Freelancer tax obligations

Service Business

Self-employment is a win-win option for those who want to become a sole trader, increase their wages or avoid being subordinate to their superiors. Through self-employment, an entrepreneur can choose a form of taxation that will allow him to pay a lower tax. You can also treat self-employment as a transition period in order to gain experience and contractors. Later, a one-person enterprise can be transformed, for example, into a capital company. In order to be self-employed, you must first obtain the status of an entrepreneur.

How to become an entrepreneur?

Obtaining the status of an entrepreneur is associated with legalizing the activity. For this purpose, an application for entry in the register of business activities should be submitted to the commune office, in accordance with the entrepreneur's place of residence. Currently, an entry in the register can also be obtained by sending an application by e-mail or by registered mail. In this way, the necessary REGON and NIP numbers are obtained at the same time. The activity can be carried out from the date of delivery of the application to the registration authority. Having the status of an entrepreneur is associated with numerous obligations, e.g. paying insurance premiums or taxation. Each entrepreneur starting a business activity should provide basic information about himself as a taxpayer on the NIP-1 application form, i.e. what form of accounting documentation he will keep and where he will keep tax documentation. The trader has to decide how he will charge tax. This decision determines the amount of tax and the number of obligatory formalities.

Taxation on general terms

A self-employed person may choose the form of taxation according to general rules. In this form of taxation, the tax is paid on a scale. The taxpayer may also take advantage of any preferences, e.g. settlements jointly with the spouse or deductions from income and tax. Taxation in this form consists in paying tax on income, which arises after reducing the amount of income by the costs associated with obtaining it. Tax deductible costs may be related to current or future income, but it is objectively achievable. However, this does not apply to the expenses listed in the catalog of expenses that are not recognized as the basic cost, i.e., for example, default interest paid on account of late payments of budget receivables. Taxation under general rules is particularly beneficial for people with low income, for those who have the opportunity to benefit from tax reliefs or exemptions, and for those who can settle their income together with their spouse or child, and their joint income, obtained during in the tax year, do not exceed PLN 90,000.

Linear tax

A flat tax is a form of taxation equal to 19% of income obtained from business activities. This form of taxation may be chosen by entrepreneurs running their own business or in the form of a company without legal personality. The taxpayer has the right to deduct tax deductible costs. However, his duty is to make a monthly advance payment to the account of the tax office in the amount of the difference between the tax due on the income earned from the beginning of the year and the sum of advance payments due for the previous months. Entrepreneurs cannot benefit from any discounts and deductions. Income can only be reduced by social security contributions, and tax withholding can only be reduced by health insurance contributions. The declaration on the choice of this form of taxation is submitted by January 20 of the tax year to the tax office. The flat tax is a form of taxation that is particularly beneficial for entrepreneurs who earn high income.

Lump sum on recorded revenues

Lump sum taxation on registered revenues involves fewer formalities. This form of taxation can be used when the first income is earned and in each subsequent tax year, if the operating income from the previous year was not greater than EUR 250,000. Lump sum rates depend on the type of income earned. If the entrepreneur chooses this form of taxation, he must inform the tax office about it in writing. However, it should be remembered that people who cannot benefit from the lump sum are:

  • paying tax in the form of a tax card
  • benefiting from periodic tax exemption
  • running pharmacies
  • operating in the field of lending secured
  • active in the purchase and sale of foreign exchange values
  • conducting non-agricultural business activity in the field of liberal professions
  • providing services described in the Act of 20 November 1998 on flat-rate income tax on certain revenues earned by natural persons (Journal of Laws No. 144, item 930, as amended)

In the case of this form of taxation, it is not possible to reduce the income by the costs of obtaining it. However, it is possible to deduct losses incurred in connection with the conducted activity, deduct from income social security contributions, donations, expenses for rehabilitation purposes. The tax may be reduced by health insurance contributions or contributions to public benefit organizations.

Tax card

This form of taxation can only be used by taxpayers who perform their activities from a strictly defined group of services. These include, for example, locksmithing, tailoring, blacksmithing, cosmetic, hairdressing, activities based on retailing food and drinks, tobacco products or flowers. There are also a number of obligations related to the use of the tax deduction card. The taxpayer must, inter alia, submit an application for taxation with a tax card, he / she may not use the services of persons not employed by him under a contract of employment or the services of other enterprises and establishments, and may not conduct other activities that are not taxed with a tax card, and the taxpayer's spouse may not perform activities to the same extent.

The advantage of self-employment is the ability to choose the form of taxation that will be most beneficial for your business. However, it should be remembered that a self-employed VAT payer is also obliged to issue invoices, keep a register of purchases and sales, settle input and output tax, submit VAT-7 returns and pay the tax.