Opening an individual entrepreneurship in Poland, the first question that arises is which tax system to choose. However, when starting to investigate, a person often gets confused, and that’s not surprising, as the Polish tax system is ranked among the top 5 most complex in Europe. Over the last year, the number of foreigners wishing to open their own business has significantly increased, and we have been receiving more and more inquiries about opening individual entrepreneurship (IP) in Poland. That’s why we decided to answer the most common questions about the tax systems for individual entrepreneurs.
In this article, you will learn:
What is a Sole Proprietorship (Jednoosobowa działalność gospodarcza) in Poland?
What is a tax scale?
What is a linear tax and a lump-sum tax?
What is a tax card?
Is it possible not to register a Sole Proprietorship?
What is a Sole Proprietorship (Jednoosobowa działalność gospodarcza) in Poland?
JDG (sole proprietorship) is the equivalent of individual entrepreneurship (IP), private entrepreneurs (PP), and self-employed persons (FOP) in Poland. It is characterized by the following:
- Focused on earning income;
- Organized nature (complies with reporting requirements, keeps accounts, marketing);
- Activities are carried out continuously with the goal of achieving a specific purpose;
- Conducted under the individual’s name and bears responsibility for itself.
The key feature of identifying private entrepreneurship is bearing the associated risks.
What is a Tax Scale?
A tax scale = tax on net profit (profit – expenses).
The tax rate is 12% for income up to 120,000 PLN (+9% for social insurance ZUS and Polish Deal, totaling 21%) and 32% for income exceeding 120,000 PLN (+9% for social insurance ZUS and Polish Deal, totaling 41%). How is the tax calculated in practice?
For example, if you sell apples and your net profit for the year is 130,000 PLN, you would calculate 21% tax on the first 120,000 PLN, and 41% on the remaining 10,000 PLN.
What is a Linear Tax?
A linear tax = tax on net profit (profit – expenses).
The tax rate is 23.9% on profit (including social insurance ZUS and Polish Deal) with no income limit. The catch is that when choosing this tax, you cannot provide services to a former or current employer.
What is a Lump-Sum Tax?
A lump-sum tax = tax on turnover.
The tax rate varies from 2% to 17% depending on the type of activity. To be eligible for this, certain conditions must be met:
- Turnover up to 2 million euros per year;
- Activity type must be on the allowed list;
- You do not provide services to a former or current employer.
A nice bonus is that this tax can be paid quarterly, but only if the annual income does not exceed 200,000 euros.
It should be emphasized that this form can be chosen by almost anyone, but there are exceptions according to tax legislation:
- Those who have temporary tax exemptions;
- Those with income from pharmacies, buying/selling foreign currency (including gold, platinum, and foreign payment instruments), selling spare parts and accessories for vehicles, goods subject to excise duty;
- Those working with a former or current employer.
As you can see, there are plenty of options, and it’s essential to carefully calculate all the pros and cons based on your specific case — simply put, work with the numbers.
What is a Tax Card?
A tax card is the simplest form of taxation, where the tax amount is determined by the tax authority, fixed, and independent of the income. As of 2022, only those who registered under this form in 2021 can use it (currently not applicable).
Is it possible not to register a private business?
In Polish law, there is a type of activity called “unregistered business activity.” This kind of business does not require registration, but the income must not exceed 1505 PLN per month (50% of the minimum wage). This activity must also be reported in the annual statement. Of course, there are a number of conditions to meet:
- You have not conducted business for the past 60 months (in Poland);
- The chosen activity is not listed in the legal list of business activities (e.g., security services, alcohol sales, organizing tours, waste collection, detective services).
If you need professional advice and assistance in choosing the right taxation option, we invite you to a consultation. If you are interested in setting up a Sole Proprietorship in Poland “turnkey,” we would be happy to help!
