Self-employment in tax law - what is worth knowing?


One of the most common forms of work is the so-called self-employment. This particular type of activity is based on the performance of work as part of business activity. In the current economic conditions, this method is very attractive for employers, taking into account the high costs of employing an employee. In the article below, we will consider what self-employment looks like from the perspective of tax law.

Self-employment - definition

Despite the fact that self-employment is quite common, we will not find a definition of this institution in any legal act. However, it is commonly assumed that a self-employed person is a natural person who has the status of an entrepreneur and, without employing employees, performs services for one client (or mainly for one). Very often there are relations between the ordering party and the person performing the service, similar to those created by the employment relationship.


The concept of economic activity

When analyzing the issue of performing work based on one's own business, it should first be clarified how such business activity is understood on the basis of the Personal Income Tax Act. Pursuant to the regulation of the above-mentioned of the Act, it is a gainful activity in terms of manufacturing, construction, trade, services, consisting in searching for, identifying and extracting minerals from deposits, consisting in the use of intangible and legal assets and assets, carried out on one's own behalf, regardless of its result, in an organized and continuous manner.

At the same time, the same act clarifies that an activity is not considered an economic activity if the following conditions are jointly met:

  • responsibility towards third parties for the result of these activities and their performance, excluding liability for committing unlawful acts, shall be borne by the party ordering the performance of these activities,
  • they are performed under the direction and at the place and time designated by the ordering party,
  • performing these activities does not bear the economic risk associated with the business.

Therefore, if all the above positive conditions are met and no negative conditions are met, this form of taxpayer's activity may be considered an economic activity.

A special case for flat tax

Taxpayers who earn income from business activity may choose the linear method of calculating income tax (tax calculated at the rate of 19% on the total).

However, the tax legislator stipulated that if a taxpayer who chose a flat tax obtains income from economic activity conducted independently for the former or current employer for the performance of activities corresponding to the activities that the taxpayer performed or carries out in the tax year under the employment relationship, the taxpayer loses in the tax year, the right to tax on a straight-line basis and is obliged to make advance payments on the income earned from the beginning of the year, calculated using the tax scale and default interest on arrears on account of these advance payments.

Therefore, for the straight-line exemption to apply, it is necessary that two cumulative conditions are met: the taxpayer performs services for his current or former employer and the scope of these services corresponds to ("coincides") with the benefits provided on the basis of an employment relationship.

Example 1.

For 6 months, the taxpayer performed IT services for his employer as part of an employment relationship. Then he established the ownership of a business in which he provides the same IT services to the current employer. Therefore, the taxpayer cannot choose a linear tax rate for taxing income from this activity.

Self-employment and VAT

Pursuant to the provisions of the VAT Act, taxpayers are legal persons, organizational units without legal personality and natural persons who independently conduct business activity, regardless of the purpose or result of such activity.

By contrast, economic activities include any activities of producers, traders or service providers, including natural resource harvesters and farmers, as well as the activities of freelancers. Economic activity includes, in particular, activities consisting in the use of goods or intangible assets on a continuous basis for commercial purposes. The Act also contains exclusions, as its content indicates that the following activities are not considered to be self-conducted economic activity for the purposes of VAT:

  • for which the revenues are listed in art. 12 sec. 1-6 u.p.d.o.f .;
  • for which the revenues are listed in art. 13 points 2-9 u.p.d.o.f., if, due to the performance of these activities, these persons are associated with the ordering legal ties creating a legal relationship between the ordering party and performing the activities ordered as to the conditions for performing these activities, remuneration and liability of the ordering party to perform these activities towards third parties.

In addition, the exclusion shall apply mutatis mutandis to the services of authors and performers within the meaning of the provisions on copyright and related rights, remunerated in the form of fees for the transfer or licensing of copyright or artistic performance rights or their performance, including those remunerated through collective management organizations. copyright or related rights.

As a result of the above considerations, a self-employed person, like any other entrepreneur, is a VAT payer, and if he does not meet the conditions for applying the subjective exemption due to the volume of turnover, he has the status of an active VAT payer with all the consequences.