Complications of changing the legal form of limited partnerships

On 1 January 2021, an amendment to the tax law came into force, pursuant to which limited partnerships and certain general partnerships become new CIT taxpayers. This means that they will be subject to double taxation of profits – with CIT in relation to the partnership and with CIT or PIT in relation to persons of the partners.

Pursuant to Article 12(2) of the amendment law, a limited partnership could decide that the new wording of the regulations will apply to its income and expenses related to its participation in the partnership only as from 1 May 2021. As a result, many businesses covered by the amendment have elected to extend their fiscal year to April 30.

If a decision has been made to stay with the form of a limited partnership whose financial year is consistent with the calendar year, the indicated postponement of the change in taxation means that the financial year commencing on 1 January 2020 will last as many as 16 months, whereas after assuming the obligation connected with CIT, the financial statement will cover only 8 months – from 1 May to 31 December 2021.

On the other hand, the situation of entrepreneurs seeking time to transform their business is much more complicated and problematic. The main reason for this state of affairs is the lack of relevant changes in the wording of the Commercial Companies Code with respect to the entry to the National Court Register.

Firstly, it should be pointed out that an entry concerning transformation of a company is of constitutive nature, which means that only after it is actually entered into the system, a change in the form of business may be deemed to have been made and to have specific legal effects. However, it will not be possible to obtain such an entry on 1 May, which is the originally planned date of making the changes, according to the provisions of the amendment. Due to the fact that 1 May is a holiday, the Registry Court will not have the opportunity to make any changes in the National Court Register on that day, which makes it impossible to effectively change the legal form of business activity.

Therefore, limited partnerships will have to wait for an appropriate entry in the register at a later date, which at the same time forces accounting for the period between 1 May and the date of obtaining an entry taking into account the amendment, i.e. on the basis of double taxation. This means that for 2021 many companies will have to prepare as many as 3 financial statements, each taking into consideration a different legal status of their activity.