Free online invoicing software
with KSeF support
Benjamin Franklin, whose portrait appears on the American hundred-dollar bill, went down in history as more than one of the founding fathers of the United States. For almost three centuries his saying, “In this world nothing is certain except death and taxes,” has been well known. In our country all entrepreneurs running businesses must pay tax on the income they earn. The forms of taxation available to us vary, and there is no ready-made formula for choosing one.
In this article we will try to make the task easier by describing in detail all the possible forms of taxing business activity in Poland.
Taxation of a business at the outset and changing the form of taxation
Choosing a form of taxation for a taxpayer starting their own business differs from a continuing taxpayer’s decision to change the form previously used. Those starting a business select its form of taxation on the CEIDG form when registering the company. A new entrepreneur may choose from the following forms of business taxation:
- General rules
- Flat-rate income tax
- Lump sum on recorded revenues
- Tax card
If we choose forms of taxation such as flat-rate income tax, lump sum or tax card, we must submit an appropriate letter to the competent head of the tax office.
The chosen form of taxation applies for the entire year. Economic realities today, however, change very dynamically. While operating our company, we may find that other possible methods of taxing business activity in Poland would be more beneficial. In this case we can change our current form of business taxation to another. This can be done at the beginning of the tax year, no later than 20 January.
Subscribe to our newsletter
Leave your email address and receive guides supporting your business’s growth once a week
Characteristics of the individual forms of taxation
Taxation of income according to the tax scale (“general rules”)
Any person running a business may settle tax under the tax scale. Business tax in this case is calculated on income, that is, the excess of total revenue over total costs.
Taxation of business activity according to the tax scale.
A form of business taxation with tax thresholds offers entrepreneurs tangible benefits. Above all, a major advantage is the ability to account for costs in the tax base. It is often a favourable choice at the start of a business, when costs are high and revenues have not yet reached the forecast level. Other advantages of the progressive tax scale are the possibility of using tax reliefs, such as internet, child and rehabilitation relief; joint settlement with a spouse; and deducting a loss incurred in a previous period.
Flat-rate income tax – a form of taxation for high-income businesses
Flat-rate income tax is beneficial when a business earns high income, above PLN 100,000. Income is calculated by deducting the costs of obtaining revenue from revenue. Its advantage over the progressive scale is the constant 19% rate regardless of growth in business income. A disadvantage is the inability to use reliefs and deductions. A person choosing this form also cannot file jointly with a spouse.
Lump-sum forms of taxation
Another possible form of taxation is the lump sum on recorded revenues, which provides the following rates:
20% –on revenues from activity in specified liberal professions: doctors, veterinarians, midwives and nurses, translators and, to a specified extent, teachers.
17% –on revenues from certain intangible services, including car rental, hotels and wholesale trade brokerage,
8.5% –on revenues from, among other things, service activity, including catering involving the sale of drinks with an alcohol content above 1.5%,
5.5% –on revenues from, among other things, manufacturing and construction activity,
3% –on revenues from, among other things, retail trading services and catering, except revenues from the sale of drinks with an alcohol content above 1.5%.
In addition, this method of taxation may be chosen by a taxpayer meeting the following conditions:
- revenue from the business may not exceed
EUR 150,000 in the year preceding the tax year,
- on starting the business, the taxpayer may not use the tax card.
Tax card – a simple form of business taxation
The tax card is the simplest method of settling income tax. Small entrepreneurs engaged in retail trade, transport services and catering may use it. In this case there is no obligation to file returns, keep books or make advance tax payments. Tax-card taxpayers must issue bills at a customer’s request to confirm a sale and retain copies of these documents for five years from the end of the year in which the invoice or bill was issued. Tax is calculated based on the number of employees and the population of the town where the activity is carried out.
How should taxes be paid?
Monthly settlement
After choosing the form of taxation, we must also choose how to pay the tax. As a rule, payments should be made each month by the 20th for the previous month. Under both the tax scale and flat-rate income tax, advance income tax is calculated cumulatively from the beginning of the year. Under the lump sum on recorded revenues, however, it is calculated specifically for a given month. The disadvantage of paying tax monthly is the smaller amount of cash entrepreneurs have at their disposal. This slows investment and increases dependence on timely payments from counterparties.
Quarterly settlement
The problems with monthly tax payment mentioned earlier affect entrepreneurs settling quarterly to a lesser extent. Having more cash available, they can benefit from more effective liquidity and offer their customers longer payment periods. The quarterly payment schedule is as follows:
First quarter – by 20 April
Second quarter – by 20 July
Third quarter – by 20 October
Fourth quarter – by 20 January
If the deadline for an advance payment falls on a Saturday or a statutory public holiday, it moves to the first working day after the holiday.
Simplified advance payments
The last method of paying tax is the so-called simplified advance payment. Under this method, advance income tax is paid in an amount equal to one twelfth of the tax calculated according to the scale for a given tax year on income from non-agricultural business activity shown in the annual return. Advance payments are due by the 20th of each month for the previous month.
If you found this article interesting, explore our tax advisory services and read how we can help you:
Our specialists can help you put this knowledge into practice.
Interested in this article?
Enter your email address and once a week you will receive practical materials and tips to help you grow your business.
Book a free consultation
Grow your business with accounting combined with advisory services:
or
