Revenue from the sale of software - how to tax it?

Service-Tax

The IT industry is one of the fastest growing branches of the economy. Dynamic changes in technology result in the emergence of newer and newer computer programs. Revenue from the sale of software is subject to income tax but may be classified under various sources of income.

A computer program as a work

First of all, it should be noted that a computer program should be considered a work within the meaning of copyright law. According to Art. 1 clause 1 of the Act on Copyright and Related Rights, a work is any manifestation of creative activity of an individual nature, established in any form, regardless of its value, purpose and manner of expression. According to Art. 1 clause 2 point 1 of the above-mentioned Act, in particular, the subject of copyright are works expressed in words, mathematical symbols, graphic signs (literary, journalistic, scientific, cartographic and computer programs).

The person who created the computer program is entitled to a number of copyrights related to the work. The owner of the software can license the program to another party or sell it. According to Art. 64 of the Act on Copyright and Related Rights, the contract obliging to transfer the economic copyrights transfers to the buyer, upon the acceptance of the work, the right to exclusive use of the work in the field of use specified in the contract, unless otherwise provided for therein.

Software Sales Revenue - Qualification

Revenue from the sale of software can be obtained from several sources. It should be borne in mind that this income may be classified as a business activity, employment relationship or activity performed in person. On the other hand, if the person does not create a program within his own enterprise or is not bound by any contract in this regard, such income should be classified as coming from property rights. According to Art. 10 sec. 1 point 7 of the PIT Act, the source of income are property rights, including income from the sale of this right for consideration. In the light of Art. 18 of the same act, income from property rights is considered, in particular, income from copyrights and related rights within the meaning of separate regulations, rights to inventive designs, rights to topography of integrated circuits, trademarks and decorative designs, including the sale of these rights against payment.

Costs of obtaining income from property rights

Recognition by the taxpayer that the revenue from the sale of software is classified as property rights may turn out to be very tax-beneficial. In the case of making a tax settlement on this account, a natural person may apply costs in the amount of 50% of the income obtained.

According to Art. 22 sec. 9 point 1 of the PIT Act, for the payment of the creator for the transfer of the ownership right to an invention, topography of an integrated circuit, utility model, industrial design, trademark or decorative design, tax deductible costs are determined in the amount of 50% of the obtained revenue. However, it should be borne in mind that the amount of these costs may not exceed PLN 85,528.

Example 1.

The programmer created an innovative computer program in his home, which he then sold to a large corporation for PLN 25,000. In this case, we are dealing with income from property rights, which means that the tax deductible costs will amount to 50%, i.e. PLN 12,500. The taxable amount will be income less tax costs, i.e. PLN 12,500.

Example 2.

The programmer developed modern software and sold it to an entrepreneur for PLN 200,000. The cash received should be classified as income from the sale of copyrights for consideration. Although the rule that the costs amount to 50% of the income obtained will apply, they may not exceed the maximum amount of PLN 85,528. This means that the tax base will be PLN 114,472 (200,000 - 85,528).

The application of 50% of tax deductible costs is determined only by the fact that the taxpayer earns income for the performance of the activity (work) being the subject of copyright. This means that the increased costs can only be applied if the subject of the work is unique and meets the conditions of the work in accordance with the Act on Copyright and Related Rights.

Tax advance payment and annual settlement

The obligatory advance tax payment is required by the entity that pays the remuneration for the transfer of copyrights to the software (the buyer). This entity acts as the payer and is obliged to collect and then pay the advance by the 20th day of the month following the month in which the advance was collected - to the account of the tax office managed by the head of the tax office with jurisdiction over the payer's place of residence or seat.

By the end of January of the year following the tax year, the payers are obliged to send to the tax office managed by the head of the tax office competent for the place of residence of the payer, and if the payer is not a natural person, according to the seat or place of business, if the payer is not established, annual declarations according to a predetermined pattern.

In turn, by the end of February of the year following the tax year, payers are obliged to send taxpayers and tax offices managed by the heads of tax offices competent according to the taxpayer's place of residence with personal information on the amount of income (PIT-11).

A taxpayer selling software and obtaining income from property rights on this account makes a tax settlement using the PIT-37 or PIT-36 form, which is submitted by April 30 of the year following the calendar year in which the income from this source was obtained.