What is a lump sum from registered income?
A registered lump sum is a form of income tax under which an entrepreneur pays tax only on the income earned – and therefore cannot reduce the tax base by recording deductible expenses. Instead, taxpayers who opt for a flat rate are subject to a fixed tax rate.
Of course, a flat rate on registered income is just one of the options every entrepreneur has to choose from – and not just when starting a business, but also during the course of the business (although the change can be made only once a year). Learn about other available forms of taxation!
What other forms of taxation in Poland can an entrepreneur choose?
In Poland, there are four forms of taxation that entrepreneurs can use. These are: tax scale (so-called general rules), flat tax, tax card and, of course, lump sum on registered income. We will briefly describe each of them.
Tax scale
General principles are the most popular form of accounting for entrepreneurs. It is also the default – so unless you select another option when filing your CEIDG declaration, you will start your business on a general basis.
In the 2023 tax year, the tax scale applies a 12% rate on income not exceeding PLN 120,000 per year and a 32% tax on income exceeding that amount. So, if you earn PLN 150,000, you will pay tax on the first PLN 120,000 at 12% minus the tax-reducing amount (PLN 3,600), while on the remaining PLN 30,000 you will have to deduct as much as 32% plus PLN 10,800.
The tax-reducing amount is a direct result of the so-called “tax reduction”. The tax-free amount, which will be PLN 30,000 in 2023.
When choosing a tax scale, it is also important to remember the mandatory health contribution, which has recently been based on income and for those using the tax scale is 9% of income.
Flat tax
A flat tax was created for entrepreneurs who know that their income will far exceed 120,000 zlotys per year. In this option, regardless of the level of income earned, the taxpayer pays 19% tax.
The flat tax is the so-called. Flat tax – both an entrepreneur who earns 200,000 zlotys per year and a company recording income of several million zlotys will pay tax with the same proportions – so still the richer company will pay more, but proportionally it will be the same tax.
For taxpayers who have opted for a flat tax, the health contribution is 4.9% on income.
Tax card
Tax card accounting is a specific form of taxation for at least two reasons. The first and – perhaps – most important is that currently (as of January 2022) entrepreneurs cannot choose the tax card as a form of taxation for their businesses; it is only available to those who continue to operate on the tax card. So if you are starting a new business or currently using another form of taxation, you cannot choose a tax card for your business.
The second reason why the tax card is a specific form of taxation is that the amount of tax is set by the Ministry of Finance every year, and then gives entrepreneurs a choice: either stay on the tax card (and pay the designated amount) or change the form of taxation. Entrepreneurs usually have two weeks from the publication of the current tax card rates to make a decision.
Lump sum on registered income
The last form of taxation is, of course, the registered lump sum – but we will talk about it in a little more detail. Let’s start with the fact that not every entrepreneur can choose a lump sum for his company – what does it depend on?
Who can opt for lump sum taxation?
This issue is regulated by the Law of November 20, 1998. On flat-rate income tax on certain income earned by individuals. It indicates that three groups of taxpayers can benefit from the lump sum:
- Persons engaged in non-agricultural business activity – in their case, the income of individuals from non-agricultural business activity is subject to lump sum taxation on recorded income, but also when this activity is carried out in the form of a civil partnership of individuals or a general partnership of individuals;
- Persons earning income from the following contracts: lease, sublease, rental, sublease or other contracts of a similar nature, if these contracts are not concluded in the framework of non-agricultural business activity;
- clergy persons representing legally recognized religions – in their case, flat income tax is paid on income.
One of the conditions for choosing a lump sum on registered income as a form of taxation for a company is that it has earned revenue in the preceding year that does not exceed €2,000,000. If you are just starting a business, the restriction obviously does not apply.
It is also worth remembering that taxpayers using the tax card cannot change their form of taxation to a lump sum on registered income – they can only switch to the general principle or flat tax.
How to calculate the lump sum income tax?
In the case of flat-rate taxation on registered income, income tax depends on income without the possibility of deducting deductible expenses. However, taxpayers opting for a flat rate can deduct certain expenses from their income, as long as they have not already been deducted from income. We are talking about social security contributions, abolition relief and other deductions from income, as mentioned in Art. 26 of the PIT Law.
It is worth remembering that a taxpayer accounting for lump sums on registered income can donate 1.5% of tax to public benefit organizations.
What lump sum rates apply in 2023?
The key issue in terms of choosing a flat income tax, is the flat rate. This one can vary depending on the type of business, and it should be mentioned here that the differences are significant – the lowest flat rate is just 2%, while the highest is 17%.
Here are the sample rates of the lump sum on registered income in 2023 – they apply to the income tax return for 2022:
- A flat rate of 17% is available for income earned in the field of liberal professions;
- A flat rate of 15% applies to income from the provision of services:
- reproduction of computer storage media,
- Motorcycle brokerage and parts and accessories sales,
- wholesale brokerage,
- Storage and storage of liquids and gases,
- licensing services related to the acquisition of rights to books, brochures, pamphlets, maps, lists, magazines, periodicals, periodicals, other printed products,
- licensing services related to the acquisition of rights to use games and computer programs.
- A flat rate of 14% is reserved for income from the provision of healthcare services, architectural and engineering services, and specialized design services.
- A flat rate of 12% applies to entrepreneurs recording revenue from the provision of services related to the publishing and sale of computer game packages, excluding online publishing of computer games, system and application software packages, provide services related to computer hardware consulting, computer software, and provide computer software installation services.
- A flat rate of 10% applies when earning income from the provision of services for the purchase and sale of real estate on one’s own account.
- The flat rate of 8.5% applies to income from the provision of accommodation services, rental and real estate services, but also research and development services, rental and leasing of cars and vans and other motor vehicles, means of water transport and air transport.
- A flat rate of 5.5% is available for income from manufacturing activities, construction work, transportation of cargo by rolling stock with a capacity of more than 2 tons.
- A flat rate of 3% can be applied when an entrepreneur earns income from the provision of food services, the provision of commercial services, or from the provision of services related to animal production or fishing.
- The lowest flat rate – 2% – is available to companies that receive income from the sale of non-industrially processed plant and animal products, except for processed plant and animal products and products subject to excise taxes.
This, of course, is not all the possibilities – a full list of the types of income that entitle a taxpayer to benefit from a given flat rate on registered income can be found in Art. 12 of the Law on Lump Sum Income Tax. So if you are seriously considering choosing this form of taxation, make sure that your type of business corresponds to any of the flat tax rates
List of free professions
If you want to take advantage of the flat rate of 17%, reserved for income earned in the field of liberal professions, remember that as of January 2022 the list of liberal professions has changed. Currently, this group includes, among others. translators, attorneys, notaries, architects, civil engineers, appraisers, accountants, insurance agents, brokers, tax and investment advisors or patent attorneys.
Recorded lump sum vs. health contribution
It is also worth remembering the health premium applicable to all flat-rate taxpayers. In this case, there are three revenue thresholds:
- If your company generates revenue of no more than PLN 60,000 per year, the health contribution is PLN 335.94 per month.
- If the company’s revenue is between PLN 60,000 and 300,000, the health contribution is PLN 559.89 per month.
- The richest companies, with an annual revenue of more than PLN 300,000, will pay as much as PLN 1,007.81 per month in health premiums.
When is it a good idea to opt for a lump sum taxation on registered income?
The registered lump sum is the solution that will most benefit entrepreneurs with small business costs. So if your business doesn’t need to stock up on a regular basis, and deductible expenses aren’t as attractive – consider switching to a lump sum from registered income.
A big advantage of this form of taxation is slightly simpler bookkeeping – instead of keeping a tax revenue and expense led ger, it is enough to have an income register, in which the entrepreneur includes only the income earned from business activities.
However, the registered lump sum also has weaker points – it may be important in making a decision that a taxpayer using the lump sum cannot settle jointly with a spouse, and single-parent allowances do not apply to him.
You may also find that, despite your small costs, the type of business you are doing is taxed at a higher rate than the tax scale – which, combined with your relatively low income (less than PLN 120,000 a year), may make it more advantageous to use the general rules.
