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Read in: 6 minSole Proprietorship in Poland (JDG) and the e-commerce industry – What you need to know?
- Last update: 12.06.2024
- Published: 09.05.2024
- Read in: 6 min
In the era of digitalization, where online shopping is increasingly common, many entrepreneurs want to try their hand in the e-commerce industry. To do this, they often have to choose between different types of business activities available, which then influence many factors, such as types of taxation and bookkeeping. The choice often falls on a sole proprietorship, characterized by simplicity and flexibility, which we detail in the article below. So if you’re looking for information on Polish sole proprietorships, read on!
Definition of Sole Proprietorship in Poland
A sole proprietorship is an organized profit-making activity carried out in one’s own name and continuously. This definition of a sole proprietorship is specified in Article 3 of the Act of March 6, 2018 – Entrepreneurs’ Law.
Let us mention, that in Polish a sole proprietorship is called “jednoosobowa działalność gospodarcza” or JDG in short.
Who can establish and run a sole proprietorship in Poland?
Setting up a sole proprietorship is available to adults. Moreover, they do not have to be Polish citizens.
Citizens from other EU member states and countries belonging to the European Economic Area (Norway, Iceland, and Liechtenstein) can run a sole proprietorship just like Poles. However, citizens from third countries and outside the EEA need to obtain a residency title beforehand, such as a permanent residence permit or a long-term EU resident permit.
How to register a sole proprietorship in Poland?
Registration of a sole proprietorship is done by submitting the CEIDG-1 application for entry into the Central Register and Information on Economic Activity. This can be done by submitting the aforementioned application in person at the municipality or city office by mail or online. In the case of the latter method, the process must be finalized by signing the document with a trusted profile, qualified signature, in person, or by proxy at the office.
It’s worth noting that those establishing an individual business who do not have a NIP or REGON number apply for them simultaneously with the sole proprietorship application. As a result, the applicant will receive a NIP number within one working day and a REGON number within seven working days.
What information is needed to set up a sole proprietorship in Poland?
Registering a sole proprietorship requires the entrepreneur to provide the following data:
- Name, surname, parents’ names, date, and place of birth;
- Type, series, and number of identification document;
- PESEL if you have Polish citizenship or have been assigned one;
- All held citizenships;
- NIP and REGON numbers if assigned;
- Residential address and other addresses related to the business;
- Name of the business;
- Abbreviated name;
- PKD codes;
- Number of employees you plan to hire;
- Date of commencement of business;
- Information on insurance in ZUS, KRUS, or abroad;
- Tax office details appropriate to your residence.
What Documents are Required to Open a Sole Proprietorship?
To set up a sole proprietorship, a Polish citizen needs only an identity card. For citizens of non-EU member states, a residence permit along with an appropriate identity document or passport is required.
Sole proprietorship in Poland – How to choose a company name?
The name of a sole proprietorship must include the unchanged name and surname. Additionally, any phrase can be added to it.
Registration of sole proprietorship – What address to provide?
There are many options regarding the address where you can register a sole proprietorship. It can be one or several permanent locations:
- Service point;
- Office, including virtual and coworking spaces;
- Mobile.
If there is more than one place where the sole proprietorship is conducted, multiple addresses can also be listed, such as office address, warehouse address, and workshop address. It is also possible not to provide an address if there is no fixed place of business. However, a correspondence address must be provided.
Importantly, for each address reported in CEIDG, the entrepreneur must have a legal title – ownership, usage rights, cooperative ownership right to the premises, lease, rent, or lending.
Choosing PKD code (Polish Classification of Activities)
Registration in CEIDG also requires providing a PKD code, which defines the range of activities the entrepreneur will perform within their business. Therefore, you need to choose a code closest to the nature of the sole proprietorship, and these can be found in the PKD code search engine.
Moreover, you need to specify one main PKD code – which will apply to the type of work generating the most profit – as well as additional codes. The number of these is unlimited.
Company Bank Account
Entrepreneurs setting up a sole proprietorship in Poland do not have to have a company bank account and can use an individual account. However, this is possible only if the entrepreneur is the sole owner of this account.
It’s different if the person setting up or running a sole proprietorship decides to become an active VAT taxpayer. In this case, a company account is mandatory and also listed on the white list of VAT taxpayers. A company account is also required when transactions are made using the split payment mechanism.
Additionally, if the entrepreneur’s contractor is another entrepreneur and/or the transaction amount exceeds 15,000 PLN, such a transaction must be carried out by transfer. Cash payments are prohibited in this case.
Costs of setting up a sole proprietorship in Poland
Setting up a sole proprietorship is free of charge. However, the cost of running it, which we describe later in the article, is somewhat different.
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Check out our e-commerce accounting offerIndividual business and permits
In some cases, depending on the subject of activity, the entrepreneur, apart from registering sole proprietorship in CEIDG or a company in KRS, must also obtain the appropriate permit, which can take the form of entry into regulated activities, licenses, and concessions. Examples of situations where concessions are required include, among others:
- Performing mining works;
- Work related to weapons and explosives;
- Protection of persons and property;
- Running a casino;
- Air transport.
Licenses are required for:
- Running pharmacies;
- Selling alcohol;
- Providing detective services;
- Trading plant protection products.
Meanwhile, regulated business activities include, among others:
- Running a nursing practice;
- Telecommunication activities.
ZUS and VAT – Costs of running a sole proprietorship
Sole proprietorship and ZUS contributions
Running a sole proprietorship in Poland requires paying ZUS contributions for a sole proprietorship. These include:
- Health insurance;
- Social insurance, which includes voluntary sickness insurance and mandatory pension, disability, and accident insurance;
- Labor Fund and Solidarity Fund.
Start-up relief and preferential contributions
In the case of sole proprietorship in Poland, there are also certain reliefs. One of them is the start-up relief, which exempts from:
- Social, disability, accident, and pension insurance;
- Labor and Solidarity Funds for the first six months of activity.
However, it’s important to note that the start-up relief is intended for newly established sole proprietorships and those that have been closed at least 60 months earlier and do not plan to provide services to former employers.
Additionally, at a later stage, sole proprietorships can also benefit from reduced contributions based on a preferential basis. This relief reduces the minimum basis from which contributions are calculated from 60% of the projected average gross wage to 30%. Furthermore, if running a sole proprietorship is the only reason for mandatory social insurance payments, then there is no need to pay the Labor and Solidarity Funds for oneself.
Preferential ZUS contributions are available to entrepreneurs for 24 months if they meet the conditions described under “start-up relief” and if in the last 60 calendar months or currently:
- They did not and do not run non-agricultural economic activity based on regulations on economic activity or other specific regulations;
- They did not and do not perform creative or artistic activities;
- They did not and do not run economic activities in a free profession in the meaning of the regulations on lump-sum income tax on certain revenues earned by individuals or those whose revenues are business revenues in the meaning of the income tax regulations for individuals;
- They were not and are not partners of a single-member limited liability company, general partnership, limited partnership, or partnership;
- They did not and do not run a public or non-public school, another form of pre-school education, facility, or their team based on the Education Law.
Sole proprietorship and VAT
VAT registration is mandatory for all entrepreneurs who do not meet the conditions for exemption from this obligation, which means:
- Their sales do not exceed 200,000 PLN – this is a subjective exemption;
- The goods and services they sell are VAT-exempt – this is an objective exemption.
Moreover, VAT for entrepreneurs, or rather its payment, is mandatory if the business address is located in another EU member state or, regardless of sales value, if they supply:
- Goods listed in Annex 12 to the Act, including coins or scrap from precious metals;
- Goods subject to excise duty, except for electricity, tobacco products, passenger cars;
- Land and selected buildings;
- New means of transport;
- Parts for motor vehicles and motorcycles.
Additionally, VAT registration must also be done by entrepreneurs providing:
- Legal services;
- Consulting services, except for agricultural consulting;
- Jewelry services;
- Debt collection and factoring services.
PIT – Taxation of sole proprietorship income
Entrepreneurs can choose from three forms of taxation of sole proprietorship income with personal income tax, or PIT. These include:
- Taxation according to general rules, according to the tax scale of 12% and 32%. This is the default form of taxation that will be applied if the entrepreneur does not choose another method. The basis of taxation in this case is income.
- According to the flat rate of 19%. The subject of taxation here is income.
- Taxation with a lump sum on registered revenues. The subject of taxation here is the achieved revenue.
Until the end of 2021, entrepreneurs could choose taxation with a tax card. However, now only those entrepreneurs who selected this method within the permissible time can use this form of taxation.
General rules taxation of sole proprietorship
General rules taxation of a sole proprietorship according to the tax scale is the default option when setting up a sole proprietorship. However, this form has its advantages and disadvantages.
The advantages undoubtedly include the possibility of taxing income from various sources in one tax return. Moreover, taxation of a sole proprietorship according to the tax scale allows for the use of such reliefs as:
- Donation relief;
- Rehabilitation relief;
- Thermal modernization relief;
- Internet expenses relief;
- Relief from losses incurred in previous years.
Additionally, the tax scale also enables joint settlement with a spouse or child, which can be particularly useful when the other person has low income.
On the downside of this form of taxation of a sole proprietorship is the income threshold of 120,000 PLN. After exceeding this threshold, entrepreneurs will have to settle at the 32% tax rate.
It’s also worth noting that taxation of sole proprietorship according to general rules requires keeping a revenue and expense ledger. It may also be necessary to pay an advance income tax for the month or quarter by the 20th day of the month following the month or quarter to which the settlement relates. This advance is mandatory only when the amount of tax due from the income earned from the beginning of the year and reduced by the sum of advances paid from the beginning of the year exceeds 1,000 PLN. According to Article 44 (15) of the PIT Act: “If the tax due from the income earned from the beginning of the year reduced by the sum of advances paid from the beginning of the year exceeds 1,000 PLN, the difference between the tax due from the income earned from the beginning of the year and the sum of advances paid from the beginning of the year shall be payable.”
Linear taxation of sole proprietorship
Choosing linear taxation as a form of taxation of a sole proprietorship allows the entrepreneur to determine the amount of tax that will need to be paid in advance.
In contrast to the tax scale, choosing linear taxation, entrepreneurs cannot jointly settle with a spouse or child, nor are they entitled to the previously mentioned reliefs. However, it is still possible to use tax reliefs and deductions, such as:
- Deduction of social security contributions;
- Deduction of health insurance contributions;
- Payments to an Individual Retirement Security Account;
- R&D relief;
- Sponsorship relief;
- Monument relief;
- Terminal relief.
Importantly, there is the possibility of deducting up to 11,600 PLN of health insurance contributions for the entrepreneur from the tax base.
It’s worth noting that linear taxation cannot be applied when planning to provide services to a former or current employer in the same year and/or in the same scope as the person establishing the Polish sole proprietorship previously provided and these were based on an employment relationship or cooperative employment relationship. Furthermore, entrepreneurs choosing linear taxation must keep a revenue and expense ledger or an accounting book and pay advances if they exceed 1,000 PLN in due tax.
Lump sum taxation of sole proprietorship
Choosing lump sum taxation for a sole proprietorship may be the most challenging of all the forms of taxation mentioned in this article. Lump sum taxation is not possible for:
- Those using a tax card;
- Those using temporary income tax exemptions;
- Those earning income from: running pharmacies, buying and selling foreign exchange, and trading in parts and accessories for motor vehicles;
- Those manufacturing products subject to excise duty, except for electricity from renewable energy sources;
- Those starting business activities in the tax year after changing from independently conducted business to a partnership with a spouse, from a partnership with a spouse to independently conducted business by one or each spouse, or from independently conducted business by one spouse to independently conducted business by the other spouse – if the spouse or spouses before the change paid income tax on general terms from conducting this business.
If an entrepreneur can use lump sum taxation, the tax rate may be significantly lower than with general rules or linear taxation. The exact rate depends on the type of activity and can be: 17%, 15%, 14%, 12.5%, 12%, 10%, 8.5%, 5.5%, 3% – lump sum rate for an online store.
However, the disadvantages of this form of taxation include, primarily, the inability to settle jointly with a spouse and the inability to use many tax reliefs and deductions.
In addition, the entrepreneur is required to keep a separate revenue register for each year, documenting revenues broken down by individual tax rates. Additionally, they must pay lump-sum tax on registered revenues monthly or quarterly.
Comparison of Sole Proprietorship Taxation Forms
Finally, let’s compare the tax burden in three example scenarios for an e-commerce goods seller (lump sum rate for an online store – 3%).
Sole Proprietorship Taxation – Example 1:
- Annual company revenue: 100,000 PLN
- Annual costs: 36,000 PLN
- Large ZUS with sickness contributions annually: 14,400 PLN
In this case, the total tax burden of company ABC in the given year would be:
- 22,196 PLN – with general rules taxation, considering ZUS contributions, PIT, 9% health contribution for the entrepreneur, and 4% solidarity tax;
- 25,422 PLN – with linear tax, considering ZUS contributions, 4.9% health contribution, PIT after deducting NFZ, and 4% solidarity tax;
- 25,663 PLN – with 3% lump sum taxation, considering ZUS contributions, health contribution for the entrepreneur, and lump sum after deducting NFZ.
Sole Proprietorship Taxation – Example 2:
- Annual company revenue: 720,000 PLN
- Annual costs: 300,000 PLN
- Large ZUS with sickness contributions annually: 14,400 PLN
In this case, the total tax burden of company ABC in the given year would be:
- 157,596 PLN – with general rules taxation, considering ZUS contributions, PIT, 9% health contribution for the entrepreneur, and 4% solidarity tax;
- 109,685 PLN – with linear tax, considering ZUS contributions, 4.9% health contribution, PIT after deducting NFZ, and 4% solidarity tax;
- 114,990 PLN – with 3% lump sum taxation, considering ZUS contributions, health contribution for the entrepreneur, and lump sum after deducting NFZ.
Sole Proprietorship Taxation – Example 3:
- Company revenue: 500,000 PLN
- Annual costs: 100,000 PLN
- Large ZUS with sickness contributions: 14,400 PLN
In this case, the total tax burden of company ABC in the given year would be:
- 149,396 PLN – with general rules taxation, considering ZUS contributions, PIT, 9% health contribution for the entrepreneur, and 4% solidarity tax;
- 104,905 PLN – with linear tax, considering ZUS contributions, 4.9% health contribution, PIT after deducting NFZ, and 4% solidarity tax;
- 44,270 PLN – with 3% lump sum taxation, considering ZUS contributions, health contribution for the entrepreneur, and lump sum after deducting NFZ.
Analyzing the above examples, we conclude that the choice of the most favorable form of taxation depends on the actual financial results. For example, if the company achieves a high margin on sales with relatively low costs, lump sum taxation is generally the most profitable form. However, as the level of business costs increases, it is necessary to consider choosing general rules or linear tax. |
Need help with VAT or e-commerce accounting?
Contact us and our specialists will take care of the rest! Regardless of whether it is about accounting issues or VAT & VAT OSS issues in EU countries and the UK!
Check out our e-commerce accounting offerSole proprietorship in Poland – Can you suspend your activity?
Suspending a sole proprietorship is possible for a minimum of 30 days (28 or 29 in February) if the entrepreneur does not employ any employees. The maximum length of suspension is not limited.
To suspend, an appropriate application must be submitted to CEIDG. This can be done in person at the office, by mail, or online, specifying the date of suspension and whether it is for a definite or indefinite period.
Closing a sole proprietorship
In addition to suspending activities, entrepreneurs can also close them. To do this, an application for deletion from the register must be submitted to CEIDG, indicating the date when this should occur. This can be done in person, by mail, or online.
It is essential to remember that, besides the aforementioned application, within seven days from the date of cessation of activity, all persons registered with ZUS – including oneself, collaborators, and employees – must be deregistered. Otherwise, ZUS will continue to calculate contributions.
Moreover, entrepreneurs taxed with a tax card must remember to submit the PIT-16Z application to the tax office. This serves to determine the appropriate proportion of tax, which the entrepreneur will then have to pay.
Sole proprietorship and accounting
In the case of Polish sole proprietorship, entrepreneurs are obliged to keep accounting records (invoices, receipts, and registers) in the form of simplified accounting (revenue and expense ledger or revenue register when taxed with a lump sum) or in full accounting in the form of accounting books.
Simplified accounting is allowed if the entrepreneur does not exceed the revenue limit of 2 million euros. If this happens, they must start keeping accounting books.
For entrepreneurs taxed with a tax card, they do not have to keep accounting records. The tax amount for the given year is determined by the head of the tax office.
Polish sole proprietorship and asset liability
One of the essential features of a sole proprietorship is the responsibility for company obligations with personal assets, as well as joint assets shared with the spouse.
It is worth noting that a mechanism allowing protection from joint liability can be signing a prenuptial agreement. In a situation where the assets of the sole proprietorship owner were to settle company obligations, the bailiff will not seize the spouse’s assets.
Polish sole proprietorship and the e-commerce industry – summary
A sole proprietorship often represents the simplest and cheapest form of conducting business. It can be opened very quickly and also benefit from a range of preferences – especially in the area of simplified accounting, ZUS reliefs, and the possibility of choosing various forms of taxation. However, an undeniable drawback of sole proprietorship is that the entrepreneur is liable with all their assets for company obligations. The final decision regarding the choice of taxation form should be made after a thorough analysis of the taxation rules.
An appropriate accountant or tax advisor can help with this. If you need such support or are already running a business but want to ensure, for example, proper VAT settlement, schedule a consultation, and our specialists will be happy to answer your questions or assist with registrations, settlements, and VAT and VAT OSS declarations, as well as in e-commerce accounting!