The choice of taxation option is a topic of much concern for every entrepreneur, choice of which is dependent on many factors. For sole traders involved in field of high gains and low costs such as IT industry there appears to be an obvious pick – flat tax, yet this choice brings along a lot of confusion.
Flat tax
Flat tax is one of the taxation options available in Poland with a very simple concept behind it – tax rate does not increase as the income increases over the year. In other words, it is constant rate defined by the character of activities that are being taxed rather than accumulation of income. It is a very attractive option for field characterized by high gains and low costs, after all lack of possibility to deduct the costs of gaining income is irrelevant, if the costs themselves are low or none and lower tax rate is applicable in exchange. For the IT services provider there are generally two available rates, which are set at 12% and 8.5% respectively.
Tax rate
Rate is strictly dependent on the character of activities performed by the sole traders:
- 12% is applicable for revenue from the provision of services:
- Related to the issuing of:
- Computer game packages (PKWiU ex 58.21.10.0), excluding online publishing of computer games
- System software packages (PKWiU ex 58.29.1)
- Application software packages (PKWiU ex 58.29.2)
- Computer software downloaded from the Internet (PKWiU 59.29.3), with exclusion of online software downloads
- Related to:
- Consultancy in the field of computer hardware (PKWiU ex 62.02.10.0)
- Services related to software (PKWiU 62.01.1)
- Services included in the grouping “Originals of computer software” (PKWiU 62.01.2)
- Consultancy in the field of software (PKWiU ex 62.02)
- Services related to the field of software installation (PKWiU ex 62.09.20.0)
- Services related to network and IT systems management (PKWiU 62.03.1)
- 8.5% is applicable for the revenue from the provision of services that do not belong to any of the aforementioned categories.
- Related to the issuing of:
Crux of the problem
Interpretation of the Polish tax administration may assign you however a different tax rate, than your conclusions have led you to apply, which creates obvious tax problems. Even relying on the old interpretations is not a reliable choice, as each case is seen separately and does not provide much backing, which often leads to making a safe choice – choosing a higher 12% rate.
It is important to state here that although the wording “choose” is used, there is no real choice involved, as the rate is decided by the services provided by the entrepreneur and the only variable here is the interpretation. Analysing and designating the correct group is a complex matter, however there is a solution – tax ruling for an individual case.
Tax ruling
Tax ruling is an interpretation of the case by the tax authorities, which provides a legal backing to the tax rate option that was assigned. Interpretation by the Director of National Revenue Information (KIS) will protect the entrepreneur from being penalized for the wrong tax rate:
- If lower rate was applied – there will be no need to pay the missing tax nor the fees.
- If higher rate was applied – there will be a possibility of making correction of tax declaration and applying for return of overpaid tax
Application for the individual interpretation by KIS can be filed in paper or electronic form and requires a fee of 40 PLN.
Safety tip
All entrepreneurs should be keeping records of the services provided, but it is especially important in case of applying 8.5% tax rate, as during the inspection by the tax authorities these will become a key in justifying the application of lower tax rate. It is also important that they are kept in accordance with the signed contracts, as they are also subject to the inspection.
Changes in taxation
If entrepreneur is dissatisfied with the current state or believes that another taxation method is more beneficial to him, there is a possibility of making a change starting from the next tax year. It is advisable to carefully assess the situation before making such decision, as the new method might not be the most beneficial in the particular case or as it might happen the method is not available due to the circumstances of the company. In case of doubts there is always a possibility of making use of services of the experts, who would certainly be willing to provide the assessment of the case along with advice regarding eventual changes.
Read more about our Tax Advisorey Services https://polishtax.com/services/tax-advisory/