Taxes in general partnership in 2023

Taxes in general partnership in 2023
Marek Cieślak

Marek Cieślak

CEO CGO Finance

The year 2023 brings significant changes when it comes to taxes in a general partnership. They result, for example, from changes introduced as part of the Polish Deal. Therefore, in order to avoid the so-called double taxation, some general partnerships must submit the CIT-15J form. What else do company owners need to remember as far as taxes in general partnership are concerned in 2023? See below.

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General partnership – tax transparency

The idea of tax transparency in connection with income tax may come up in the context of a general partnership. The partnership is not a separate tax entity. Each partner recognizes and taxes the income and expenses generated by the partnership in proportion to the owned shares. The partners combine it further with other profits. So, the partnership does not have to file tax returns for income tax or pay taxes. It only provides information to the partners, who must include it in their tax filings. The partnership’s profit is only taxed once. Subsequent distribution of profits to partners is not subject to further taxation.

Depending on their status, partners in a general partnership pay either PIT or CIT. Personal income tax is paid by natural persons. Legal entities must pay corporate income tax. The PIT Act treats income from participating in a general partnership as income from business activity. Partners who are natural persons can tax their income using the tax scale, a flat tax rate, or, in some cases, a lump-sum tax on registered revenues.

Taxation forms for general partnerships

The basic form of taxation for natural persons is tax scale. Its main feature is tax progressiveness. This means that the applicable tax rates depend on the amount of income. The rates are 12% for income up to 120,000 PLN per year and 32% for the excess amount. There is also a tax-free amount which is 30 000 PLN per year.

For partners in a general partnership, income serves as the basis for calculating health insurance contributions. This is the case regardless of the tax settlement method. In the case of the tax scale, the health insurance contribution rate is 9%. It is calculated based on the income earned in the previous month, assuming it isn’t lower than the minimum salary in the given year.

Another form of taxation is the flat tax, which is 19% regardless of income level. Under the flat tax, the health insurance contribution is calculated on the same basis as in the tax scale. However, the rate is 4.9%.

It’s worth noting that income taxed under the tax scale and the flat tax is included in the tax base of the solidarity levy. Its rate amounts to 4%. The levy is calculated on income exceeding a total amount of 1 million PLN per year.

In the case of a general partnership, if its revenue in the previous year didn’t exceed the equivalent of 2 million euros, partners may opt for lump-sum tax on registered revenue. The only condition is a unanimous agreement of all partners. Unlike the tax scale and flat tax, the lump-sum tax applies to revenues without taking into account tax-deductible expenses. The lump-sum rates range from 2% to 15%  depending on the type of business activity.

The health insurance contribution for the lump-sum taxpayers depends on the entrepreneur’s revenues. It is calculated based on 60%, 100%, or 180% of the average salary. The value depends on annual revenues that, respectively, are lower than 60 000 PLN, 300 000 PLN, or exceed 300 000 PLN. The contribution rate is 9%.

In all the above forms of taxation, partners who are natural persons are also subject to mandatory social insurance.

It is important to note that tax transparency applies only to income tax. A general partnership, as a separate legal entity, may also be subject to other taxes. For example: VAT,  tax on civil law transactions or property tax. The partnership must submit declarations and settle its tax liabilities in these areas.

General partnership as a CIT taxpayer – is it possible?

A general partnership is not subject to income tax in most cases.

However, it becomes a corporate income taxpayer (CIT) under certain conditions. Firstly, the partnership must have its registered office or management in Poland. Additionally, if partners of the general partnership are both natural persons and other entities, and the partnership has not submitted information about CIT and PIT taxpayers entitled to share in the profits of the partnership before the start of the financial year, the general partnership becomes a CIT taxpayer.

Moreover, if partner in a general partnership chooses the flat rate of PIT, all his business income will be taxed at this rate.

In the case of a company that is not a CIT taxpayer, the individual partners of the company are income taxpayers. Each partner pays personal income tax, or corporate income tax if the partner is a CIT taxpayer. Income resulting from participation in a general partnership is treated in the context of PIT as business income. Each partner recognizes income related to the general partnership in proportion to his share of the partnership’s profits.

What tax changes should you consider in 2023? Check in this article.

Accounting in a general partnership

A general partnership can maintain various types of accounting records, such as:

  • revenue and expense ledger,
  • full accounting (accounting books),
  • revenue records, if the partners decide to opt for a lump-sum tax on registered revenues.

It is worth noting that a general partnership must keep full accounting in the following cases:

  • if its net revenues exceed 2 million euros in a given year,
  • if there is a legal person among the partners, regardless of the amount of revenues earned. For example, when one of the partners is a limited liability company.

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Marek Cieślak

CEO CGO Finance