One of your duties as an entrepreneur will be to pay and settle taxes correctly. You should be aware of the basic principles of corporate taxation before you register a company.
What income taxes does the entrepreneur pay?
If you set up a self-employment business or are a partner, you will pay personal income tax (just like other natural persons, such as full-time employees or contractors). Under PIT you have the possibility to choose the form of taxation.
Partnerships that are taxpayers (in some partnerships, only partners are taxpayers, not companies) pay CIT.
What form of PIT taxation should be chosen?
One of the most important differences between e.g. employment and running a business is the possibility to choose the form of PIT taxation. If you pay a PIT, you can choose:
- general principles - tax scale 18 and 32%
- general pronciples - 19% tax (so called flat rate tax)
- lump-sum on registered income
- tax card
Which form should I choose? It all depends on the type of activity (some forms of taxation can be applied only to certain types of activity), the costs you will incur during the activity, the amount of income or the willingness to take advantage of reliefs. See the most important features of different forms of PIT taxation in the table below. It is possible to change the form of taxation during the course of business (the moment of change depends on the type of taxation).
Note: If you are looking for more detailed information on taxation, please refer to the matter:
|Form of taxation||General rules - tax scale||Flat-rate tax||Lump sum on registered income||Tax card|
|Tax rate||18% and after exceeding the income of 85,528 PLN the rate of 32%||19% regardless of the income||from 2% to 20% depending on the type of conducted business activity||The rate specified in the amount for a given tax year is determined by the head of the competent tax office depending on the type and scope of conducted business activity, number of inhabitants in the place where the business activity is conducted, number of employees.|
|Time limits for payment of advances||
monthly, by the 20th day of the month following the settlement month; quarterly, by the 20th day of the month following the quarter for which the advance is paid (applies to the so-called small taxpayers, whose income does not exceed EUR 1.2 million, and entrepreneurs starting their business in a simplified manner (advance payments amounting to 1/12 of the amount resulting from the annual statement for previous years)
monthly, by the 20th day of the month following the settlement month;
every quarter by the 20th day of the month following the quarter for which the advance payment is made (applies only to the so-called small taxpayers whose revenue does not exceed EUR 1.2 million and entrepreneurs starting their activity)
in a simplified manner (advances of 1/12 of the amount resulting from the annual statement for previous years)
|There are no advance payments. Lump sum tax is paid monthly by the 20th day of the month following the month to which the tax relates (except for December, for which the tax must be paid by the deadline for filing the annual tax return, i.e. by January 31st). Those who continue their activity have the possibility to pay tax on a quarterly basis if they do not exceed EUR 25,000 of revenue in the previous year.||There are no advance payments. The tax is paid monthly until the 7th day of the month for the previous month (for December the tax should be paid by December 28th).|
|Type of accounting records required||Revenue and expenses ledger if the net income was not at least the equivalent of EUR 2 million. When the threshold is exceeded, the obligation to switch to accounting books (full accounting). In addition, other registers required by law (mileage of the vehicle; register of fixed and intangible assets)||As with the tax scale||Revenue register, register of equipment, list of fixed and intangible assets||There is no obligation (however, there is an obligation to keep records of employment), except when the activity was commenced during the tax year (in this case, until the date of delivery of the decision on the amount of tax, a tax revenue and expenditure ledger should be kept). Sales documentation must be kept for five years|
|Method of calculating social security contributions||Contributions paid reduce tax base||Contributions paid reduce tax base||Contributions paid reduce tax base taxable income||Non-deductible contributions|
|Method of calculating health insurance contributions||Tax-deductible contributions paid up to 7.75% of the contribution assessment basis||Tax-deductible contributions paid up to 7.75% of the contribution assessment basis||Tax-deductible contributions paid up to 7.75% of the contribution assessment basis||Tax-deductible contributions paid up to 7.75% of the contribution assessment basis|
|Possibility to reduce by tax deductible costs||YES||YES||NO||NO|
|Deadline for the submission of the annual statement||By 30 April of the following year for the previous year||By 30 April of the following year for the previous year||By 31 January of the following year for the previous financial year||By 31 January of the following year for the previous financial year|
|Form symbol||PIT-36||PIT-36L||PIT-28||Taxes are not accounted for by means of tax returns. The PIT16-A form is submitted. Before commencing business activity, and in case of taxpayers already conducting business activity, not later than by 20 January of the year, the PIT-16 form should be submitted.|
|Conditions for changing the form of taxation||Possible change to another form of PIT. The change must be reported to the tax office by 20 January of the given tax year at the latest. In the case of switching to a tax card, you must file an application with the tax office on a PIT-16 form||As in the case of the tax scale||Possible change for tax scale, flat rate tax or tax card. This can even be done in the course of a tax year. The competent tax office must be notified. In the case of switching to a tax card, an application must be submitted to the tax office by January 20th using a PIT-16 form.||Possible change in the form of taxation until 20 January of the year in question. You must file a notification with the tax office. During the tax year, a change in the form of taxation possible within 14 days from the date of delivery of the decision of the head of the tax office, determining the amount of income tax, or changes in its amount|
|Comments||No tax-free allowance||A lump sum may be paid by taxpayers who start their business and choose this form of taxation, and if they have already done so, they may choose it if their revenue in the previous year did not exceed the equivalent of EUR 250,000. This form of taxation is excluded for certain activities||This form of settlement is limited to strictly defined activities (mainly crafts), not exceeding a certain limit of employment. It is not allowed to conduct other non-agricultural business activity, manufacture products subject to excise tax or carry out activities in the same scope by the spouse|
Corporate income tax CIT
The tax is as follows
- 19% of tax base
- 15% of the tax base (applies to small taxpayers and taxpayers starting their business - in the tax year in which they started their business)
- the taxable person is required to keep the accounts
- taxpayers and payers do not file tax returns during the tax year, but are obliged to make advance payments (tax advances may be made monthly, quarterly or in a simplified form)
Note: If you are looking for more detailed information on taxation, please refer to the matter:
Registration of the taxpayer and declaration of the form of taxation from the tax office
Every entrepreneur uses the NIP number in tax matters. This number is assigned "automatically" when registering your business (in CEIDG or KRS). There is no need to submit additional applications to the tax office for NIP.
Note: an exception is made, for example, for partners in partnerships who are not entrepreneurs. If they are payers for their own insurance (they pay social or health insurance contributions) to the Social Insurance Institution (ZUS), they should file a NIP application with the tax office (on the NIP-7 form).
Notification of the form of taxation
- If you register your company with CEIDG (sole trader, partners in a civil law partnership), indicate the form of taxation and the method of paying advance payments in your application for registration (CEIDG-1). You simply mark the appropriate box in the application form. You do not have to send any additional applications to the tax office. If you want to settle on a general basis according to the tax scale, you do not have to report this form of taxation. It is treated as the default.
Please note that if you choose a tax card, you will need to attach the PIT-16 application to the CEIDG application form.
- In the case of partnerships registered in the National Court Register, no form of taxation is reported for them - they are subject to CIT. The obligation to report the form of taxation applies only to possible partners taxed with PIT. In a situation when the activity will be conducted in the form of a partnership, all partners of the partnership must submit declarations on the choice of the form of taxation (an exception is the PIT-16 application in the scope of taxation in the form of a tax card, which is submitted by one of the partners, providing details of all partners forming the partnership).
What are the taxes in case of several activities?
If you simultaneously conduct business activity individually and in a partnership, you can choose a separate form of taxation for each of these activities, e.g. a lump sum on registered income and general rules or a lump sum on registered income and a flat rate tax.
- it is not possible to opt for taxation of activities carried out individually with the flat-rate tax rate and in accordance with general rules
- if you have closed down your business during the year and then re-started it in the same tax year, there is no obstacle to choose any form of taxation
Form of taxation and type of accounting
The type of taxation you choose will affect the way you keep your records:
- if you settle on general terms (tax scale, flat-rate tax), keep a tax revenue and expenditure ledger (PKPiR) and after exceeding EUR 2 million of revenue per year, you will switch to the so-called full accounting system
- in the case of lump-sum payments on registered income, you keep records
- the tax card does not require accounting
- when taxing CIT of partnerships, the so-called full accounting (accounting books) should be kept
Notification of the form of accounting
Tax revenue and expenditure ledger (PKPiR)
Since 1 January 2018, there has been no longer any obligation to notify the tax office of maintaining a tax revenue and expense ledger. However, there is a section in the CEIDG's application where you indicate the type of record keeping and the company that keeps accounting records. In CEIDG you also report the end of your cooperation with the accounting office.
Lump-sum accounting records
If you settle with a lump sum, you are not obliged to submit additional information to the tax office about keeping records of revenues or changing them. Remember, however, to report your choice of this form of taxation to the office.
If you pay income tax in the form of a tax card, you are not obliged to keep tax books.
Accounting books - full accounting
If your company is required to keep full accounting records, you do not have to report full accounting records separately to the office. You report full bookkeeping only if you want to keep it voluntarily. You should then notify the head of the tax office responsible for income tax matters in writing. This must be done before the beginning of the financial (tax) year.
You are not obliged to report your accounting form if you run e.g. a sole trader, but due to exceeding the turnover threshold (2 million euro), you are obliged to switch to full accounting.