A tax credit is a way to avoid paying tax

Service-Tax

When running a business that generates income, the entrepreneur is obliged to pay advance income tax. However, if certain conditions are met and the tax regulations are properly used, this obligation can be avoided in the course of the year. This possibility is provided by a tax credit.

Tax credit - who is entitled to?

A tax loan is an exemption from the obligation to make advance payments for income tax. It can be used by entrepreneurs who started their own business for the first time.

The income obtained in the year in which the tax loan was granted is settled, without interest, during the next five years after the year in which the loan was used.

Important!!!

Entrepreneurs who can take advantage of the tax credit include persons who, in the year of commencement of business activity and in the period of three years from the end of the year preceding the year of its commencement, did not conduct business activity - independently or as a partner of the company.

The condition is also not to conduct economic activity for a period of three years by the spouse, if there was joint property between the spouses.

When can you take advantage of your tax credit?

Despite the fact that taxpayers who have commenced business activity can take advantage of the exemption from paying advances on income tax, they cannot take advantage of this privilege in the first year of operating. The right to a tax credit is granted only in the next year of operation. However, in the year of commencement of operations, the company must be run for a period of 10 months.

Example 1.

The entrepreneur started operating on February 15, 2015.
Therefore, he will be able to use the tax loan from January 1, 2016.

Example 2.

The entrepreneur started operating on May 20, 2015.
The right to use the tax loan is valid from January 1, 2017.

Tax credit - important amount of income

The entrepreneur must achieve an average monthly income of at least EUR 1000. This amount is converted according to the average euro exchange rate announced by the National Bank of Poland on the last day of the year preceding the year of commencement of operations. The euro exchange rate as at December 31, 2014 was PLN 4.2623. This means that in order to be able to take advantage of the tax loan, the average monthly income in 2014 had to be PLN 4,262.30.

It is also important that this income is achieved in the year or for the year in which the exemption is used or in the next five tax years. Otherwise, your entitlement to the tax credit will cease to exist.

Other conditions necessary to take advantage of the tax credit

In addition to the above conditions, the provisions also require other criteria to be met in order to be able to take advantage of the tax credit. We include among them:

  • having the status of a small taxpayer from the date of commencement of business activity until January 1 of the year in which the entrepreneur will use the tax credit;
  • employing a minimum of 5 people under a contract of employment, converted into full-time jobs. This condition must be met in each month of the year preceding the year of using the tax credit;

  • not using in the conducted activity:

- fixed assets,

- intangible assets,

- other assets of significant value, which were made available free of charge by persons belonging to tax groups I and II;

  • taxation on the basis of the tax scale in the year in which the tax credit was used.

Time limits for using the tax credit

In order to take advantage of a tax loan, a declaration on the use of a tax loan must be submitted to the competent head of the tax office in writing. The deadline in this matter is January 31 of the tax year in which the entrepreneur wants to use the tax credit.

Tax credit and submitting the declaration

When taking advantage of a tax loan, even though the entrepreneur did not make advance payments for income tax, he must submit a tax declaration after the end of the year. The tax return shows the income for the year covered by the exemption, but the income shown in the tax return is not taxable.

As mentioned above, the received tax credit is settled in the next five years after the end of the tax year. This settlement is made in the tax return after the end of each year (out of these five years). Then, 20% of the income for the year in which the tax credit was used should be added to the income earned in a given tax year. The added amount is shown in PIT / Z, and then in the PIT-36 or PIT-36L tax return.

Tax credit and the type of taxation

The tax credit can be used by entrepreneurs who have chosen general rules or a lump sum as a form of taxation.