PIT – personal income tax – is probably the form of taxation best known to people. Not only is it a requirement for most natural persons to file a tax return for it annually, entrepreneurs registered to the CEIDG (Central Registration and Information on Business) also are subject to this tax.
In your PIT tax return, you have to state all your revenues resulting fromm employment relationships, civil law contracts and sales, among other sources. The difference between settling a personal and business tax in this case is that an entrepreneur, just as an employee and an orderer, you will have to pay an advance on this tax.
Under Polish taxation laws, you may choose between four different forms of personal income tax when you register. The first is tax scale (similar to settling income from employment relations), the second – a flat rate tax set at 19 %, known as the linear method. You may also, depending on the circumstances, pay a lump sum on registered income or (if you fit the statutory requirements) choose the tax card method of settling PIT.
Depending on your choice, the advance payments to the tax office, as well as your rights and obligations, will be different.
The law regulating personal income tax consists of two main bills, The Act on Personal Income Tax (Individual Income Tax Law) and which includes provisions on flat-rate income tax on certain types of incomes received by natural persons.
As a person paying personal income tax, you will need to remember that you enter a dual role: you may sell part of your personal assets as a natural person, and under certain circumstances not be subject to tax from those incomes, and sell part of assets which serve tthe performance of economic activities – this is an important difference, since it changes the way the tax is settled.
Who needs to pay personal income tax?
PIT is, as the name suggests, a personal tax paid by any natural person obtaining income, including from business activities. The only exception is the possibility of settling it jointly with a spose or child, available to those who chose the tax scale method – people paying a flat-rate tax, a lump sum on income or tax card (except private rental) or tonnage do not have this possibility.
No one can pay PIT for you – neither another entrepreneur nor family member. The tax liability expires only once you have personally paid the tax.
The situations in which you need to settle the personal income tax in Poland
The main criterion on whether you need to settle the tax in Poland or in another country is the tax residence. The most clear-cut situation is when someone lives in a given country throughout the entire tax year and their income is generated only from sources in the country in question – then, there can be no doubt as to where the PIT should be settled.
Doubts may arise when a person resides or works abroad or has property there.
The easiest way to ensure that one is entirely in the clear when residing abroad is to apply to the tax authorities of the country of residence for a ceritifcate of residence – a document which states the seat of a taxpayer for tax purposes, and as such gives one a legal, documented reason for settling tax in another country in case of any problems with the tax authorities in their home country.
Whether the personal income tax should be settled only in the foreign country of residence or both at home and in the foreign country of residence depends on how much time is spent in the countries during any given tax yer.
Polish tax law states that if a person spends at least 183 days of a tax year in Poland, the result is unlimited tax liability – that is, the entirety of their pesonal income tax must be settled in Poland, regardless of the sources of their income(s). Spending less time in Poland results in limited tax liability – the person in question pays PIT in Poland only for the income obtained in the territory of Poland, and settles the rest of their tax with the country in which they have spent the majority of their tax year.
Object of the income tax
The most important thing to remember is that with a very few, carefully regulated exceptions (mentioned in the relevant aticles of taxation laws, specifically Articles 21, 52, 52a and 52c of the Act on Personal Income Tax, and the revenue from which the collection of tax is waived on the basis of the Tax Ordinance) all types of income are subject to personal income tax, and that even the exceptions must be reported to the tax authorities.
In any given tax year, the object of taxation is the total sum of income from all existing sources of revenues. Among those, the foremost to keep in mind are employment relationships, old age and disability pensions and sales, but there are others that should be taken into consideration. The taxation laws state that the object of taxation is also revenue resulting from the following sources:
- rental, hire and lease;
- property rights (including the sales of specified rights) and cash reserves;
- economic activity carried out personally;
- special departments for agricultural production;
- non-agricultural economic activity;
- sale for consideration (specific condition in which the taxation applies are laid out in Article 10(2) of the Act);
- and the sale of other goods.
The selling of property rights and other goods are subject to exceptions which are importand to keep in mind.
When the sale concerns land and property rights, under certain conditions (the transaction taking place full five years after the end of the calendar year in which the purchase or construction was finalized, and the sale not being a result of economic activites – that is, if you are selling off personal property and not company assets) the revenue is not taxed.
Similar conditions apply when you are reselling personal property classified as „other goods”. Any revenue resulting from a sale which takes place a full six months after the end of the month in which the good was purchased and is not a result of economic activities (again, this mostly means selling personal property as a natural person) is also exempt from the personal income tax.
Potential tax deductible costs
The costs you can deduct are the ones in which it is possible to prove that they were incurred in order to achieve revenue. Not every form of PIT taxation allows you to take these costs into account when settling tax, so it is something to consider before you choose which form of PIT you will be paying.
The costs in question may be direct or indirect. The direct costs are the obvious ones, that is, ones which can be shown directly to lead to revenue. Among direct tax deductible costs are purchases of raw materials which you will be turning into goods for sale and the renumerations for any staff you might employ.
Indirect costs are the ones which cannot be clearly linked to your realised income, yet are clearly necessary for running a profitable business, such as adveritisng costs, the costs of maintaining a website, business phones, internet access (outside of IT and online companies) etc.
It is important to remember that when it comes to entrepreneurs, any expenses incurred in order to secure or retain sources of income are tax deductible, as long as it is possible to clearly prove that an expense was made with this goal in mind.