Thanks to an appropriately selected legal form of business and skilful use of tax reliefs, we have safely generated savings in income tax and health contributions amounting to more than one million zlotys a year for one of our clients..

As a tax advisory firm, we were commissioned to analyse the optimal form of business for a client operating in the manufacturing industry.

Our client was operating in the form of a general partnership (tax transparent), whose partners were taxed on a line tax (19%). In addition, from January 2022 onwards, due to the entry into force of the so-called Polish Deal, the income of partners from a general partnership was subject to health contribution at the rate of 4.9%. In addition, the partners' income from the partnership was subject to inclusion in the basis for calculating solidarity levy (4% on the excess of qualified income over PLN 1 million per year).

The above situation meant that the effective taxation and contribution of the general partnership's partners (understood as the ratio of taxes and contributions due to the partnership's book profit) was more than 20%.

Our client's expectation was to develop solutions that would lead legally to a reduction in the amount of the tax and contribution burden with the lowest possible risk of the chosen structure being challenged by the tax authorities. It was also very important for the client to retain the right to dispose of the profit generated by the company freely during the year.

After analysing our client's expectations and possible solutions, we determined that the optimal choice would be to transform into a limited partnership. As a result of this action, the taxation and taxation of the partnership and the partners were shaped as follows:

• The limited partnership started to be a CIT taxpayer at the 19% CIT rate;

• At the same time, the partners of the limited partnership who are supplementaries gained the right to reduction of PIT income tax on distributions of profits from participation in the limited partnership, which in practice resulted in single taxation with income tax of the profits made in this respect (in the articles of association we allocated the majority of the right to participate in the profits of the partnership to supplementaries);

• Partners of the partnership ceased to pay a health contribution depending on the amount of their income (the health contribution for participation in a limited partnership is determined in a lump sum way).

At the same time, the partners have retained the right to make distributions of profits from the limited partnership during the year, as we have included provisions in the limited partnership agreement authorising profit advances during the year. In addition, in order to secure the right to deduct CIT on the profit sharing advance payments, we obtained a favourable resolution of the provincial administrative court confirming this issue.

The above actions resulted in the effective taxation and taxation of the limited partnership and its partners being approximately 13%.

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In order to increase the tax efficiency of the implemented structure, we took additional measures:

• For the partners of the limited partnership, we implemented a remuneration for acting as general partner / limited partners, so that they could take advantage of their tax-free amount of PLN 30 thousand per year (this remuneration is not subject to Social Security or health contributions);

• Because of the specific nature of the industry in which our client operated and the need to incur significant capital expenditure, we implemented the so-called investment fund, thanks to which expenditure on certain fixed assets could be included in full in tax costs as they were incurred (i.e. without accounting for depreciation write-offs);

• Additionally, we also implemented a bill for research and development activities, thanks to which a number of expenses incurred by our client (primarily employee salaries) started to be included as tax costs at double the amount;

• Because our client's intention was to reinvest part of the capital, we implemented a relief for hypothetical debt financing costs, which gave the company the right to recognise additional tax expenses on part of the profits transferred to the capital reserve;

• Finally, we also made a legal reduction in the PIT of some of the client's R&D employees (mainly production engineers), which earned them the right to apply increased, 50% deductible costs to part of their remuneration. As a result of this activity, we reduced the PIT levied on employees' salaries, as a result of which they started to earn more without incurring additional wage costs by our client.

As a result of the additional measures indicated above, we have reduced our client's effective taxable payroll by another few per cent. In addition, we have led to a legal reduction in the amount of PIT collected by our client on the salaries of certain employees.