Limited liability company (sp. z o.o.) - how to avoid tax problems

A limited liability company (sp. z o.o.) is an excellent way to protect your assets and optimise your tax position. However, the wrong approach to setting one up, or to converting your business into a company, can lead to serious problems. With the help of tax experts, we explain how to avoid them and enjoy the benefits of this form of business.

The biggest challenges for a sp. z o.o.

1. Double taxation
   • Converting a sole proprietorship (JDG) into a limited liability company (sp. z o.o.) carries the risk of double taxation of profits. This problem affects mainly business owners who want to transfer profits already earned in the JDG into the new company.
2. Keeping the 9% CIT rate
   • The revenue limit of €2 million can be difficult to stay within for fast-growing businesses. Exceeding this amount means you will have to pay the higher CIT rate (19%).
3. Estonian CIT - not for everyone
   • This is an attractive form of taxation that eliminates double taxation, but it requires reinvesting profits and meeting a number of formal requirements.

How to avoid tax problems

1. Plan the conversion in advance
   • The process of converting a JDG into a sp. z o.o. should be planned carefully to avoid costly double taxation. It is worth considering distributing profits before the conversion.
2. Make use of reliefs and preferential rates
   • A sp. z o.o. can benefit from the preferential 9% CIT rate and from Estonian CIT. However, it is essential to meet the conditions, such as having no tax arrears and maintaining an appropriate level of investment.
3. Monitor revenue and cost structure
   • Analysing your revenue regularly helps you manage the risk of exceeding tax thresholds.

Estonian CIT - who should consider it?

Newly formed limited liability companies (sp. z o.o.) that plan to reinvest their profits can benefit from Estonian CIT. This solution allows you to avoid tax on dividends, as long as the funds remain in the company and are used for growth. But there is an even better solution. We encourage you to contact our firm!

Need support?

If you are planning to set up or convert a company into a sp. z o.o., contact us. Our experts will help you choose the best tax solution and avoid problems.