Many investors, while starting a business in Poland miss one important aspect. Most of them choose capital companies as SPVs for their Polish business. They do not think though about how will they withdraw money from their Polish company if the business is successful. The obvious solution is paying out dividend in Poland. But is it the only one? And is paying out dividends from a company in Poland the ultimate solution? Read this article if you want to know how to optimize your taxes in Poland.
Dividend in Poland – the obvious solution
The basic method to extract profits from LLC is to pay out dividends. If a company shows profit in its financial statement, shareholders may adopt a resolution on its distribution and payment. Before the pay out of dividends, the shareholders have to approve the company’s financial statement. The amount subject to distribution among shareholders cannot exceed the profit of the last fiscal year, increased by undistributed profits from previous years and amounts from a reserve or supplementary capital, created from the profit of previous years.
At this point, it is worth mentioning the possibility of paying an advance on a dividend. Advance payment is possible under several conditions, i.e. :
- the company’s agreement provides for the possibility of making an advance payment,
- the company has enough funds to make the payment,
- the company’s approved financial statement for the previous year shows a profit.
The advance cannot exceed half of the profit gained since the end of the previous fiscal year:
- increased by reserve capital created from profit and
- decreased by uncovered losses and treasury shares.
The company’s management board decides about the payment of the advance on the expected dividend.
It is also important to remember about double taxation of profits from an LLC paid out as dividends. The company first pays CIT (9 or 19%) on the earned income. Then the shareholder will pay PIT (19%) on the received dividend.
Is there a way to avoid double taxation for a company in Poland?
Remuneration for a board member of a Polish company
The most popular way is to provide remuneration to a management board member for holding the function. In many companies, shareholders are simultaneously members of the management board. Granting remuneration to a management board member requires a resolution by the shareholders. It should specify the amount of remuneration and the frequency of its payment. The appointment of a member of the board and granting him remuneration doesn’t require an employment contract.
Why should you consider this solution?
A board member’s remuneration is a tax-deductible expense for the company. Thus, it reduces the amount on which the company pays CIT. Moreover, it is only subject to health insurance (9%). Other social insurances are not applicable. Finally, the board member’s remuneration is subject to taxation according to a tax scale. It means that from the 1st of July 2022 the tax rate is 12% if the amount doesn’t exceed 120 000 PLN per year. After exceeding this amount, the rate is 32%. It is also worth remembering about the tax-free amount, which is 30,000 PLN. A board member will pay tax only after exceeding this amount. Of course, the whole income is taken into account, not only the one from remuneration for the function.
Recurring in-kind performances of a shareholder in a Polish company
The phrase ‘recurring in-kind performances ‘ may raise some questions. What is it about?
The primary obligation (performance) of a shareholder in an LLC is to make a contribution to the company. The purpose of such contributions is to cover shares in the share capital.
Based on Article 176 of the Commercial Companies Code, the company’s contract may impose yet another obligation. Namely, to provide additional recurring performances for the benefit of the company. These obligations should be subject to detailed description in the agreement (their type and scope, i.e. what the partner is to do and when). The introduction of such an obligation requires the consent of the competent shareholder.
Performances? What kind? What is it?
The provisions don’t indicate examples, so one can adopt an open catalogue form. The comments state that it can be represented by providing the company with raw materials for production. Another example is providing the company with machinery and equipment needed for its operations or ensuring transport services.
It is assumed that certain actions cannot represent a recurring performance. Among them, there is holding a function of a management board member. Another example is providing the company with its registered or business office.
The performance must have a recurring nature. In other words, it cannot be a one-time service (e.g., transferring property to the company). Moreover, it cannot be done only a few times. For instance, providing production materials only three times will be not enough. Yet, recurring nature doesn’t have to mean regularity. The obligation does not have to be fulfilled on the same day each month.
The shareholder’s performance to the company must be paid. Moreover, the shareholder’s remuneration for recurring performance should be based on market conditions. Such remuneration is paid to the shareholder also when the company does not show a profit.
The shareholder’s income from recurring in-cash performances is also taxed according to the tax scale. This remuneration is not subject to social insurance contribution or health contribution. The tax-free amount is also taken into account (similarly to the solution described above).
Paying out profits from a limited liability company – what should you pay attention to?
Remuneration for recurring in-kind performances is more beneficial in terms of taxes. Yet, the rules on when it is granted are more restrictive than in the case of remuneration for participation in the management board.
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