Flat tax and services for the former client

Service-Tax

Pursuant to Art. 9a paragraph. 3 of the PIT Act, a taxpayer loses the right to be taxed with a flat tax in a tax year if he obtains income from business activity from the provision of services to the former or current employer corresponding to the activities he performed or performs in the tax year under the employment relationship.

Flat tax and cooperation with a former client

It follows from the above that if a taxpayer cooperates with a former or current employer, he cannot tax his income according to the 19% flat tax for the first year. The choice of flat tax is possible only from the year following the tax year in which the taxpayer worked for the former employer (as part of an employment relationship or a cooperative employment relationship).

The limitation to the application of a flat tax in the first year of operation applies only if the services provided as part of the business overlap with the obligations that the taxpayer performs or has performed as an employee of the former or current employer.

It is worth remembering, however, that if the taxpayer issues invoices for the provision of services completely different than those provided under the employment relationship, he will not be deprived of the right to be taxed with flat tax.

Example 1.

Until the end of March 2015, Ms. Anna worked under an employment contract as an accountant at company X. In April 2015, she set up a business, as part of which she runs an accounting office. Its client is the company X.

In 2015, Ms Anna has to settle accounts according to general rules, while in 2016 she has the right to choose flat taxation.

Example 2.

Until the end of March 2015, Mr. Adam worked under a contract of employment as an IT specialist at Y. In April 2015, he set up a business in which he runs a printing house.

As the scope of activities does not coincide with the obligations provided to the former employer, Mr. Adam may establish cooperation with company Y and choose a flat tax rate.

When is flat tax loss forfeited?

It should be remembered that the loss of the right to the flat tax does not take place at the moment of obtaining income from the provision of services for the former employer, but at the beginning of the year in which these services took place. As a result, the taxpayer, after losing the right to flat tax, has to adjust the income tax advances from the beginning of the year. Therefore, it is necessary to determine and pay to the office with tax advances calculated according to the tax scale. In this case, an overpayment or tax arrears may arise. If the advances turn out to be higher, the taxpayer must also pay late payment interest.

Cooperation with the former client and the flat tax

It should be noted that when concluding a contract of mandate or for a specific task, an employment relationship is not established, but a civil law relationship is established, therefore the principal is not an employer and the contractor is not an employee.

The limitation of the right to apply a flat tax applies only to entrepreneurs who previously worked under an employment contract. If, on the other hand, they were employed under a civil law contract, after setting up their own business, they can choose a flat taxation at the 19% rate and provide services to the former client, even if the scope of activity coincides with activities performed under a mandate or specific-task contract.