Protective opinion regarding the restructuring and transformation of a limited partnership into a limited liability company, as well as its taxation under Estonian CIT approach
20 February 2024
On January 22, 2024, a statement was issued regarding the release by the Head of the National Tax Administration (KAS) of a protective opinion dated November 29, 2023, concerning the process of a partner withdrawing from a limited partnership and transforming it into a limited liability company, opting for taxation under the flat-rate income tax for companies (Ref. DKP1.8082.2.2023).
The subject of the opinion were actions including:
- withdrawal by the limited liability company from the limited partnership without remuneration, while changing the function of one of the existing general partners to a limited partner (which is necessary for the company to adopt the Estonian model)
- determining a new distribution of profits and losses in the company
- transforming the limited partnership into a limited liability company
- introduction of the company into the Estonian model.
Changing to the Estonian model means that from a tax perspective, the general partner and the limited partner are taxed equally, unlike under the “traditional” CIT, where general partners may benefit from a more advantageous taxable deduction than limited partners. Consequently, the utilization of this form of business loses its purpose if one of the partners could bear full liability for the company’s obligations without achieving tax benefits.
The company in which the reorganization was planned indicated that the aim was to achieve greater flexibility in selecting individuals to manage the company – after the transformation, qualified specialists would be able to manage the company without becoming partners. The reorganization also aimed to reduce the business risk associated with the legal form of a limited liability company. There is no doubt that one of the main goals of these actions taken was to achieve tax benefits.
The Head of KAS concluded that despite obtaining tax benefits from the restructuring, the method employed is neither artificial nor contradicts the purpose or objective of the law.
Such a position from the tax authority is undoubtedly advantageous for many taxpayers considering conducting a reorganization of their business activities to benefit from the flat-rate income tax for companies.
If you have any further questions or require additional information, please contact your business relationship person or use the enquiry form on the HLB Poland website.
***
This publication is non-binding information and serves for general information purposes. The information provided does not constitute legal, tax or management advice and does not replace individual advice. Despite careful processing, all information in this publication is provided without any guarantee for the accuracy, up-to-date nature or completeness of the information. The information in this publication is not suitable as the sole basis for action and cannot replace actual advice in individual cases. The liability of the authors or getsix® are excluded. We kindly ask you to contact us directly for a binding consultation if required. The content of this publication iis the intellectual property of getsix® or its partner companies and is protected by copyright. Users of this information may download, print and copy the contents of the publication exclusively for their own purposes.
