People considering starting their own business often fear the enormous amount of paperwork and the cost of running upfront. The unregistered business law, introduced in 2018, addresses these concerns. It allows individuals who:
- they generate income from this activity that does not exceed 75% of the minimum wage and
- have not conducted any business activity in the last 5 years.
The benefits of unregistered activity are:
- no obligation to report business activity to the register of entrepreneurs – CEIDG, tax office and Central Statistical Office,
- no social security and health insurance contributions for business activities,
- no advance payments of income tax,
- no VAT (unless the subject of the activity is the sale of goods or provision of services requiring VAT registration),
- simplified accounting documentation (sales records).
But how should taxes be settled in such activities?
Income tax
A person conducting unregistered business activity is not considered an entrepreneur under the law. They must account for their income by submitting a PIT-36 tax return by the end of April of the year following the year in which they earned the income. This form contains a special section for declaring income from unregistered business activity.
The declaration reports both the income and the cost of earning it. Purchase documents are the basis for recognizing an expense as a tax-deductible cost. A standard receipt will also be considered a tax-deductible document. However, it's important to remember that an expense recognized as a tax-deductible cost must be used to secure or earn income. In the event of a tax audit or verification, the taxpayer will be required to demonstrate this connection.
Income earned from business activities is taxed according to a tax scale. While in the case of ordinary business activity, the taxpayer can choose the form of taxation (tax scale, flat tax, lump sum), an individual conducting unregistered business does not have this option.
The advantage of unregistered business over traditional sole proprietorship is the lack of the need to pay tax advances. Income tax is paid only once a year.
Goods and Services Tax
As mentioned, unregistered businesses will not be subject to VAT. However, the VAT Act does not contain any specific provision that would introduce an exemption for such activities. However, since business income cannot exceed 75% of the minimum wage (PLN 38,178 for the entire year 2024), a VAT exemption will apply. Entities making sales of up to PLN 200,000 are not required to register as active VAT payers. Individuals conducting unregistered businesses also benefit from this exemption. However, the Act explicitly states that not everyone can benefit from the VAT exemption. Mandatory VAT will apply to entities selling devotional items made of non-precious metals, or artistic jewelry over 100 years old, among others.
The issue of documenting sales with a cash register receipt should also be separated from VAT settlement. An individual conducting unregistered business activity is not exempt from this obligation. However, they may benefit from the general exemptions specified in the regulation. Generally, entities with annual sales of up to PLN 20,000 are exempt from the obligation to record sales at the cash register. Furthermore, regardless of the sales amount, there is no obligation to record sales of goods via the mail order system at the cash register if the price is paid in full into a bank account, the seller assigns the payment received to a specific item, and they have the buyer's details (including address). In the case of services, this obligation does not arise if the services are performed for individuals not conducting business activity, payment is made to a bank account, and the service provider is able to attribute the payment received to the service provided. In other cases, an individual conducting unregistered business activity will be required to record sales at the cash register.
What is it like with ZUS?
There is no obligation to pay social security contributions for unregistered business activity. However, it should be remembered that if services are provided as part of an unregistered business activity by an individual who does not otherwise have social security coverage, the service recipient/client will be obligated to collect the applicable contributions.
This obligation will only apply to the provision of services. No social security contributions will be paid by anyone on the sale of goods.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of October 28, 2024
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