Forms of business taxation – what to choose?

April 3, 2023

In Poland, there are three ways of accounting for income from business activity:

  • -according to general principles, according to the tax scale (tax rate of 12% and 32%),
  •  according to the flat rate (19%),
  • lump-sum tax on registered income.

There is a fourth form, the tax card, but it is available to those who, prior to 2022, chose this form and wish to continue accounting in this way. It is important to note that if an entrepreneur does not decide on the type of settlement, the tax scale will be automatically selected. Additionally, with this form, there is no need to notify the head of the tax office of one’s choice. In the case of alternative forms of settlement, there is such a necessity. This must be done by the 20th day of the month following the month in which you earn your first income in the tax year, or by the end of the tax year if you earn your first income in December of that year. The choice of the flat-rate method of accounting is not always possible, as it depends on the type of business.

Taxation under the general rules

In this form, the tax rate is 12% or 32%, which is calculated on the taxable base, i.e. income. Income is revenue less the costs of obtaining it. The rate depends on the amount of income earned and is as follows:

  • 12% for the tax base up to PLN 120,000,
  • 32% for the tax assessment basis above PLN 120,000.

If a person chooses this method, he or she has an additional opportunity to make a preferential tax return together with a spouse or as a single parent, as well as deductions and allowances from income and tax.

The choice of taxation under the general rules also entails the need to keep a tax revenue and expense ledger or to maintain a cash book. In addition, during the course of the year, you must pay advances on income tax for individual months or quarters of the tax year. Advance payments are made to the tax office with jurisdiction over your place of residence by the 20th of each month for the previous month or the month following the quarter, and the advance payment for December or the fourth quarter by 20 January of the following tax year. It should be remembered that the advance payment becomes obligatory when the amount of PLN 1,000 is exceeded. When a person is just starting their business, they may choose a quarterly method of paying advance payments. Such information is provided in the PIT-36L tax return, which is submitted between 15 February and 30 April of the following tax year.

Flat taxation

Flat taxation of non-agricultural business income is 19% and cannot be applied when a person provides services to a former or current employer in two cases:

  • in the same year,
  • to the same extent that you provided services to him/her from an employment or cooperative employment relationship.

As mentioned earlier, the choice of this form involves notifying the competent head of the tax office by the 20th day of the month following the month in which the first income in the tax year was earned, or by the end of the tax year if the first income was earned in December of that year.

As with general taxation, the basis is income. The tax rate is a flat 19%, regardless of the amount of income received. If you opt for this form, you may not benefit from a preferential tax settlement together with your spouse or as a single parent if, in the tax year, you earn income, incur tax-deductible expenses, are obliged or entitled to increase or decrease your tax base or income, or are obliged or entitled to make other additions or deductions, as well as tax allowances and deductions from income and tax, with the exception of e.g. deductions of social security contributions, health insurance contributions, contributions to a health insurance fund, contributions to a health insurance fund, contributions to a health insurance fund, and deductions from income and tax. deduction of social security contributions, health insurance contributions, contributions to an Individual Retirement Security Account (IKZE), R&D relief, sponsorship relief, monuments relief or terminal relief.

Obligations resulting from the choice of this form are the same as in the case of taxation under the general rules. Similarly, advance payments for income tax become obligatory once the amount of PLN 1,000 is exceeded, and information on the method of paying advance payments is specified in the PIT-36L tax return, submitted to the appropriate head of the tax office.

Registered flat-rate taxation

It is worth noting that this method cannot be used when a person:

  • pays tax in the form of a tax card,
  • benefits from a temporary income tax exemption,
  • derives income in whole or in part from:

o running pharmacies,

o is involved in the purchase and sale of foreign exchange,

o an activity of trade in parts and accessories of motor vehicles,

  • will manufacture products subject to excise duty with the exclusion of the manufacture of electricity from renewable energy sources,
  • takes up an activity in a tax year following a change of activity carried out
    • on his own to an activity carried out in the form of a partnership with his spouse,
    • in the form of a partnership with a spouse into an activity carried out independently by one or each of the spouses,
    • independently by a spouse into an activity conducted independently by the other spouse
    • – if, prior to the change, the spouse(s) paid income tax on this activity on a general basis.
  • Will derive income from the sale of commercial goods or wares, or from the provision of services to a former or present employer, corresponding to activities which the person or his partner (when carrying on business in the form of a partnership):
    • performed or was performed by the partner in the year preceding the tax year, or

the person or his partner performed or performs in the tax year in the context of an employment or co-operative employment relationship.

The tax is calculated on the basis of income from which no costs are deducted, however, the issues mentioned in Article 11 of the Act on Lump-Sum Income Tax may be deducted.

Tax rates are 17%,15%, 14%, 12.5%, 12%, 10%, 8.5%, 5.5%, 3%, however, they depend on the type of activity performed and the amount of income obtained. The choice of the lump-sum tax settlement method at the same time blocks the person from using the preferential settlement together with a spouse or a single parent as well as tax allowances and deductions from income and tax, with the exception of e.g. the deduction of social security contributions, 50% of paid health insurance contributions, payment to an individual retirement security account (IKZE), thermomodernisation allowance.

In addition, it is necessary, as in the previous case, to keep a list of revenues for each tax year, in which revenues are broken down into specific tax rates in accordance with the regulations, and to pay during the year a lump sum on registered revenues for individual months or quarters of the tax year to the tax office in accordance with the regulations.

When starting your business, it is possible to choose the quarterly method of paying the lump sum, however, you must inform the head of the tax office about it in your tax return – PIT-28, which you submit for the tax year in which you started your business between 15 February and 30 April of the following tax year.

Text based on: https://www.podatki.gov.pl/dzialalnosc-gospodarcza/forma-opodatkowania/

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