Ukrainian citizens can set up a sole proprietorship in Poland [one-man business activity, in PL: indywidualna działalność gospodarcza], as well as remotely provide services in Poland as part of business activities established in Ukraine. The issue of personal income tax, social and health insurance related to doing business in Poland undoubtedly requires detailed consideration.
Setting up a sole proprietorship in Poland
The sole proprietorship is the simplest form of performing business activity in Poland and, as a rule, the most suitable form for small business. No minimum capital is required.
Polish provisions are quite strict when it comes to performing the business activity by non-EU citizens. However, a special Act on Assistance Provided to Ukrainians, which was introduced in March 2022, states that every Ukrainian citizen whose stay in Poland is legal, may run the business activity without any further permits. If the Ukrainian individual is legally in Poland and has a PESEL number, as long as the above-mentioned legal provisions are in force, he may register his business activity in Poland.
A sole proprietorship should be registered with the Central Registration and Information on Economic Activity [CEIDG]. A taxpayer registers the business by submitting an application via the CEIDG-1 form. The form can be submitted:
- online — at biznes.gov.pl;
- in any municipality or city office.
Taxation of business income
When conducting the sole proprietorship, the individual is a payer of personal income tax (PIT). The tax advances should be paid to the tax office on a monthly or quarterly basis (depending on the choice) and the file annual tax return should be file on time (for 2022 by 2nd May 2023).
Basically, income from individual business activity is taxed on general terms, with 12% and 32% PIT rates (higher rate for income exceeding 120,000 PLN).
Progressive tax scale for 2023
As a rule, the individual entrepreneur may also choose the other form of taxation:
- 19% income flat rate tax- tax rate regardless of the amount of income applicable to a profit i.e the surplus of income above underlying costs,
- lump sum tax calculated on revenues – tax rate (from 2% to 17%) depends on the type of the services performed. For example, the lump sum tax regime provides for special rates for IT specialists – 12,5% (or even 8,5%). However, some types of business activity are excluded from this form of taxation.
Before choosing a form of taxation, it is worthwhile to analyze the tax implications of each form, bearing in mind the type and scope of the business, the amount of expected revenue and expenses. Each form of taxation is associated with different benefits and costs – see below the table for further details.
Forms of taxation in Poland
Social security and healthcare contributions
Running the business activity in Poland constitutes a separate title to be covered by mandatory social security and health insurance contributions.
The individual entrepreneur is obliged to pay due contributions to the Social Insurance Institution (ZUS) on a monthly basis.
He/she can take advantage of:
- the start allowance for 6 months — only the health insurance contributions are due,
- and the small ZUS (reduced contributions) for the next 24 months.
If the entrepreneur is not entitled to a relief, he/she need to pay social security contributions calculated on the basis which is not lower than 60% of the forecast average monthly wage.
Starting from January 2022, the manner of calculating healthcare contributions from the business activity is strictly associated with the form of taxation.
The manner of calculating healthcare contributions
In case of the lump sum tax, the amount of the health insurance contribution depends on the amount of revenues obtained in tax year as well as the statutory average salary announced for a given year. The health insurance contributions are paid within three income thresholds.
Three income thresholds
Other practical aspects
Pursuant to the PIT Act, the individual business activity is understood as gainful activity carried out on own behalf, regardless of its result, in an organized and continuous manner, from which the revenues obtained are not included in revenues from other sources such as e.g. employment relationship or activity performed in person.
At the same time, an activity is not considered as the business activity if the following conditions for the entrepreneur are jointly met:
- he is not liable towards third parties for the result of activities and their performance,
- by carrying out these activities, he do not bear the economic risk associated with the conducted activity,
- when performing the activities, he is subordinate to the management of the ordering party, these activities are performed at the place or time specified by the ordering party.
After fulfilling the positive conditions and at the same time absence of negative premises, the revenues from the services provided will be subject to taxation on the terms applicable to the source of income "individual business activity".
If the inspection authorities determine that in a particular case the conditions indicated above have not been met, they may reclassify the contract concluded with the entrepreneur as a contract of mandate/employment contract. This could result in serious consequences in terms of social and health insurance contributions and tax advances.
Remote provision of services
According to the provisions of the double taxation treaty concluded between Poland and Ukraine, as a rule, the profits of an enterprise established in the territory of Ukraine are taxed in the territory of Ukraine. However, if a citizen of Ukraine conducts business activity through a permanent establishment located in Poland, its profits will be taxed in Poland to the extent that they can be attributed to this establishment. The tax rate discussed above will be applicable as well.
The terms permanent establishment means a fixed place of business through which the business of an enterprise is wholly or partly carried on. The fact that an enterprise has a certain space for its business activities is sufficient to consider that the enterprise has a permanent establishment. The enterprise is not required to have a formal right to dispose of such a property.
The Polish tax authorities take the position that conducting business activity registered in Ukraine remotely from the territory of Poland will be considered as conducting business through a permanent establishment (for instance, the individual interpretation of the Director of National Tax Information of October 20, 2022, no. 0115-KDIT1.4011.330.2022.2.MST).
The case concerned a refugee from Ukraine who is registered as an individual entrepreneur in Ukraine and provides software development and IT consulting services. The Ukrainian citizen arrived to Poland after February 24, 2022, and is staying in Poland under the terms of temporary protection for people fleeing Ukraine due to the war. In Poland, he rents the apartment where he currently lives and intends to continue providing software development and consulting services remotely to a Ukrainian client. In Ukraine, the taxpayer has a property where his family lives. The Director of the National Tax Information confirmed that the taxpayer conducts business activity in Poland through a permanent establishment and, therefore, should tax in Poland all income related his activity performed remotely from Poland.
Authors:
Karolina Demska, Senior consultant, tax advisor MDDP
Rafał Sidorowicz, Senior manager, tax advisor MDDP
The editors are not responsible for the content of the material and may not support the opinion of its author
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