4 forms of income taxation for business – Polish Deal

January 27, 2022

When setting up our own business activity, we must indicate the form of income taxation of business activity, during registration (for the Central Register and Information on Economic Activity). The choice is up to the entrepreneur, who in this matter should be guided not only by the economic calculation, but also by the type of activity he/she intends to conduct. If you are a partner or have a self-employment business, you have to pay personal income tax. Then, the Polish law allows you four possible variants to choose from:

1. Tax scale (general rules)
2. Flat rate tax
3. Lump sum on registered income
4. Tax card (fixed amount tax)

Tax scale (general rules)

It is the basic and the most frequently chosen form of taxation, consisting in taxing the income:

Tax provides:

• up to PLN 120,000 ― 17% of income minus the tax reduction amount (PLN 5,100)
• more than 120.000 zł ― PLN 15,300 + 32% of income over PLN 120,000

A choice of this form of taxation imposes an obligation to keep the revenue and costs register and carry out an inventory at the end of the year.

Advances for the income tax should be paid monthly/quarterly by the 20^th day of the month following a settlement period the micro-account of a competent tax office.

After the end of the tax year, the taxpayer submits the PIT-36 annual tax return to the tax office by April 30 of the following year.

Flat rate tax

It is a form of taxing the income with a single tax rate of 19% regardless of the amount of that income.

This form of taxation is associated with an obligation to maintain the revenue and costs register.

Advances for the income tax should be paid monthly/quarterly by the 20^th day of the month following the settlement period to the micro-account of a competent tax office.

After the end of the tax year, the taxpayer submits the PIT-36L annual tax return to the tax office by April 30 of the following year.

Lump sum on registered income

It is form of taxation in which the entrepreneur cannot reduce revenues by the costs incurred.

Depending on the type of activity performed, different lump sum rates also apply here. The amount limits on the revenues earned mean that not every entrepreneur can use this form of taxation.

Additionally, art.8 of the Lump sum Income Tax Act is a catalogue of activities that are absolutely excluded from this form of taxation.

Advances for the tax return should be paid monthly/quarterly by the 20^th day of month following the settlement period to the micro-account of a competent tax office. However the advances for December can be paid by the taxpayer before the deadline for submitting the PIT-28 tax return, i.e. by the end of February of the following year to which the tax relates.

Tax card – fixed amount tax

It is a form of taxation addressed only to entrepreneurs who conduct the type of activity specified in art. 23 section 1 of the Lump sum Income Tax Act. It does not oblige entrepreneurs to keep revenue and costs register. However, they are obliged to pay the tax by the 7^th day of the following month for the previous month and by January 31 – to submit the PIT-16A annual tax return for the previous year.

Importantly, as part of the Polish Order, from 01/2022 this form of taxation is not available anymore to taxpayers who planned to change the form of taxation or start a business. It means that in 2022 only entrepreneurs, who used tax card in 2021, can still use it.

Polish Deal and forms of taxation of a business activity

It is well known that one of the priorities of entrepreneurs running a business activity is paying low taxes, which is primarily related to the selection of an optimal form of taxation.

The Polish Order, introduced from 01/2022 initiated revolutionary changes in the principles of profitability of the above-mentioned forms of taxation causing i.a. an impact of the form of taxation on the amount of health insurance contributions paid by entrepreneurs which currently does not affect the amount of advance income tax. However, social contributions have an impact on the final tax settlement.

After changes introduced by the Polish Deal, the situation is as follows:

Author: Marta Mazurek

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