A limited liability company (Sp. z o.o.) is one of the most popular business forms in Poland, as it allows for the separation of personal assets from the company’s assets. This form is often chosen due to limited liability for the company’s obligations and other advantages. However, one of the significant problems faced by Sp. z o.o. owners is double taxation.

Double Taxation in Sp. z o.o.

Since a Sp. z o.o. operates as a separate legal entity, its profits are first taxed with corporate income tax (CIT):

  • 19% standard rate, or
  • 9% preferential rate for companies with annual revenues not exceeding 2 million EUR.

However, the problem arises when the company decides to pay dividends to its shareholders. Such profits are taxed again – with a 19% income tax. This double taxation often becomes a financial challenge for businesses.

Solution: Salary Based on Shareholders’ Resolution

Instead of paying dividends, shareholders can choose an alternative method – board member salary. This is an effective solution that allows for avoiding double taxation and optimizing costs.

Taxation of Board Member Salary

Board member salaries are considered income from personal activity, and the following tax rules apply:

  • 12% rate applies to annual income up to 120,000 PLN.
  • 32% rate applies to income exceeding 120,000 PLN per year.
  • 9% health insurance contribution – applies to all board members.
  • There are no ZUS contributions, which further reduces overall costs.

Exception for Foreigners

If a board member is a foreigner and holds an A1 form (confirming they are insured in another EU country), they are not required to pay health insurance contributions.

In the case of appointment, the board member has the right to reduce their income by standard related costs, similar to those applicable in employment relationships. Additionally, a portion of the advance payment can be deducted, reducing the tax burden, if the board member submits the PIT-2 form, where this information is indicated.

If a board member earns up to 120,000 PLN per year and holds an A1 form confirming they are insured in another EU country, their income is only subject to 12% income tax.

The A1 form allows the exemption from health insurance contributions in Poland, while the income tax rate remains 12%, provided the annual income does not exceed 120,000 PLN. If the income exceeds this limit, the 32% rate applies.

Why Choose This Approach?

A board member’s salary, determined by shareholders’ resolution, is an attractive way to avoid double taxation and optimize company costs:

  • Lower taxes – the salary is not subject to dividend tax, and the absence of ZUS contributions further reduces the financial burden.
  • Flexibility – the salary can be paid regularly or as a one-time payment, depending on the company’s financial situation.
  • Legal security – properly drafted shareholders’ resolutions allow for legal and effective management of company finances.

Sp. z o.o. provides many opportunities for tax optimization. One of them – salary based on shareholders’ resolution – is not only an effective but also a simple way to reduce the tax burden and avoid double taxation. When properly documented, this solution ensures financial efficiency while maintaining full legal compliance.