Personal activity or business activity?
Activities performed in person and business activities are defined as sources of income in accordance with Art. 10 (1) of the Personal Income Tax Act. According to the act, they constitute separate sources of income, so the income obtained from these activities has different taxation rules.
Recently, many doubts have arisen regarding the sources of revenues obtained by, among others, athletes, artists, scientists and journalists. In connection with conducting non-agricultural business activity, can income from activities performed in person, when the sources of income coincide, be included in the corporate income?
Activities performed in person
The legislator did not provide a precise definition of activities performed in person, and the Act only mentioned the types of activities performed that fall within the scope of a given source of income. Pursuant to Art. 13 of the Personal Income Tax Act, the following can be distinguished:
income from personally performed artistic, literary, scientific, coaching, educational and journalistic activities, including participation in competitions in the field of science, culture and art and journalism, and income from practicing sports, sports scholarships, awarded on the basis of separate regulations and judges' revenues from running sports competitions,
revenues from the performance of services on the basis of a mandate contract or a specific specific task contract, obtained only from:
a natural person conducting business activity, a legal person and its organizational unit as well as an organizational unit without legal personality,
the owner (holder) of the real estate in which the premises are rented or the manager or administrator acting on his behalf - if the taxpayer performs these services only for the needs related to the real estate (except for revenues obtained on the basis of contracts concluded as part of non-agricultural business activities conducted by the taxpayer) ;
revenues earned on the basis of enterprise management contracts, managerial contracts or contracts of a similar nature.
On the other hand, economic activity was defined in the Act on the Personal Income Tax Act in Art. 5a point 6. It is any gainful activity:
manufacturing, construction, commercial or service,
consisting in searching for, identifying and extracting minerals from deposits,
consisting in the use of things and intangible assets.
In order for an activity to be considered an economic activity, it must also be carried out on its own behalf, regardless of its result, in an organized and continuous manner, from which the revenues obtained are not included in other revenues from the sources listed in art. 10 sec. 1.
It is worth mentioning the negative premises mentioned in Art. 5b paragraph. 1, which complement the definition of economic activity. Their joint fulfillment excludes the recognition of given activities as economic activity, they are:
responsibility towards third parties for the result of given activities and their performance, with the exception of torts, shall be borne by the principal,
activities are performed under the direction, as well as in the place and time designated by the client;
performing the given activities does not bear the economic risk related to the activity conducted.
Accounting for activities performed personally as economic activities
As already mentioned, the regulations do not define the activity performed personally - only the types of income that belong to it are mentioned. Taxpayers often have a problem because they do not know to which source they should allocate a given income. There are often situations where, apart from the activity performed in person, the taxpayer conducts business activity.
For a long time, all interpretations have denied taxpayers the right to classify the revenues obtained from activities performed personally as economic activities, if the activities performed overlap. Consequently, the tax authorities and courts were not favorable to taxpayers. In their justifications, they stated that if the legislator assigned a given activity to an activity performed personally, it could not be performed as an economic activity. As an example of such jurisprudence, one can mention the lost case of a speedway athlete in the judgment of the Supreme Administrative Court of April 8, 2014 (reference number II FSK 1125/12).
The dispute was resolved by the Minister of Finance in the general interpretation of May 22, 2014 No. how much is obtained under the conditions corresponding to this activity, in accordance with Art. 5a, point 6 and art. 5b paragraph. 1 of the Income Tax Act.
This is beneficial not only for athletes, but also for many other taxpayers due to the way in which they are taxed. For activities performed in person, this method was provided for only according to the tax scale (32% or 18%). Therefore, the taxpayer had to pay a higher tax after exceeding the lower threshold. On the other hand, the possibility of settling accounts as part of business activity allows you to change the taxed form to a flat tax - 19%.
The differences between personal and business activities are visible. You should carefully consider which form to choose. Finally, it is worth noting that when conducting business in person, you do not have to fulfill the registration obligation, and the ZUS contributions and tax are paid by the employer. The decisive issue is the method of taxation - as part of activities performed in person, it is possible to settle only according to the tax threshold, which can often be unfavorable. However, in the case of business activity, you can also opt for a flat tax. If the scope of activity performed in person is similar to economic activity, the income obtained from it may be accounted for as part of economic activity in the case of an increasing number of taxpayers.