Entrepreneur test. Who will hold the right to the flat tax?
Changes in accounting and finance are no surprise to anyone. Therefore, the latest idea of the Tax Office which decided to take a closer look at entrepreneurs using flat tax should not be shocking. Introducing the so-called 'Entrepreneur test' is intended to curb the practice of inappropriate use of the lower tax rate. These activities are expected to be an additional support for the sealing of the tax system which has been taking place in recent years.
What is a flat tax?
Currently, an entrepreneur, when starting a business activity, may use the general rules of taxation or a flat tax. If he chooses a flat tax, he does not enter the second income threshold, and thus omits the 32% tax rate, and benefits from the lower, 19% tax rate. This solution is beneficial for many taxpayers who achieve higher income - the rate is fixed and independent of income. This method of taxation is usually chosen by entrepreneurs who earn an annual income in excess of PLN 100,000.
What is the Entrepreneur Test?
Its aim is to catch entrepreneurs who base their activities on business contracts with one contractor, often within one collective invoice for the services provided. The business conducted in this way is confusingly similar to a full-time job - with the difference that both parties bear much lower tax costs. According to the tax authorities, this situation requires regulation as it is contrary to the spirit of entrepreneurship. By automatically closing ourselves off to one service provider, we do not develop entrepreneurship, which was the idea of introducing a flat tax.
However, the current law allows for such a possibility, with a properly structured contract between the entrepreneur and his contractor. In order to introduce changes in this matter, the Ministry of Finance would have to bring about a legal change in the definition of economic activity, with the simultaneous introduction of clear limitations and exclusions.
The entrepreneur test is to help distinguish full-time employees from entrepreneurs. This task is extremely difficult, because the definition of a full-time employee provides that he is ready to take up the job indicated by the employer, in the place specified by him. The same applies to the entrepreneur. The distinction is therefore to occur here as a result of the analysis of issued invoices.
According to the Ministry of Finance, the provisions on the entrepreneur test are to be limited to modifying the content of Art. 5b of the PIT Act. The purpose of this proposal is only to change the qualifications of income earned by some of the people running a business. This would mean that a negative test result would not mean automatic deletion from the CEIDG, transformation of the contract for the provision of services into an employment contract and its inclusion in the employment rules of being subject to social and health insurance. The changes to PIT alone do not provide a legal basis for such interference, and the tax authorities would not fall under the powers of the National Labor Inspectorate and the Social Insurance Institution. Assuming hypothetically that the consequences of the entrepreneur test would be extended to the field of social insurance - which would require completely different statutory solutions - entrepreneurs with revenues exceeding 60 percent. of average wages, they would have to pay higher contributions than before.
However, in order to make this distinction, it is necessary to analyze many similar cases in order not to discriminate against some entrepreneurs in favor of others. An unequivocal and fair solution to this situation will certainly require a huge amount of work.
So we will see what will be the end of the announced changes.
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