The legal mechanism that can mitigate the negative effects of the above changes is the provision of recurring non-monetary contributions by shareholders to the company, as regulated by Article 176 of the Commercial Companies Code. This provision has been in force for a long time, but has not been frequently applied to date, as shareholders who are also members of the management board preferred to provide services to the company through their sole traders’ businesses, whilst receiving remuneration for their role as management board members on the basis of their appointment.
Provisions of the Commercial Companies Code
Pursuant to Article 176(1) of the Commercial Companies Code, “If a partner is to be obliged to provide recurring non-monetary services, the type and scope of such services must be specified in the articles of association.” Article 176 § 2 of the Commercial Companies Code, in turn, states that “Remuneration to a partner for such contributions to the company shall be paid by the company even if the financial statements do not show a profit. Such remuneration may not exceed the prices or rates prevailing in the market.”
The imposition of recurring non-monetary contributions on a partner is possible only under the articles of association. The type and scope of such contributions must be specified therein. They may**, in particular**, consist of various types of services, e.g. accounting, training, consultancy and legal services. These cannot consist of services relating to the management of the company, as this falls within the remit of the management board. Importantly, they must be provided on a recurring basis, e.g. every two weeks or once a quarter. The remuneration must not exceed the rates accepted in the market.
Is the Company obliged to pay social security contributions?
This provision is significant in that the Act of 27 August 2004 on healthcare services financed from public funds does not include, in its list of entities subject to health insurance contributions, persons receiving remuneration for recurring non-monetary benefits referred to in Article 176 of the Commercial Companies Code, which means that remuneration received on this basis is not subject to health insurance contributions. Furthermore, a partner’s recurring non-monetary benefits have not been identified as a basis for compulsory social insurance, as follows from Article 6 of the Act of 13 October 1998 on the social insurance system. This is confirmed by the positions of the Social Insurance Institution. For example, in a letter dated 28 May 2020 (D1/100000/43/285/2020) the Social Insurance Institution’s Head Office stated that “the list of persons subject to social insurance obligations does not include natural persons performing recurring non-monetary services for remuneration within the meaning of Article 176 of the Commercial Companies Code solely on the basis of the articles of association. Consequently, the mere provision of non-monetary services by such persons in return for remuneration does not give rise to a basis for social insurance coverage; thus, remuneration paid pursuant to Article 176 of the Commercial Companies Code does not give rise to an obligation to pay social insurance contributions.”
Recurring non-monetary benefits and taxes
According to the position of the Tax Offices, a company paying remuneration for recurring non-monetary benefits is not the payer of income tax on such remuneration. This obligation rests solely with the partner. This avoids double taxation, and partners tax such benefits as income from other sources under Article 10(9) of the Personal Income Tax Act. Importantly, the provisions of the Polish Deal have introduced an increase in the tax-free allowance to PLN 30,000.00 and raised the first tax threshold (17% rate) to PLN 120,000.00, which is undoubtedly a beneficial change in this context as well.
Business practice shows that recently, an increasing number of shareholders in limited liability companies have been opting to include the provision of Article 176 of the Commercial Companies Code in their articles of association.
Frequently asked questions
Can a partner receive remuneration for recurring non-monetary services if the company has not achieved a profit?
Yes, according to the provisions of the Commercial Companies Code, the company is obligated to pay remuneration for such services even when the financial statement does not show a profit. However, the condition is that this amount must not exceed the prices or rates accepted in commercial transactions.
Must the company pay social security contributions on non-monetary services paid to a partner?
No, receiving remuneration for recurring non-monetary services based on the company agreement does not create an obligation to pay social security or health insurance contributions. The catalog of titles for coverage under these insurances does not include persons performing such services solely based on Article 176 of the Commercial Companies Code.
Who is the payer of income tax on remuneration for a partner’s non-monetary services?
The company is not the payer of income tax on this remuneration, as this obligation rests solely on the partner. The partner taxes such income as income from other sources, which prevents double taxation.
What types of services can constitute the subject of recurring non-monetary services?
The subject of services can be various types of services, such as accounting, training, advisory, or legal services. It is important that the services are performed in a recurring manner, for example every two weeks or once per quarter.
Can company management be treated as a partner’s non-monetary service?
No, services consisting of company management cannot be covered as recurring non-monetary services, as this is a competence of the management board. Such activities should be settled under other titles, for example as a member of the management board.
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He gained his professional experience in one of Lublin's renowned law firms, dealing with civil and business law in its broadest sense. At the law firm Hewelt Wojnowski i Wspólnicy spółka komandytowa, he deals on a daily basis with current counseling in the field of business and the development of corporate documentation of companies, such as. Company agreements, bylaws of company bodies, agreements regulating relations between shareholders, resolutions of company bodies, M&A transactions. In addition to…
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