This is the default form of taxation for your business. In practice, this means that unless you choose another form of taxation, your income tax will be settled according to the following rules.

* When calculating the amount of tax according to the general rules, we take into account the tax-reducing amount (PLN 3,600), which is 12% of the tax-free amount (PLN 30,000).

When is it worth considering general taxation?

• when you do not earn a high income (less than PLN 120,000 per year),
• when you settle up together with a spouse who does not receive high income or has no income at all,
• when you settle as a single parent,
• when you are able to take advantage of tax allowances.

General taxation entitles you to a number of tax credits and deductions. In particular, these are:

• child relief
• internet connection relief
• rehabilitation relief
• deduction of donations for religious purposes and for sport, cultural, higher education and science activities
• deduction for donations of blood
• allowance for the employment of innovative employees
• prototype relief
• relief for robotization
• expansion or development relief
• relief for consolidation
• relief for the acquisition of a payment terminal
• R&D relief
• IP BOX relief
• ­­­deductions of contributions to an individual insurance security account (IKZE)
• thermo-modernisation relief

As we wrote above, the default form of taxation for your business is tax paid on general rules. At the time of setting up your business or at the beginning of each new year (until the 20th day of the month following the month in which the first income for the year was earned, e.g. until 20 March if the first income was earned on 5 February), you may change the form of taxation. If you choose the flat-rate tax, your income will be taxed at 19% regardless of its amount.

Of course, you should also be mindful of the solidarity surcharge, which will apply if your income is higher than PLN 1,000,000 (4% surcharge on the excess).

When is it worth considering flat-rate tax?

• when your income exceeds the amount of PLN 210,000 per year
• when you do not have a spouse with whom you can settle or your spouse earns at a similarly high level

You cannot opt for the flat-rate tax if you provide services to a former or current employer. This applies to services that are the same as those performed under an employment contract. These services cannot be performed in the same tax year.

If you opt for the flat-rate tax, you can also benefit from allowances and donations, but there are far fewer of them than in the case of general taxation. Such reliefs include:

• R&D relief
• IP BOX relief
• thermo-modernisation relief
• allowance for the employment of innovative employees
• prototype relief
• relief for robotization
• expansion or development relief
• relief for consolidation
• relief for the acquisition of a payment terminal
• deduction of donations for religious purposes and for sport, cultural, higher education and science activities
• deductions of contributions to an individual insurance security account (IKZE)
• donations for vocational training purposes made to public vocational training schools

An additional advantage of the flat-rate tax is that we are entitled to include in the costs of our business or when calculating the advance payment for income tax the health contributions paid to the Social Insurance Institution (ZUS) in a given tax year up to the amount of PLN 8,700 in one year.

The lump sum income tax is a simplified form of revenue taxatio. The flat rate depends on the type of business and ranges from 2% to 17% of revenue.

When calculating the tax, no tax-deductible costs are taken into account. This is a favourable form of taxation for those who do not incur high costs for their activities.

You cannot benefit from the lump-sum income tax if:

• you provide services to a former employer,
• you exceeded EUR 2 million in revenue (less eligible deductions) in the previous tax year,
• you pay tax in the form of a tax card in the same year,
• you benefit from a temporary exemption from income tax,
• you derive all or part of our income from running a pharmacy,
• you derive all or part of our income from the purchase and sale of foreign exchange,
• you derive all or part of our income from the trade in parts and accessories for motor vehicles,
• you manufacture products subject to excise duty - with the exception of the generation of electricity from renewable energy sources.

It is advisable to take advantage of the lump-sum income tax if you do not have large deductible costs and can benefit from lower flat rates, e.g. 3% or 8.5%.

If you are entitled to a relief for starting a business, you will not be covered by social insurance for 6 months. You pay only the health insurance contribution.

You have the right to the relief when you start your first business or start your business after abreak of 60 months and do not work for a former employer who you were employed in Poland.

This relief is voluntary, which means that if you want to be covered by social security then you have the right not to take advantage of the relief.

Due to the fact that you are not covered by social insurance during the period when you take advantage of the relief for starting a business, you are not entitled to benefits from sickness insurance (e.g. sickness benefit), accident insurance (e.g. rehabilitation benefit). The period during which you do not pay your old-age pension contributions will also not be taken into account when determining your pension entitlement and will not increase the amount of your old-age pension.

After six months of using the start-up relief (or immediately if you do not want to use the relief), you will switch to so-called preferential social security contributions, a kind of relief for entrepreneurs whose business is shorter than two years.

During the 24 months of benefiting from preferential ZUS contributions, you can pay lower social security contributions. The basis for calculating preferential ZUS contributions is a minimum of 30% of the amount of the minimum wage. Importantly, the preference applies only to social insurance contributions.

There is another preference. It is a preference for those business activities whose revenues did not exceed PLN 120,000 in the previous tax year (or a proportion of this amount if the activity was not conducted for the entire tax year).

The Small ZUS Plus is a solution when our income does not exceed PLN 120,000 and we were self-employed for no less than 60 calendar days in the previous calendar year.

Small ZUS relates to preferences in payment of social insurance premiums only. It does not covere health contributions, which we must pay in full.

We can pay lower social insurance premiums for a maximum of 36 months during the subsequent 60 calendar months of conducting business activity.

After 24 or 30 months of running a business, if you have run out of preferences you will pay standard ZUS contributions, unless you can take advantage of Small ZUS Plus.

Standard ZUS contributions depend on the projected average monthly salary and are therefore different each year.

From 2022, there has been a major change in the payment of the health contribution. Until the end of 2021, the health contribution was paid in a lump sum. From 1 January 2022, the health contribution is calculated differently depending on the choice of taxation form. Thus, the health contribution is, for entrepreneurs settling on:

• general rules - 9% of income
• flat-rate tax - 4.9% of income
• lump sum income tax - he amount of the health contribution depends on the amount of revenue, an entrepreneur settling up in a lump sum income tax may hit one of the following thresholds:
  • revenue up to PLN 60,000 - 9% on the amount of 60% of the average salary
  • revenue from PLN 60,000 to PLN 300,000 - 9% of 100% of the average salary
  • revenue over PLN 300.000 - 9% from 180% of the average salary

The main VAT rates applicable to local supplies in Poland are as follows:

• 23% - standard VAT rate
• 8% - reduced VAT rate - applies to the supply of certain foodstuffs, medical products, restaurant and hotel services and supplies covered by the social housing policy
• 5% - reduced VAT rate - used for the supply of certain foodstuffs (e.g. bread, dairy products, meat), certain types of printed books
• 0% - zero-rated VAT - is applicable, inter alia, to the supply of certain ships and aircraft, air and maritime transport services, international transport services, services relating to the import and export of goods

VAT taxpayers can be divided into:

• Active VAT taxpayers - paying VAT, keeping records of VAT sales and purchases, obligatorily issuing invoices,
• VAT-exempt taxpayers - using the subjective exemption (due to the low sales limit of up to PLN 200,000) or the subjective exemption (performing only sales exempt from VAT pursuant to Article 43(1) of the VAT Act), keeping simplified records, issuing invoices with the ZW rate at the request of purchasers

Not all taxpayers can benefit from the VAT exemption, there are a number of activities that cannot be exempt from VAT even if your sales do not exceed PLN 200,000, such services are for example:

• Advisory services
• Legal services
• Sale of parts for motor vehicles and motorbikes
• Selling of cosmetic products on-line
• Selling of computers, electronic goods, electrical goods on-line

Businesses registered for VAT can distinguish between two types of VAT:

• Output tax - VAT on sales that the entrepreneur must pay to the tax office
• Input tax - VAT on purchases that the entrepreneur can deduct from output tax payable to the tax office

Taxpayers may reduce the amount of output tax by the amount of input tax on the purchase of goods and services, provided that the purchases are related to sales subject to VAT.

There is an unconditional exclusion of VAT deduction on, inter alia, restaurant and accommodation services.

Restrictions on input tax deduction apply to expenditure on the purchase (including leasing) and operation of passenger cars, as well as fuel - in principle, 50% of input tax can be deducted. We can deduct 100% of VAT, but we must prove that the car is used exclusively for business purposes and report this fact to the tax office.

The excess of input tax over output tax can be carried forward to subsequent years or refunded. As a rule, reimbursement is made within 60 days of the submission of the VAT return

If there are no taxable sales, the taxpayer may apply for a refund within 180 days of the submission of the VAT return.

The tax refund is paid to the bank account indicated by the taxpayer.

Supply of goods

VAT taxpayers selling goods to purchasers in EU Member States may apply the 0% VAT rate and treat the transaction as an intra-community supply of goods. The condition for applying the zero rate is to collect documents proving that the goods have been dispatched (either by the seller or by the buyer) to a buyer in another EU Member State

The 0% VAT rate also applies to the export of goods, which takes place when goods are dispatched from Poland outside the EU. The shipment may be made by the seller (direct export) or by the buyer (indirect export). In order to apply the 0% VAT rate, it is necessary to obtain customs documents confirming that the goods have left the territory of the EU.

Provision of services

Polish regulations on the provision of services are in line with similar regulations applied in other EU Member States

In the case of services provided between taxable persons (B2B) who are established in other countries, the primary place of taxation is the country in which the entity purchasing the service is established (of course, there are many exceptions to this rule). In this case, we must inform the buyer that this is a so-called reverse charge transaction. We write this information on the invoice and apply the tax rate "np." (this means that this transaction is not subject to VAT in Poland).

The situation is different for services provided by a taxable person to a non-taxable person (B2C) - in this case, the place of business of the service provider is crucial.

Taxpayers intending to carry out intra-community transactions are required to register with the tax authorities as EU VAT taxpayers. Upon registration, they will receive a so-called EU VAT number. In this case, the national tax identification number is preceded by the two-letter designation of the EU Member State. In the case of Polish taxpayers, this is the NIP number preceded by the letter PL.