Polski Ład – nadchodzi kryzys Jednoosobowych Działalności Gospodarczych – English

It’s now certain. Most of the tax changes planned by the government under the so-called Polish Deal will come into effect from January and February 2022. Polish tax law is facing a genuine revolution. Although the amendment also brings positive changes, such as increasing the tax-free allowance from PLN 3,091 (PLN 8,000 for the lowest earners) to PLN 30,000, and raising the second tax threshold from PLN 85,528 to PLN 120,000, it should not be forgotten that these changes apply only to entities taxed according to the progressive scale (17%, and 32% beyond the second threshold).

When assessing the upcoming amendment, entrepreneurs primarily point to issues related to the new method of calculating the health insurance contribution. From January next year, it will be income-dependent and cannot be deducted as a tax cost.

Health insurance contribution

For entrepreneurs taxed under the progressive scale, the health insurance contribution will amount to 9% of the declared income. It is worth noting that for income exceeding the second threshold, the real tax rate after the Polish Deal changes will effectively be as high as 41% (including the 9% health contribution).

For entrepreneurs taxed with a flat rate, the health insurance contribution will be 4.9% of income, but not less than 9% of the minimum wage. Considering that the gross minimum wage in 2022 will be PLN 3,010, the minimum health insurance contribution will be PLN 270. For monthly earnings of, for example, PLN 12,000, the health contribution will already be PLN 588.

In the case of taxation by lump sum on registered income (“karta podatkowa”), the health insurance contribution will be 9% of the minimum wage, i.e., also PLN 270. However, from 2022 this form of taxation will be unavailable to all except those who used it in 2021. Moreover, if such persons give up this form of taxation, they will not be able to return to it.

For entrepreneurs taxed by lump sum on revenue (“ryczałt”), the contribution will be 9% of the contribution base, which depends on annual revenue as follows:

• 60% of the average wage for annual revenues not exceeding PLN 60,000, i.e. PLN 305.56;
• 100% of the average wage for annual revenues between PLN 60,000 and PLN 300,000, i.e. PLN 509.27;
• 180% of the average wage for annual revenues exceeding PLN 300,000, i.e. PLN 916.68.

This applies to revenues reduced by ZUS contributions, if they were not included as tax-deductible costs or deducted from income under the Personal Income Tax Act.
What about B2B?

The previously popular model of business-to-business transactions, often replacing employment contracts, may lose popularity from next year. Cooperation with an employer, where the “employee” decides to set up their own business instead of signing an employment contract, will be adversely affected by the higher real tax burden for high earners. One declared goal of the Polish Deal is to address the existing inequality between employees and sole proprietors, which results from more favourable taxation.

Alternatives to sole proprietorships

In light of the increased health insurance contributions, the inability to deduct them as costs, and the elimination of some forms of taxation, a decline in the popularity of sole proprietorships is to be expected. The most obvious alternative is a limited liability company (Ltd). Company income is subject to 19% corporate income tax (CIT), but a 9% rate may apply if the company’s revenue does not exceed EUR 2,000,000 (as a so-called small taxpayer). If the company is formed by transforming a sole proprietorship, the right to apply the 9% rate arises in the second fiscal year following the transformation.

A significant advantage of an Ltd over a sole proprietorship is that shareholders of an Ltd are not subject to social security and health insurance contributions, except when the Ltd is single-shareholder. In that case, a flat health contribution of PLN 500 per month is payable. Dividends paid by an Ltd are taxed at 19%, so as a rule, double taxation occurs, but there are ways to avoid this additional burden, as we have already explained on the firm’s website. There is also the issue of the health insurance contribution on the remuneration of a managing board member appointed by resolution, but we have described methods to avoid that obligation as well.

Of course, there are other charges that shareholders or board members of an Ltd may be subject to, so when deciding to transform a sole proprietorship into a company, it is advisable to seek expert advice. Transformation can be an effective way for an entrepreneur to avoid increased tax burdens, but to minimise risks, we recommend professional legal assistance. Specialists at ATL Law Anna Błaszak Legal Counsel Office have many years of experience both in servicing sole proprietorships and capital companies. Entrusting us with the transformation process will ensure optimal solutions, including in the context of the upcoming implementation of the Polish Deal regulations.