What is flat-rate tax on registered revenue?
Flat-rate tax on registered revenue is a simplified form of personal income taxation available in Poland to certain individuals conducting business activity, as well as to some partners in partnerships. In Polish law, it is commonly referred to as ryczałt od przychodów ewidencjonowanych. The legal framework is set out primarily in the Act of 20 November 1998 on flat-rate income tax on certain revenues earned by natural persons.
Unlike taxation under the general tax scale or the flat-rate 19% tax on business income, this regime taxes revenue rather than profit. This means that the taxpayer generally does not deduct tax-deductible business costs when calculating the tax base. Expenses such as office rent, equipment purchases, subcontractor fees, fuel costs or marketing expenditure may affect the profitability of the business, but they do not normally reduce the amount of tax due under the flat-rate regime.
The applicable tax rate depends on the type of activity and the revenue earned. The Polish flat-rate tax legislation provides for rates including 2%, 3%, 5.5%, 8.5%, 10%, 12%, 12.5%, 14%, 15% and 17%, subject to statutory conditions and the classification of the relevant services or activities (Article 12 of the Act on flat-rate income tax). Correct identification of the applicable rate is therefore essential.
How does flat-rate tax on registered revenue work?
A taxpayer using this form of taxation keeps revenue records rather than a tax revenue and expense ledger. The records must allow the taxpayer and tax authorities to establish the amount of revenue subject to particular rates. A taxpayer may also be required to maintain other records, including records of fixed assets and intangible assets where relevant.
Flat-rate tax may be particularly attractive for businesses with relatively low operating costs. This may concern selected service providers, freelancers, IT specialists, landlords, traders or persons providing professional services. However, the choice should always be assessed against the actual cost structure, the nature of services, expected revenue and the taxpayer’s entitlement to tax deductions or allowances.
Eligibility is subject to statutory limits and exclusions. As a general rule, the regime is available where the taxpayer’s revenue in the preceding tax year did not exceed the equivalent of EUR 2,000,000, calculated according to the rules specified in Article 6(4) of the Act on flat-rate income tax. Certain activities and taxpayers are excluded from the regime, including cases specified in Article 8 of that Act. The consequences of restructuring, providing services to a former employer or changing the scope of business should also be reviewed before selecting this taxation method.
When is professional advice on flat-rate tax worthwhile?
Professional advice may be needed before starting a sole proprietorship, changing the taxation method, expanding the scope of services or entering into a contract with a former employer. The classification of services may be particularly important where different rates can apply depending on the actual nature of the work, contractual obligations and the relevant statistical classification.
Entrepreneurs should also seek advice when their business has significant expenses, employs staff, uses subcontractors, acquires equipment or combines several types of activity. In such circumstances, taxation based on revenue may not necessarily be more beneficial than taxation based on income. A comparison should take account of income tax, social security contributions, health insurance contributions, VAT status and available deductions.
For private individuals, legal and tax support can be useful when renting property, providing services independently or converting occasional activity into a registered business. For partnerships whose partners are natural persons, the issue may arise when assessing the taxation of partners or planning the operational model of a business.
A prompt consultation with a tax lawyer can help prevent the application of an incorrect rate, missed filing deadlines, inadequate revenue records or an ineffective change of taxation method. It may also reduce the risk of tax arrears, interest, financial penalties and disputes with tax authorities.
Law firm support in flat-rate tax matters may include:
- assessing eligibility for flat-rate tax on registered revenue;
- reviewing the appropriate tax rate for specific business activities;
- analysing contracts and the actual scope of services;
- comparing flat-rate taxation with the tax scale and flat-rate income tax;
- advising on changes to the chosen form of taxation;
- support during tax audits and tax proceedings;
- preparing applications for individual tax rulings.
Need assistance with flat-rate tax on registered revenue? Contact us.