The notion of a special purpose vehicle may be simply defined as a corporate structure, national or international, aimed at tax optimization of the business activity.
One of the most interesting and attractive Polish solutions delivering tangible tax benefits consist in choosing the legal form of limited partnership (spółka komandytowa) for business activity – an entity that belongs to commercial partnerships recognized by Polish commercial law. Although its formation, in accordance with article 106 of Commercial Companies Code (Kodeks Spółek Handlowych – KSH), requires the form of a notary act and as such imposes some additional costs, the positive point is that the amount of the commandite sum may be set out freely by the partners.
In such case the status of the partner, who governs the distribution of the partnership’s profits, is of vital importance. In limited partnerships there is the general partner, the active partner with unlimited liability for the partnership’s obligations and who represents it. However, not only an individual can become a general partner but also a legal entity in the form of a limited liability company or a joint stock company. The other partner is the limited partner, the passive one, whose liability is limited to the amount set out in the agreement – the so-called “commandite sum”. This partner may represent the partnership only through the means of power of attorney or proxy.
Limited liability partnership is an entity without legal personality, to which the Commercial Companies Code grants the legal capacity. Thereby, it may be a subject of rights and obligations. The taxpayers, in such case, are the partners whose income is set proportionally to their share in the profit. In this way the partner, as an individual – a natural person is entitled to choose between a flat Personal Income Tax rate and the general principles of settling tax obligations.
It should be remarked here that the tax situation differs in specific countries – depending on the legal regulations adopted by them. The international structures function, as a matter of principle, on the basis of international tax agreements.
Before setting up such structure, attention must be paid to a number of essential elements. Among these are the ownership structure plan of the business, the sources of income, the number of employees or the possibility to localize it in a country, that is characterized by a low level of ongoing business income taxation and additionally offers a favorable scheme of dividend payment.
Other noteworthy benefit of applying international structures is lack of taxation on the income of Polish individuals holding positions in management board of such companies – both in Poland and in the country of the company.
The sole arrangement of these matters is not enough. The structure also needs to be properly secured. In this respect, the Member States of the European Union offer good conditions as the potential contractors find them more interesting and trustworthy due to geographical distances and lack of substantial cultural barriers. Contrary to this, the long-established tax havens such as the Bermuda Isles or the Cayman Islands have been held in disrepute.
Special Purpose Vehicle – Cyprus
The model example of setting up a Special Purpose Vehicle in the international arena is localizing the business in Cyprus – an EU Member State. It suffices to form a “parent” company that will be positively received by contractors and that will hold 100% of shares of its “subsidiary”, operating company. The latter company will sign agreements, issue invoices etc. It may be located even in Poland. The income is then directed to the “parent” company in Cyprus where, by keeping the favorable tax rates, it is received by the shareholders in the form of dividend.
Such vehicles may be set up also in other localizations. For instance, the “parent” company may be set up in the Republic of the Marshall Islands, while the “subsidiary” company may be formed in Delaware – another attractive location in respect of taxation.
CGO Legal law firm has many years of experience in forming such special purpose vehicle both nationwide and abroad. Our services include identifying facts, legal status, selecting the most beneficial offers and adjust them to our clients’ individual needs. We also prepare the entire organizational structure and offer direct assistance in formation of a special purpose vehicle – including the representation before competent authorities and participation in registration procedures.
If you would like to learn more about the tax-related advantages of special purpose vehicles please contact us via email or telephone.