Costs of starting a business
Let’s start with the good news: if you want to set up a sole proprietorship, you won’t pay a penny for it. We do, admittedly, have to apply for registration with the Central Business Register, but it’s free, and for a good few years now everything can be done online using a Trusted Profile.
What’s more, we can obtain a grant to start a one-person business, which will allow us to purchase the basic equipment or rent the premises needed to run the company. The maximum grant for starting a business is equal to six times the average salary. Thus, in 2023 it is approx. 40,000. PLN.
Important!
The above information applies to the establishment of a sole proprietorship. In the case of a limited liability company, it is necessary to take care of the necessary registration in the National Court Register, which costs one time 500 zloty, bear Notarial costs for signing the incorporation agreement (here the amount may vary, as it depends on the amount of the declared share capital), as well as announce the formation of the company in the court monitor -. The cost of this announcement is 100 zloty.
Business activity: taxes and contributions
A sizable portion of the cost of doing business is taxes and contributions. The need to pay taxes on your own, make sure the calculations are correct, and above all, the fact that a sole proprietor is responsible for the business with his or her assets – these are the most popular sources of concern that keep people from starting their own business. However, there are several options to choose from, and the decision itself can significantly affect what fees we will face.
Income tax
Polish law provides for four forms of taxation:
General rules (tax scale)
In this option, the entrepreneur pays tax at a rate based on his income. In 2023, the income tax rate is 12% until the income reaches PLN 120,000. As soon as this income amount is exceeded, the tax rises to 32% and is charged on the excess. What’s more, the general rules allow you to take advantage of the tax-free amount, which means you won’t pay a single zloty of income tax on the first £30,000 you earn in a year;
Flat tax
The flat tax rate has been operating at the same level for years, at 19%;
Lump sum on registered income
The flat rate depends on the industry in which the company operates. So before you decide to choose this form of taxation, check whether it will be profitable for your business. Recorded lump sum rates vary between 2% and 17%. However, it is important to remember two important elements of flat-rate billing. First: a lump sum is levied on revenue, not income, which means that when accounting for a lump sum, an entrepreneur cannot deduct deduct deductible expenses. What’s more, only companies with less than EUR 2,000,000 in annual revenue can benefit from the lump sum;
Tax card
This method of accounting for income tax is no longer available to new businesses – as of January 1, 2022, it can only be used by entrepreneurs who have already settled with the help of a tax card. Once a business person decides to change the form of taxation, he or she will not be able to return to the tax card;
Every entrepreneur, regardless of the option chosen, will have to pay income tax , but the amount will vary.
Social Security and NFZ
Another obligation is to pay contributions to the Social Security and the National Health Service. Both are mandatory, although not for everyone, or at least not at the very beginning.
If you’re just starting a business, you can take advantage of what’s known as the “business plan”. “start-up relief”, through which for the first six months you do not pay Social Security premiums, and you will only be responsible for paying the health contribution.
After six months, you will switch to what is known as “small Social Security,” meaning you will pay a small portion of the basic Social Security contribution. As of July 2023, the small Social Security is an expense of PLN 341.72 per month, while the standard Social Security contribution is PLN 1418.48 per month.
However, the quoted amounts do not include the health premium, which from 2022 is not a fixed amount, but a percentage of income. The minimum contribution under the general rules is PLN 314.10. However, when the company’s income exceeds PLN 30,00, the contribution will be 9% of the earned income.
The amount of PLN 314.10 will also be paid by entrepreneurs using the tax card.
The situation is different for lump-sum entrepreneurs – those using a lump sum will pay a health contribution depending on the income included in the three thresholds:
- if the company’s revenue does not exceed PLN 60,000, the premium will be PLN 376.13,
- if the company’s revenue is between PLN 60,000 and PLN 300,000, the health contribution will be PLN 626.93,
- if the company’s revenue exceeds PLN 300,000, the health contribution will be PLN 1128.48.
Important!
The health contribution is not a deductible expense, so it cannot be deducted from tax.
The privilege of benefiting from preferential Social Security contributions lasts for a maximum of 24 months. After two years (and, in the case of taking advantage of the start-up tax credit, after a total of two and a half years), entrepreneurs automatically switch to small ZUS+, which is calculated on the basis of income, or, if they exceed the stipulated amount, to the Social Insurance Institution’s standard contribution rate.
Learn about the consequences of not paying Social Security on time!
VAT
The entrepreneur may choose to pay VAT. This requires the submission of a VAT-R application, but carries certain benefits.
An entrepreneur who is a VAT payer can generate business expenses, and with each subsequent purchase reduce the amount of VAT to be paid. This, of course, applies only when the company buys goods and products necessary for business operations. We are talking about semi-finished products used in the manufacture of products, services used by employees in their tasks, equipment, company vehicles, machinery, etc. Any such purchase should be justified, and proper proof of purchase should be shown in case of a tax audit.
Corporate purchases are exempt from VAT, and funds spent on them reduce the income tax rate.
Ongoing costs of doing business
Accounting
One of the key costs that entrepreneurs typically incur is paying for accounting. There are many offerings available on the market: both accounting offices that offer comprehensive services and online applications that significantly facilitate the management of accounting in your own company and provide the necessary tools. You can always decide to do the books yourself, although – if you have no experience in this matter – it is quite risky, and therefore not very profitable.
Accounting costs for small businesses are not high. The entrepreneur usually agrees on a lump sum in such a situation with an accountant or bookkeeper and pays the agreed amount each month. Larger companies face higher costs if only because they carry out many more financial operations involving larger amounts of money than micro-entrepreneurs.
Even more for bookkeeping will be paid by the company in case of hiring employees: the duties of the accounting office will then include calculation of salaries, bonuses and others.
Rental and/or maintenance of premises
Although it is theoretically possible to register a company without specifying its business address, the vast majority of entrepreneurs have premises that they indicate as their primary place of business. Many people register their business in their own apartment or house, setting aside a room or even part of it for the purpose of running the company.
However, if a company is involved in manufacturing or sales and has employees, it must have an office, warehouse, production hall, and often each of these types of space. Maintaining the premises used by the company is not infrequently a cost of several or even tens of thousands of zlotys per month!
Important!
All costs that arise from maintaining the company’s headquarters (the cost of rent, electricity bills or Internet connection) are tax deductible.
Employment
Some entrepreneurs start out as one-man armies, only to find over time that there was a need for workers. Others set up a business right away with employment in mind. Both need to know that retaining an employee comes at a cost, although it also means expanded competencies, better distribution of responsibilities and the possibility of increasing company revenues.
You can hire an employee on an employment contract, a contract of mandate or a contract for work. But let’s start with the most typical employment relationship.
If you sign a full-time employment contract with your employees, you must pay them at least the minimum wage, which in 2023 is PLN 3,490 gross (from July 2023 it will be PLN 3,600 gross). However, this amount is not equal to the employer’s costs.
EXAMPLE
Mr. Adam runs a company that provides courier services. He hired three employees. The first, a courier with no experience, is paid the lowest national wage, or PLN 3,490 gross. The second – also a courier, but working in the profession for several years – pays a gross of PLN 5,200. A third, a programmer he hired to create the company’s website and work on the application, will be paid a gross of PLN 14,000. How do these amounts look from the perspective of employees and the employer?
Employee 1 will receive PLN 2,695 on hand, but the employer will pay for him PLN 4,189 per month.
Employee 2 will receive PLN 3,788 on hand, and the employer will pay PLN 6,242.
Employee 3 will receive PLN 9,407 on hand, while the employer’s costs will amount to PLN 16,804.
Another option is to hire employees on a contract basis, in which case they should be paid a minimum of PLN 23.50 gross per hour of work. The employer is still required to contribute to Social Security – but this does not apply to students who have not yet completed 26. year of age.
The last form of employment is a contract for work. In this case, the employer does not incur additional costs and does not contribute to Social Security. However, a work contract is governed by its own rules, so before you offer an employee this type of employment relationship, make sure that the tasks performed under the contract meet the conditions of the work.
