Taxation Forms for Business Activities

Starting your own business is a major decision that involves many aspects, including selecting the appropriate form of taxation. In 2024, entrepreneurs have several options to choose from, which can significantly affect their tax liabilities. Below is a detailed overview of the available options and guidance on how to make the best choice for your business.

1. Progressive Tax Scale (General Rules)

The progressive tax scale is one of the most common forms of taxation in Poland. It involves taxing income based on a progressive tax scale. In 2024, it looks as follows:

• Income up to 120,000 PLN: 12% minus a tax reduction amount (3,600 PLN)
• Income above 120,000 PLN: 10,800 PLN plus 32% of the excess over 120,000 PLN

Advantages:

• Ability to use tax deductions such as child allowances or donations.
• A tax-free allowance of 30,000 PLN.
• Possibility of joint filing with a spouse, which can reduce tax liabilities.
• Right to file as a single parent.
• Option to use a tax credit.
• Right to reduce income by incurred deductible expenses.
• Ability to report all income taxed under the progressive scale in a single annual return.
• Deduction of tax-related costs from income.

Disadvantages:

• After exceeding 120,000 PLN income, the tax rate increases to 32%.
• Requirement to maintain a tax revenue and expense ledger or full accounting records.
• More formalities regarding company documentation.
• Inability to deduct the health insurance premium.

2. Flat Tax

Flat tax is characterized by a fixed income tax rate of 19%, regardless of the amount of income.

Advantages:

• Single tax rate regardless of income (19%).
• Income taxed under the flat tax does not affect the tax rate for income taxed under the progressive scale (12%/32%).
• Simpler tax calculation due to a fixed rate.
• Deduction of incurred tax-related costs.
• Ability to deduct paid health insurance premiums up to a limit of 11,600 PLN annually (in 2024).

Disadvantages:

• No right to most tax deductions.
• Inability to file jointly with a spouse.
• Inability to file jointly with a child (as a single parent).
• No tax-free allowance.

Tax advances: Like with the progressive tax scale, entrepreneurs pay income tax advances on a monthly or quarterly basis. These advances are calculated based on the income earned during the period.

3. Lump-Sum Tax on Registered Income

Lump-sum taxation involves paying a tax on income based on predefined rates. The rate depends on the type of activity and can be 2%, 3%, 5.5%, 8.5%, 10%, 12%, 12.5%, 14%, 15%, or 17%.

This form of taxation is not available to every entrepreneur. Individuals conducting non-agricultural business activities (including civil and general partnerships of natural persons) can use it if in the previous tax year:

• They earned income from this activity solely on their own, not exceeding 2 million euros (9,218,200 PLN in 2024).
• They earned income solely from activities conducted in partnership form, and the total income of the partners did not exceed 2 million euros.

Lump-sum taxation is also available for individuals starting a business in a given tax year, regardless of their income.

Advantages:

• Simple settlement method: tax is paid on income without deducting expenses.
• Lower tax rates compared to other forms of taxation, especially for businesses that do not generate high costs.

Disadvantages:

• No option to deduct income-related expenses, which may not be advantageous for some entrepreneurs.
• Restrictions on the types of activities that can be taxed under the lump-sum system.

4. Tax Card (no possibility of choice either)

The tax card is one of the simplest forms of taxation but is only available for selected types of activities. Under this system, the entrepreneur pays a fixed tax amount determined by the tax office, regardless of income or costs.

Under the Polish Deal, the tax card was eliminated for entrepreneurs starting a business in 2022 or those deciding to change their form of taxation.

Advantages:

• Simple settlement: fixed tax amount, no need to maintain income and expense records.
• No requirement to maintain a tax revenue and expense ledger.
• Stability and predictability of tax liabilities.

Disadvantages:

• Limited availability based on the type of business activity.
• No ability to use deductions or tax reliefs.

How to Choose the Best Taxation Form?

Selecting the right form of taxation depends on several factors, including income level, type of business activity, and the entrepreneur’s specific needs and preferences. When making a decision, consider:

• Carefully analyzing your business’s income and costs. If your company incurs high costs, it may be beneficial to choose a form of taxation that allows for their deduction, such as the progressive tax scale or flat tax.
• The possibility of using tax reliefs and deductions. If you plan to use tax benefits or wish to file jointly with a spouse, the progressive tax scale may be more advantageous.
• If you prefer simpler accounting solutions, consider forms like the lump-sum or tax card. However, be mindful of the restrictions and rates applicable to these forms.
• Finally, always consult a tax advisor who can help you make the best choice based on your specific business circumstances.

Need more information?

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Our accounting office, FPD, offers comprehensive accounting services and tax advisory tailored to your company’s needs. We have extensive experience in servicing both small, one-person businesses and larger enterprises. Our offer also includes top-level payroll and HR services. Regardless of the size of your company, our accountant will provide full support in bookkeeping and tax optimization. If you are looking for a trusted partner for bookkeeping in Kielce or online, our tax advisory office is at your disposal.

Trust our experience – our specialists in accounting, tax advisory, and HR services in Kielce are ready to help your business grow. We also offer accounting services for sole proprietorships, guaranteeing full service and professionalism.