Entrepreneurs benefiting from low lump-sum taxation in Poland
Monika Dziedzic of MDDP delves into the nuances of Polish lump-sum taxation and explains how factors such as the kind of business undertaken by individuals can have a substantial impact on the applicable rates.
Lump-sum taxation of individual business activity has been available in Poland for many years. It became broadly available and very popular from 2021 because of reduced requirements.
The Personal Income Tax Act defines business activity (BA) as a gainful activity conducted on one’s own behalf, irrespective of results, in an organised and continuous manner, from which the revenues are not attributed to other revenues from other sources, such as an employment relationship, managerial contracts, a director’s fee, or property rights.
No act is considered a BA if the following conditions are jointly met:
Liability to third parties for the results of these activities and their performance, excluding liability for committing torts, is incurred by the person who commissions the actions;
The activities are performed under supervision and at the place and time determined by the person commissioning the activities; and
The person who performs the activities does not incur the economic risk related to the activity conducted.
In 2022, lump-sum taxation is available to most individuals running their business in the form of a sole proprietorship (jednoosobowa działalność gospodarcza), a civil partnership (spółka cywilna) or a general partnership (spółka jawna) of natural persons.
The operational income for the previous year must not exceed €2,000,000 ($2,029,000). In the case of partnerships, the income of all partners should be taken into account.
Lump-sum tax rates
The lump-sum tax rate depends on what kind of business is carried out (between 2% and 17%). Tax applies in principle to turnover, which means that no costs are taken into account.
A lump-sum tax rate of 15% is applicable to, among others, revenues from business management consulting services.
Services for a current/previous employer
Lump-sum taxation is not applicable to entrepreneurs who, as part of their BA, charge for services or the sale of commercial goods or products to a former or current employer, corresponding to the activities performed under the employment relationship in the current, or a previous, tax year.
Selection and declaration requirements
If the first business revenue is earned in January, the taxpayer must submit a written statement on the election of the lump-sum taxation regime by February 20 of the given year. The statement should be submitted to the head of the relevant tax office or by updating data in the CEIDG (the Central Register and Information on Economic Activity).
If the first business revenue is earned at a later date, the deadline for submitting the above-mentioned statement is as follows:
By the 20th day of the month following the month in which the taxpayer earned his or her first revenue; or
By the end of December, if the first such revenue is earned by the taxpayer in December.
Failure to meet the above deadlines makes it impossible to apply lump-sum tax, but only to revenues earned in the given tax year.
Social and public medical insurance contributions
Persons who opt for lump-sum taxation pay social/health insurance contributions as follows:
Social security contributions (SSCs) are paid on a flat-rate basis. In 2022, the monthly SSC amounted to PLN 1,124.23 ($238) or PLN 1,211.28 (in the latter case, if voluntary sickness insurance is chosen). If there is another title to mandatory social security coverage (for example, employment income), the SSC may not be due from BA.
A health insurance contribution of 9% is paid within three income thresholds.
Threshold (annual revenue)
Amount of the health insurance contribution
Up to PLN 60,000
9% premium calculated from 60% of the average monthly salary (in 2022, PLN 335.94)
Between PLN 60,001 and PLN 300,000
9% premium calculated from 100% of the average monthly salary (in 2022, PLN 559.89)
PLN 300,001 and above
9% premium calculated from 180% of the average monthly salary (in 2022, PLN 1,007.81)
Income taxed with lump-sum tax is not subject to the 4% solidarity surcharge that is due from total annual taxable income exceeding PLN 1 million.
As a rule, VAT registration relating to a BA is optional, but it is obligatory if turnover exceeds PLN 200,000. VAT registration is also mandatory for certain services.
Services charged to non-Polish business entities will, as a rule, be subject to a reverse charge mechanism or will bear no VAT, so no Polish VAT will be included in the invoice or the VAT is usually neutral.