How to withdraw money from a Polish company and avoid double taxation?

Limited Liability Company (Sp. Z o. o.) is a popular legal form for conducting business in Poland, and many people prefer it over other forms such as sole proprietorship.

However, some individuals still have doubts due to the perceived complications and difficulties associated with withdrawing money from a limited liability company. Concerns about double taxation and the requirement to pay income tax twice are also common.

Fortunately, there are simple and practical solutions available to address the issues of double taxation and formal obstacles when withdrawing money from a limited liability company in Poland.

While it is true that changes introduced since 2022, such as the “Polski Ład” program, may impose certain limitations, it does not mean that the options will disappear entirely or that new ones will not emerge.

However, it is crucial to first understand how income taxation works for a limited liability company in Poland. As a separate legal entity, a limited liability company is treated as an individual entity separate from its partners.

Therefore, when a limited liability company generates income, that income is subject to corporate income tax (CIT) in Poland. The rationale behind this is straightforward: since a limited liability company is considered a separate legal entity, it is liable to pay taxes on its income.

In a limited liability company, the company itself does not generate profits, but rather the profits are distributed to the company’s partners (shareholders). Ideally, the company should distribute profits to the partners each year in the form of dividends.

When distributing dividends, the company is subject to corporate income tax at a rate of 9% or 19%, depending on the company’s annual revenue.

Additionally, the company’s partners (shareholders) are also required to pay personal income tax on the received dividends at a rate of 19%.

This arrangement can result in potential double taxation, as the total payment is subject to combined tax rates of 28% or 38%, depending on the applicable tax rates for the company and its partners.

How to withdraw money from a Polish company and avoid double taxation?

Remuneration for work performed as a member of the Board – for appointment (For example, payment for a contract for the sale of goods)

One option for rewarding yourself as a member of the board is by receiving remuneration. This approach is particularly applicable and feasible for small limited liability companies, where the partner shareholders often serve as members of the board.

When remunerating a member of the board, the company is subject to income tax at a rate of 17% or 32% and health insurance tax at a rate of 9%. (up to 120,000 zł profit).

Let’s consider the following examples:

Option A: Payment of 119,000 zł

Income tax: 15,130 zł
Health insurance tax: 10,710 zł (21.71%)
Amount transferred to the account: 93,160 zł

Option B: Payment of 200,000 zł

Income tax: 40,900 zł
Health insurance tax: 18,000 zł (29.45%)
Amount transferred to the account: 141,100 zł

These examples illustrate the tax implications and the net amount that can be transferred to the member’s account after accounting for income tax and health insurance tax.

It’s important to consult with tax professionals or advisors to determine the most suitable remuneration strategy and ensure compliance with applicable tax regulations for member remuneration in limited liability companies in Poland.

Remuneration of a member of the Board + invoicing for individual activities (For example, VAT on the supply of agricultural products and VAT)

In certain cases, a company can opt for a combination of remuneration for a member of the board and invoicing for individual activities. This approach may be suitable for companies engaged in activities such as the supply of agricultural products, where VAT obligations apply.

Let’s consider an example:

A company generates a profit of PLN 240,000 (2 x PLN 120,000). In this scenario, the company can choose to pay a portion of PLN 119,000 through the remuneration of a board member. The remaining amount can be invoiced for the individual activities of the board member, taking into account VAT obligations.

This strategy allows for a tax-efficient distribution of income while considering the specific nature of the activities and VAT requirements.

Signing a contract for specific work

A limited liability company in Poland can also engage a member of the board or a third party through a contract for specific work. This type of contract can cover various types of work, including both tangible and intangible tasks. Examples may include conducting training courses, organizing events, or creating new objects such as artwork or IT systems.

When entering into a contract for specific work, the taxes payable depend on the nature of the service provided and the amount claimed. Typically, only 50% or 80% of the remuneration under such a contract will be subject to taxation in Poland. The tax rate applied is either 17% (for amounts below PLN 85,000) or 32% (for amounts exceeding PLN 85,000). Additionally, income received through this contract may also be subject to taxation in Lithuania, depending on the individual circumstances.

For example, let’s consider a scenario where the contract amount is below the threshold of PLN 120,000 and the tax rate of 50% is applicable. In this case, if the claimed amount is PLN 119,000, the income tax payable in Poland would be PLN 10,115 (8.5% of the claimed amount). The remaining amount, PLN 108,885, would be transferred to the designated account, considering any tax obligations in Lithuania.

Rental of real estate or movable property for the enterprise

A limited liability company in Poland can also engage in renting out real estate or movable property as part of its business activities. When renting out property, there are specific tax considerations to take into account.

In Poland, the tax on leased property income is generally levied at a rate of 8.5%. This applies to rental income received by natural persons. However, if the rented property is a vehicle, additional income tax obligations may arise in Lithuania, where the income tax rate is 15%.

It is important to note that tax regulations may vary depending on the specific circumstances and the nature of the rental activities. Therefore, it is advisable to seek guidance from tax professionals or advisors to ensure compliance with relevant tax laws and to accurately calculate and fulfill any tax obligations related to the rental of real estate or movable property within the limited liability company in Poland.

Subsistence allowance, travel expenses, training

Expenses related to business trips and training can be reimbursed by the company. These expenses are typically paid to the partners (shareholders) for the costs they incur while performing work on behalf of the company.

The reimbursement of subsistence allowances, travel expenses, and training costs can be treated as legitimate business expenses and are subject to specific tax regulations. The tax treatment may vary depending on the nature of the expenses and the applicable tax laws in Poland.

All the options described above provide legal and efficient methods for withdrawing funds from a limited liability company in Poland. These options are particularly beneficial for smaller companies where the partners are actively involved in the business and have more flexibility in accessing company funds. It is important to note that these techniques are more suitable for those who choose to operate as a limited liability company rather than as individual entrepreneurs.

The ultimate decision regarding the chosen method of fund withdrawal rests with the entrepreneurs. Conducting a thorough analysis of the regulations and considering the specific needs of the business and the individual circumstances of the partners will enable them to select the most suitable option.

It is advisable for entrepreneurs to seek professional advice or consult with experts in accounting, taxation, or legal matters to ensure compliance with applicable regulations and to make informed decisions based on their specific business requirements.