Scale, flat rate, lump sum… Scale, flat rate, flat rate… There's only one month left to choose your taxation method for sole proprietors, general partnerships, and civil partnerships. It's not worth leaving your choice to chance. Understanding how tax is calculated in each of these taxation methods and making an informed choice can save you money. In today's "Tax This and That," we discuss who should switch to a flat tax, who should switch to a lump sum, and who should stick with the tax scale.
Tax scale
This is the "default" form of taxation. It applies to income from employment or contracts of mandate, for example. It involves increasing the tax rate once a certain income threshold is exceeded.
On the tax scale (as the only form of taxation), we use the tax-free allowance. This means that income earned (what we receive from the contractor minus incurred costs) up to PLN 30,000 will not be subject to taxation at all.
If your income exceeds the tax-free amount, the excess up to PLN 120,000 will be taxed at a 12% rate. If you earn even more, the excess over PLN 120,000 will be taxed at a 32% rate.
Example:
Income: PLN 30,000, tax: PLN 0
Income: PLN 60,000, tax: (PLN 60,000–30,000) x 12% = PLN 3,600
Income: PLN 180,000, tax: (PLN 180,000–120,000) x 32% + (PLN 120,000–30,000) x 12% = PLN 30,000
Note: Income from business activities taxed on a tax scale is added together with income from employment contracts and other sources of income taxed on this basis.
In addition to the tax itself, the amount of health insurance contributions also depends on the form of taxation. Under the tax scale, the health insurance contribution is 9% of income. There is no tax-free allowance.
Flat tax
The flat tax has two key differences from the tax scale. First, there is no tax-free allowance, meaning tax is paid on the first złoty of income. Second, there are no tax brackets. Income, regardless of its amount, is taxed at a rate of 19%.
Example:
Income: PLN 30,000, tax: PLN 5,700
Income: PLN 60,000, tax: PLN 11,400
Income: PLN 180,000, tax: (PLN 180,000–120,000) x 32% + (PLN 120,000–30,000) x 12% = PLN 34,200
In the flat tax, the health insurance contribution rate is lower than in the tax bracket. It is 4.9%.
A lump sum
The lump sum tax on recorded income is completely different from previous taxation methods. While under the tax scale and flat tax, tax is paid on income, with the lump sum tax is paid on revenue (payments received from contractors, without deducting costs). This form of taxation will therefore be beneficial for individuals who generate no costs or only negligible costs. The tax rate does not depend on the amount of income earned, but on the subject of the business activity. To determine the applicable rate, refer to Article 12 of the Act on Lump Sum Income Tax on Certain Income Earned by Individuals. For example,
- freelancers – 17%
- advertising services – 15%
- healthcare – 14%
- Educational services – 8.5%
- catering activities (except for the sale of beverages with an alcohol content above 1.5%) – 3%
Please note: The lump sum is not allowed if the income from the business or partnership exceeds EUR 2,000,000.
The flat-rate health insurance contribution rate is 9%. However, the basis for its calculation depends on the income generated during the year and is as follows:
- 0% of the average salary with annual income up to PLN 60,000;
- 100% of the average salary with annual income from PLN 60,000 to PLN 300,000;
- 180% of the average salary with annual income over PLN 300,000.
Until when can I choose?
The taxation method is chosen by submitting a declaration to your tax office. This declaration must be submitted by the 20th day of the month following the month in which the first income was earned. For existing businesses (general partnerships, civil partnerships), this deadline usually falls on February 20th. For businesses established during the year, it is usually the 20th day of the month following the opening date.
If you don't know which form of taxation to choose, or you are wondering whether the current form is right for you, we encourage you to contact our office.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of January 17, 2025
author/editor of the series:
Be the first to receive our articles and legal alerts, straight to your inbox! Sign up for our newsletter by clicking the link or contact us at social@kglegal.pl to personalize your content.
