Since limited partnerships became subject to corporate income tax (CIT), their tax advantage has disappeared. If you run a Polish limited partnership, you have three options: stay with it, convert it into a limited liability company, or move to a general partnership. The choice depends on two things: the tax rate and the level of liability you are prepared to accept.
Taxation of limited partnerships, limited liability companies and general partnerships
The changed taxation of limited partnerships is the main reason to consider a conversion. Below you will find the actual combined tax rates, after adding CIT and personal income tax (PIT), for each of the three forms.
You can find a detailed description of limited partnership taxation here.
Tax rates for a limited partner in a limited partnership
- Limited partnership without a limited liability company as its general partner, revenue below EUR 2 million: the limited partner’s combined taxation is approximately 25%. It depends on the amount of income and use of the relief, with a maximum deduction from income of PLN 60,000.
- Limited partnership with a limited liability company as its general partner, revenue below EUR 2 million: the limited partner’s combined tax is approximately 26.3%.
- Revenue above EUR 2 million: the rate rises to 33% or more, depending on whether the structure includes a limited liability company.
The general partner pays 19% in all variants.
Tax rates in a limited liability company and a general partnership
- Limited liability company (income of PLN 500,000, revenue below EUR 2 million): actual rate of 26.29%.
- General partnership (income of PLN 500,000, revenue below EUR 2 million): actual rate of 19%.
Comparison at the same income
At income of PLN 500,000, assuming that the limited partner has a 50% share in profit, the rate in a limited partnership is 26.29%, the same as in a limited liability company.
| Company form | 9% CIT (actual rate) | 19% CIT (actual rate) |
|---|---|---|
| Limited partnership | ~26.29% | 33.25-34.39% |
| Limited liability company | ~26.29% | ~34.39% |
| General partnership | 19% | 19% |
What follows from this
- A limited partnership without a limited liability company, at 9% CIT, is taxed identically to a limited liability company and at the same time is less advantageous than a general partnership. This applies to partners who are individuals.
- At 19% CIT, limited partnerships and limited liability companies also have similar rates, at 33-34%.
- A general partnership retains a fixed 19% rate regardless of the amount of income.
- At higher amounts, the difference between a general partnership and the other forms reaches a dozen or so percentage points.
Liability in a limited liability company, limited partnership and general partnership
A general partnership is more favourable for tax but less favourable in terms of liability. This is the second factor to consider when deciding whether to convert.
General partnership: full liability
- Partners are liable on a subsidiary basis, with all their assets.
- In practice, this means liability for all unpaid company debts, without a monetary limit.
Limited partnership: liability depends on the role
- General partner: bears full liability. It can be limited by using a structure with a limited liability company as general partner. Details are available here.
- Limited partner: is liable only up to the limited partner’s liability limit (suma komandytowa), for example PLN 500. In practice, this liability is negligible.
Limited liability company: limited liability
- Shareholders are not liable, apart from their contributions.
- Management board members may be liable for the company’s debts, but the law provides specific grounds for release from that liability. Details are available here.
- In practice, it is possible for shareholders and management board members to have no liability at all.
General principle
The lower the taxes, the higher the personal liability. The tax benefits of a general partnership are balanced by the partners’ asset risk.
Which option is more advantageous: decision rules
It is not possible to have both low taxes and limited liability, as was possible under the former limited liability company and limited partnership structure before it became subject to CIT.
Use the following rules:
- If your company qualifies for 9% CIT, convert the limited partnership into a limited liability company. The tax will be identical, while liability will be significantly lower.
- If you pay CIT at 19% and operate as a limited liability company and limited partnership structure, consider simplifying it to an ordinary limited liability company. Taxation will stay at the same level, while you will reduce formalities and costs, for example by having one accounting service instead of two.
- If your business does not involve liability risk, move to a general partnership. The tax benefit, 19% versus 26-34%, is the greatest of all the options.
- If you are not sure which option suits your situation, consult an adviser who will analyse your business model, risk level and revenue structure.
Frequently asked questions
Is it still worth keeping a limited partnership now that it is subject to CIT? In most cases, no. At 9% CIT, a limited partnership is taxed at approximately 26.29%, exactly like a limited liability company, but with weaker protection against liability. If you pay CIT at 19%, the situation is similar: the limited partnership no longer offers a tax advantage and generates additional costs and formalities.
What is the actual tax difference between a limited partnership, a limited liability company and a general partnership? At 9% CIT, a limited partnership and a limited liability company have the same actual rate, approximately 26.29%, while at 19% CIT both forms produce 33-34%. A general partnership is taxed at a fixed 19% regardless of income, which at higher amounts means a difference of a dozen or so percentage points in favour of the general partnership.
Which of these forms most limits the liability of shareholders and management board members? A limited liability company offers the broadest protection: shareholders are not liable beyond their contributions, and management board members may be released from liability if specific conditions are met. In a limited partnership, a limited partner is liable only up to the limited partner’s liability limit (suma komandytowa), for example PLN 500, while in a general partnership the partners are liable with all their assets, without a monetary limit.
When is it more advantageous to convert a limited partnership into a limited liability company, and when into a general partnership? If your company qualifies for 9% CIT, or you pay CIT at 19% in a limited liability company and limited partnership structure, convert into a limited liability company: the tax will stay at the same level, while you will gain lower liability and simpler formalities. If your business does not involve asset liability risk, move to a general partnership: the tax benefit is 7 to 15 percentage points compared with the other forms.
Does a limited partnership at 9% CIT offer any advantage over a limited liability company today? No. At 9% CIT, the actual tax rate for a limited partner in a limited partnership is approximately 26.29%, exactly the same as in a limited liability company. However, a limited liability company offers significantly better protection against liability, which means that keeping a limited partnership at the same tax rate has no business justification.
