One of the key issues in practice for entrepreneurs is the effective management of financial surpluses generated within their business activity.
The choice of the appropriate investment structure has a direct impact not only on the level of taxation but also on the ability to further grow capital.
Business activity vs. investing
In the case of a sole proprietorship, it is crucial to distinguish between operating income (e.g. from services) and capital income, such as dividends, interest or gains from the sale of shares or securities.
This distinction is of key importance from a tax perspective. Operating income may be taxed under the chosen form of business taxation (e.g. lump sum regime, progressive tax scale or flat tax), whereas capital income is, as a rule, subject to separate taxation.
In particular:
- capital income is not covered by the lump sum taxation regime,
- in most cases it is taxed at a 19% PIT rate,
- it is settled independently from business income.
In practice, this means that investing directly as an individual conducting business activity results in current taxation of profits – each dividend or disposal of assets triggers tax at the moment it is realised.
At the same time, there is no mechanism allowing profits to be retained and reinvested without taxation at the level of the individual. As a result, the capital available for further investments is reduced by the tax due.
Investing through a company
For this reason, in practice it is often considered to carry out investments through a capital company (e.g. a limited liability company).
Such a solution primarily allows for the deferral of taxation at the shareholder level – as long as profits remain within the company and are reinvested, no additional taxation arises at the level of the individual.
However, profits are subject to taxation at the level of the company (CIT – generally 19%, or 9% for small taxpayers).
Additional taxation arises only upon distribution to the shareholder (e.g. in the form of dividends).
Practical perspective
In our practice, we increasingly encounter situations where entrepreneurs – including those providing services in Poland – consider separating operational activity from investment activity. This is particularly relevant for individuals operating in an international environment, where income is generated in one country while investments are planned in another or within a more structured framework.
For example, in one of the analysed cases, an entrepreneur who was a tax resident of another EU country and conducted IT business activity in Poland considered how to invest financial surpluses generated from this activity.
Various approaches were analysed – from investing directly as an individual to using a capital company as a separate investment structure.
In this case, the recommended approach was to separate these functions – maintaining operational activity within a sole proprietorship while conducting investments through a company.
Such an approach not only helps to organise the asset structure but also allows for better control over the timing of taxation, especially where profits are intended to be reinvested rather than consumed. Additionally, in cross-border structures, it enables more conscious management of tax risks across different jurisdictions.
Additional options – holding structures
For more advanced investment structures, it may also be worth considering solutions such as the Polish Holding Company (PSH) regime.
Subject to meeting certain conditions, this regime may provide significant tax advantages, in particular:
- exemption from CIT on dividends received from subsidiaries (with 5% effectively taxable),
- exemption from CIT on gains from the disposal of shares in subsidiaries (in certain cases even 100%).
In practice, this means that profits generated at the level of operating companies may be transferred to the holding company and further reinvested without significant additional tax leakage within the structure.
This solution is particularly relevant where:
- investments are multi-layered (e.g. involve several entities),
- an exit (sale of shares) is planned in the future,
- the structure has an international dimension.
At the same time, it should be noted that the application of the PSH regime requires meeting a number of conditions, including:
- holding at least 10% of shares in the subsidiary,
- maintaining the shareholding for a required period (generally at least 1 year),
- meeting ownership structure requirements (e.g. no entities from tax havens),
- conducting genuine business activity (substance).
In cross-border structures, it is also necessary to take into account foreign regulations and applicable double tax treaties.
When planning such a structure, particular attention should be paid to how funds are transferred into the company (e.g. loan, contribution in kind, profit distribution), as this impacts both current taxation and future distribution possibilities.
Which option to choose?
The choice between investing directly as an individual and using a company should depend primarily on the investment objective and time horizon.
Investing as an individual may be appropriate where:
- investments are occasional or relatively small in scale,
- profits are intended for current consumption (rather than reinvestment),
- a simple structure with minimal administrative burden is preferred.
In such a model, taxation is simpler but occurs on an ongoing basis, limiting the ability to accumulate capital.
Investing through a company is generally more suitable where:
- the business generates significant financial surpluses,
- funds are to be reinvested over a longer period,
- investments are more structured or involve different asset classes,
- scaling of investment activity or building a multi-entity structure is planned.
In such cases, the key benefit is the ability to defer taxation at the shareholder level and reinvest profits within the company.
In practice, a mixed model is often applied – maintaining operational activity within a sole proprietorship while conducting investments through a company. This allows for a clear separation of activities and more efficient management of both cash flows and taxation.
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Managing financial surpluses generated from business activity is a natural next step in building personal wealth. A properly designed structure may significantly impact tax efficiency as well as the ability to further grow capital.
In many cases, using a company as an investment vehicle provides greater flexibility and allows for tax deferral; however, each situation should be analysed individually, taking into account the nature of the business, investment plans and the international context.
Should you have any questions or require support in designing an optimal investment structure, please feel free to contact the Nexia Advicero team.