 business days. The exact length of the analysis will depend on the complexity of your business and the need to assemble all essential data, documents and information.

How long does the corporate conversion of the partnership take?

Conversion of a limited partnership takes one to three months.

Is conversion the only solution?

Whether conversion of the corporate form of the limited partnership is the best solution for your business will be examined during the comprehensive tax and legal analysis. The ultimate decision will depend on such factors as the complexity of your business and the level of its revenue and costs.

Is taxation of limited partnerships a foregone conclusion?

In line with the legislative process in place in Poland, the bill must still be voted on by the Senate, which has 30 days to adopt amendments to the bill, adopt the bill without amendments, or reject the bill in its entirety. However, amendment or rejection by the Senate will lead to reconsideration of the bill by the Sejm. The Sejm can then reject the Senate’s amendments or the Senate’s refusal to approve the bill. Given the current balance of political forces in the Sejm, it does not appear that the Senate has any real chance to block final adoption of the act. Additionally, because acts amending laws involving taxes settled on an annual basis must be published at least one month before the beginning of the tax year, it should be anticipated that the act will be signed by the President and published in the Journal of Laws by the end of November 2020.

When will the new regulations enter into force?

Generally, the amending act would enter into force on 1 January 2021. However, the interim regulations provide for the possibility of postponing application of the new provisions, and thus postponing the imposition of income tax on limited partnerships. Under Art. 12(2) of the bill, the general partner of a limited partnership may decide that the new provisions will be applied to that partnership, and to the revenue and costs connected with participation in the partnership, only from 1 May 2021. If this decision is taken, the limited partnership will become a payer of corporate income tax on 1 May 2021.

Will the changes impact taxation for earlier periods?

The adopted changes will not affect the manner of taxation of preceding periods in which the limited partnership operated. These changes involve only taxation of income earned by limited partnerships in the future.

How should partnerships settle their taxes for 2020/2021?

Each limited partnership will be required to close out its accounting books at the end of the day before the date when it obtains the status of a payer of corporate income tax. If a limited partnership decides to postpone its taxation until 1 May 2021, and the last day of its financial year falls between 31 December 2020 and 31 March 2021, the partnership may decide not to close out its accounting books on that date, but extend its financial year through 30 April 2021.

How long does the tax and legal analysis take?

The tax and legal analysis is conducted over the course of 10–15 business days. The exact length of the analysis will depend on the complexity of your business and the need to assemble all essential data, documents and information.

How long does the corporate conversion of the partnership take?

Conversion of a limited partnership takes one to three months.

Is conversion the only solution?

Whether conversion of the corporate form of the limited partnership is the best solution for your business will be examined during the comprehensive tax and legal analysis. The ultimate decision will depend on such factors as the complexity of your business and the level of its revenue and costs.

Is taxation of limited partnerships a foregone conclusion?

In line with the legislative process in place in Poland, the bill must still be voted on by the Senate, which has 30 days to adopt amendments to the bill, adopt the bill without amendments, or reject the bill in its entirety. However, amendment or rejection by the Senate will lead to reconsideration of the bill by the Sejm. The Sejm can then reject the Senate’s amendments or the Senate’s refusal to approve the bill. Given the current balance of political forces in the Sejm, it does not appear that the Senate has any real chance to block final adoption of the act. Additionally, because acts amending laws involving taxes settled on an annual basis must be published at least one month before the beginning of the tax year, it should be anticipated that the act will be signed by the President and published in the Journal of Laws by the end of November 2020.

Katarzyna_team

Katarzyna Adamowicz

Head of Tax

T: (+48) 22 262 81 29
@: k.adamowicz@krgroup.pl

Jakub_Skiba

Jakub Skiba

Corporate Services Manager

T: (+48) 22 262 81 73
@: j.skiba@krgroup.pl

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Pursuant to the Personal Data Protection Act of 29 August 1997 (Journal of Laws Dz.U. 2016 item 922, as amended), I consent to receive commercial and marketing information from KR Group sp. z o.o. sp. k. with its registered office at ul. Skaryszewska 7, 03-802 Warsaw, and to introduction into the database and processing by KR Group sp. z o.o. sp. k. of my personal data provided in this form. I also acknowledge that my consent is voluntary and that I have the right to review, correct or remove my data.

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