Setting up an unregistered partnership to enter into a transaction such as providing services or leasing land plots has been a common technique for a long time. This year, things are going to change and require a closer look from the tax management perspective, especially when September is approaching and the half-year tax return needs to be prepared.
The cabinet just announced a draft legislation amending the Revenue Code, which revises the progressive tax rates and income brackets for individual taxpayers.
The draft also imposes a flat personal income tax rate of 20% on an unregistered partnership and a group of persons instead of the current progressive tax rate. The objective is to stop the abusive planning of individual taxpayers in setting up several partnerships or groups of persons to slow down the progressiveness of the tax rates. The 20% flat rate will be on par with the strategic rate for corporate income tax although the use of a partnership continues to provide higher advantage because there is no further tax imposed on distribution of profits to partners _ unlike dividend income in the case of a company.
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