Flat tax in business - is it profitable?
One of the forms of business taxation available in Poland is, among others, a flat tax. Its use has many benefits, but not everyone will find it profitable to choose it. In the following article, we present what to look for when choosing the form of taxation and when the flat tax may become a profitable form of taxation for entrepreneurs.
Flat tax and taxation under general rules
The flat tax rate is always 19%, regardless of the amount of the entrepreneur's income. This is the basic difference between a flat tax and a tax paid on general terms. When settling according to the so-called the tax scale, the tax rate is 17% or 32%, depending on the income earned. Therefore, the flat tax is profitable for those who earn high incomes. It should be remembered that this form of taxation can only be used by entities conducting non-agricultural business activity.
When does flat tax become profitable?
The flat tax is payable if:
- annual income is not lower than 100,000 zloty;
- the income is not settled with the spouse or as a single parent - because due to the flat tax, there is no right to deduct allowances from these titles. These reliefs are intended only for entrepreneurs who pay using the tax scale;
- child relief and internet relief are not used - similarly to the above case, they are intended only for the tax scale;
- in addition to running your own business, you also earn income from other sources, which are settled according to the tax scale (e.g. employment contract) - in this situation, it is possible to include most of the tax reliefs in the annual income statement. However, it should be remembered that it is necessary to submit two annual declarations.
After the entry into force of the package of changes under the Polish Order, flat tax will no longer be such an attractive form of taxation: The New Polish Order and business taxation - what to choose?
Flat tax not for everyone?
One of the basic conditions for using the flat tax is not providing services to the former or current employer. This applies to services of the same nature as the work that the taxpayer has performed or carries out for him on a full-time basis. This provision applies to the same tax year.
Privileges and duties - flat tax
When settling on the principles of a flat tax on the income earned, you can deduct the costs of obtaining it (which cannot be used, for example, in the case of a lump sum). As a result of this activity, the tax base is reduced, and hence - the tax is lower.
The downside of this form of taxation is the lack of a tax-free amount, which in 2021 is 8,000. zloty. When settling accounts according to general rules, if the income in a given quarter / month does not exceed PLN 3089, the tax is not collected (because the tax reduced by the amount reducing the tax is PLN 0). However, this rule does not apply to persons paying the tax on the basis of a flat tax. In relation to them - regardless of the amount of income earned - you must pay tax.
The entrepreneur has the right to choose the form of taxation, as well as to change it during the year. A taxpayer setting up business selects the form of taxation on the submitted CEIDG-1 application. In the case of taxpayers who already conduct business, changes in the form of taxation during the year can be made until the 20th day of the month following the month in which the first income was earned. In such a case, an appropriate declaration must be submitted in writing to the head of the competent tax office. In the event of failure to submit the notification on time, the current taxation rules should be continued.
When settling a flat tax for a given year, the entrepreneur must submit to the tax office a declaration of the amount of income or loss achieved by 30 April of the following year. This declaration is made on the PIT-36L form.
Start a free 30-day trial period with no strings attached! Example 1.
In 2020, the company "X" achieved an annual income of PLN 150,000. Its owner is a childless single. He is to decide which form of taxation - flat tax or settlement according to the tax scale - is more favorable for him.
If they decide to settle according to the tax scale, then:
14,539.76 + 32% x (150,000 - 85,528) = 14,539.76 + 20,631.04 = 35,170.8 PLN (after rounding 35,171 PLN)
If you decide to apply a flat tax:
150,000 x 19% = PLN 28,500
In this situation, entrepreneurs find a flat tax more profitable, because they will pay a smaller amount of tax to the tax office.
When choosing the form of taxation, you should consider your family and financial situation. When you achieve high operating income and when you are not entitled to a deduction - it is certainly more profitable to use a flat tax. However, being in the opposite situation, it is worth considering the settlement on general principles. Therefore, the choice of the method depends on the individual financial and family situation of the entrepreneur.
Read more about flat tax in the articles:
- Flat tax in economic activity - advantages and disadvantages
- Flat tax as the optimal form of taxation
- Flat tax - when can it be disadvantageous?
How to calculate flat tax advances in the wfirma.pl system
The online self-accounting system wfirma.pl allows you to quickly and efficiently calculate current flat tax advances based on the entered data (income and costs). To calculate the PIT advance payment, after entering the data, go to the START tab »TAXES» INCOME TAX »CALCULATE TAX. Then select the period the advance payment is to apply to - month and year.
In the next step, a table will appear with the amount of ZUS contributions paid, which are included in the calculated PIT advance. Additionally, in the field OTHER CONTRIBUTIONS, you can indicate paid contributions, the declarations of which were generated outside the system.
ZUS DRA forms that have been settled in the system in the tab: START »ZUS» SETTLEMENT DECLARATIONS before generating the advance tax payment will be automatically included in the calculation.