Brief Summary of the Article
Entrepreneurs in Poland have until February 20, 2025, to determine how they will settle their taxes for the upcoming year. This decision is crucial as it affects their financial obligations and potential tax savings. For the first time, some business owners may choose the cash-based PIT (Personal Income Tax), which could be advantageous for those operating with delayed payments. However, selecting the most beneficial tax method requires careful individual calculations to ensure optimal financial results.
Choosing the Right Taxation Method
Entrepreneurs can select from several tax settlement methods, including:
- General tax scale (17% and 32%)
- Flat tax rate (19%)
- Lump sum on recorded revenues
- Tax card (for eligible businesses, though being phased out)
- Cash-based PIT (new option for 2025)
The cash-based PIT allows entrepreneurs to pay tax based on revenue actually received rather than on issued invoices. This change may significantly improve cash flow management for businesses experiencing delays in payments from clients.
Legal Basis for Using the Cash-Based PIT Method in Poland
The legal basis allowing entrepreneurs in Poland to use the cash-based Personal Income Tax (PIT) method from January 1, 2025, is the Act of September 27, 2024, amending the Personal Income Tax Act and certain other acts (Journal of Laws of 2024, item 1593). Personal Income Tax Act
This amendment introduces Article 14c into the Personal Income Tax Act, which outlines the detailed rules for applying the cash-based method.
According to Article 14c(1) of the PIT Act:
- The cash-based method is available to entrepreneurs conducting business activity independently,
- Their revenue from this business in the previous tax year must not have exceeded PLN 1,000,000,
- They must not maintain full accounting books (i.e., they use simplified accounting methods),
- The taxpayer must submit a written declaration to the head of the tax office by February 20 of the tax year to opt for the cash-based PIT method.
Under Article 14c(2):
- Income under the cash-based method is recognized on the date the payment is received,
- However, if the payment is not received within two years from the invoice issuance date, the income must be recognized no later than this deadline,
- If the business ceases operations, all outstanding income is recognized immediately.
Additionally, Article 14c(4) states that the cash-based method applies only to revenue from transactions between businesses, provided they are documented with invoices issued within the deadlines specified in separate regulations.
The full text of the law and detailed provisions regarding the cash-based PIT method can be found in the Journal of Laws of 2024, item 1593.
Conditions for Using the Cash-Based PIT Method in Poland
Starting in 2025, some entrepreneurs in Poland can opt for the cash-based PIT (Personal Income Tax) method, which allows them to pay tax based on revenue actually received, rather than on invoices issued. This can help businesses improve cash flow management by ensuring they are taxed only on funds that have been received.
To qualify for the cash-based PIT method, entrepreneurs must meet the following conditions:
- Business Type – The taxpayer must be an individual conducting business activity or a partner in a partnership that is not a legal entity (such as a civil or general partnership).
- Revenue Limit – The cash-based PIT method is available only to small taxpayers, meaning those whose annual revenue did not exceed €2 million (converted into PLN) in the previous tax year.
- Settlement Method – This method is available to those settling taxes based on:
- General tax scale (17% and 32%)
- Flat tax rate (19%)
The method is not available for taxpayers using the lump sum tax or tax card system.
- Notification Requirement – Entrepreneurs who wish to switch to the cash-based PIT method must inform the tax office by February 20, 2025. This can be done by selecting the appropriate taxation method in their annual tax declaration or by submitting an official notification to the tax office.
- Invoice Accounting – The taxpayer must record income and expenses only when payments are actually received or made, rather than when invoices are issued.
- VAT Settlement Compatibility – Entrepreneurs using the cash-based VAT method may find the cash-based PIT method beneficial, as both systems work under similar principles of recognizing income and expenses only when payments are made.
By meeting these conditions, eligible entrepreneurs can benefit from a taxation method that better aligns with their actual cash flow, reducing the risk of paying tax on unpaid invoices. However, switching to the cash-based PIT method should be carefully considered based on the company’s financial structure and payment cycles. Consulting a tax advisor is recommended to assess whether this option is the most beneficial.
Annual Tax Return and Financial Reporting Deadlines
Regardless of the chosen tax method, business owners must submit their annual tax returns within the following deadlines:
- Self-employed individuals (sole proprietors) must submit their annual PIT declaration by April 30, 2025.
- Legal entities (companies) are required to file their CIT-8 corporate income tax return. For most taxpayers, the tax year coincides with the calendar year, which means that they have until March 31 to submit their declaration.
In addition, companies must prepare their annual financial statements for the previous year by March 31, 2025, in line with the CIT-8 filing deadline. This financial report is a key document summarizing the company’s financial performance and is crucial for compliance with accounting and tax regulations.
Failure to meet these deadlines can result in financial penalties and increased scrutiny from tax authorities.
Summary and Conclusions
Entrepreneurs must individually calculate which form of taxation is most favorable for them in each case. The specificity of the business activity should be taken into account, including: the amount of tax revenues and costs and other additional factors, such as preferences to which the entrepreneur is entitled.