Guide to Taxation for Sole Proprietorships in Poland

A sole proprietorship (Jednoosobowa działalność gospodarcza, JDG) is a popular business structure in Poland. One of the key aspects of running a JDG is choosing the appropriate form of taxation. This guide will help you understand the available forms of taxation and the criteria to help you choose the most beneficial option.

1. Forms of Taxation

Tax Scale (General Rules)

The tax scale is the standard form of income taxation, with tax calculated based on two brackets: - 17% for income up to 120,000 PLN per year - 32% for income above 120,000 PLN per year

Advantages: - Ability to use tax reliefs and deductions (e.g., child relief, donations deductions) - Possibility of joint settlement with a spouse

Disadvantages: - Higher tax rate for high incomes - Requirement to maintain full accounting

Flat Tax

The flat tax applies a fixed rate of 19%, regardless of income amount.

Advantages: - Fixed, relatively low tax rate - No tax brackets

Disadvantages: - No ability to use most tax reliefs and deductions - No possibility of joint settlement with a spouse

Lump-Sum Tax on Registered Income

The lump-sum tax is a simplified form of taxation where the tax is paid on revenue, not income. Tax rates vary based on the type of activity and range from 2% to 17%.

Advantages: - Simple form of taxation - No requirement to maintain full accounting

Disadvantages: - No ability to deduct costs of earning income - Limited ability to use tax reliefs

Tax Card

The tax card is a form of taxation available for specific types of activities. The tax amount is determined by the tax office and depends on the type of activity and the number of residents in the locality where the business operates.

Advantages: - Fixed tax amount, regardless of revenue - Minimal accounting obligations

Disadvantages: - Limited availability - No ability to deduct costs of earning income

2. Choosing the Form of Taxation

The choice of the appropriate form of taxation depends on various factors: - Expected income level - Type of business activity - Ability to use tax reliefs - Preferences regarding accounting

Examples

1. Low Income, Low Costs: The lump-sum tax may be beneficial if you have low income and low costs, as the tax is paid on revenue.
2. High Income: The flat tax may be advantageous for individuals with high income, as the fixed rate of 19% is more favorable than 32% in the tax scale.
3. Using Reliefs: If you wish to use tax reliefs and deductions, the tax scale would be the best choice.

3. Changing the Form of Taxation

The form of taxation can be changed at the beginning of each tax year. An application to change the form of taxation must be submitted by January 20 of the given year.

Summary

Choosing the appropriate form of taxation is crucial for optimizing tax burdens in a sole proprietorship. Analyze your income, costs, and the ability to use reliefs to select the most beneficial option. Remember that you can change the form of taxation at the beginning of the next tax year.

Timestamp: July 29, 2024, 12:39 a.m.

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