Recently, we’ve received numerous inquiries regarding the application of lump- sum tax on income from advertisements placed on websites. The matter is especially problematic for entrepreneurs unsure about lump-sum tax rate to apply for that kind of profits. We’ll try to clarify some doubts regarding the relationship between lump-sum tax and earnings from online advertisements.
WHAT IS A LUMP-SUM TAX?
In a nutshell – a lump sum is a simplified form of settling income tax, characterized by a high degree of informality and, in principle, no possibility of deducting the costs of obtaining income.
Potentially, any type of services provided by natural person as part of a business activity may be subject to lump-sum taxation (up to 17% of income tax). There is a number of exemptions and limitations that should be taken into consideration – the use of a lump sum taxation requires certain conditions to be fully met. We have written about this topic before:
CHOOSING THE RIGHT RATE
We have covered the topic of choosing the right lump sum rate several times before.
LUMP-SUM TAX AND REVENUE FROM ONLINE ADVERTISEMENTS
Proper lump sum rate should be chosen based on the provisions of polish Act on Flat-Rate Income Tax on Selected Incomes Earned by Individuals („Flat-Rate Act”). Article 12 of Flat-Rate Act states particular rates of lump sum tax accroding to different types of business activities.
The applicable rate depends on the PKD codes and issued invoices, but most of all on the effectively performed activities. What is the lump sum rate applicable in case of the revenue from the online ads?
15% Lump-sum Tax Rate
15% lump sum rate applies i.a. to „advertising and market research services” (PKWiU 73) and
„data processing” (PKWiU ex 63.11.1) Streamed video content over the Internet services (PKWiU ex 63.11.1), Streaming audio over the Internet services (PKWiU 59.20.36.0) (…)”.
It may be challenging to categorize earnings from “static” advertisements or banners placed on our websites as “streaming audio or video content over the Internet services”. Nevertheless, it’s worth checking the characteristics of the PKWiU section 73 codes and whether we qualify for the 15% lump-sum tax rate.
8.5% for Revenue > 100,000 PLN < 12% Lump-sum Tax Rate
The lump-sum tax rate of 8.5% for revenues up to 100,000 PLN and 12.5% for revenues exceeding 100,000 PLN applies to revenue from, among other things, “leasing and renting (…)” according to Article 12(1)(4)(f) of the Flat-Rate Act.
However, it does not apply in the situation described by us, according to the National Tax Information Service’s position. This is confirmed by i.a. an individual interpretation from September 17, 2021, no. 0113-KDIPT2-1.4011.572.2021.2.ISL.
8.5% Lump-sum Tax Rate
According to Article 12(1)(5)(a) of the Flat-Rate Act:
“8.5%: a) revenue from service business activities, including revenue from catering in the sale of beverages with an alcohol content above 1.5%, subject to points 1-4 and 6-8.“
Regarding the 8.5% rate, all other positions specified in Article 12 must be excluded.
LUMP-SUM TAX AND REVENUE FROM ONLINE ADVERTISEMENTS – PKWiU
Therefore, the starting point for selecting the lump-sum tax rate is to properly classify the activities/services provided by the taxpayer according to the PKWiU 2008 (from 2021 PKWiU2015) nomenclature. This is important because tax regulations directly refer to these classifications, specifying which services will be taxed and how.
Official explanations from the Central Statistical Office (GUS) regarding the analysis of descriptions of specific PKWiU codes, available at this link, can be helpful in determining PKWiU codes.
The most important codes in the described situation are:
- 73.12.13.0 PKWiU – Intermediation in the sale of space or time for advertising purposes on the Internet (most commonly settled at the 15% rate).
- 63.12.20.0 PKWiU – Sale of advertising space on Internet portals (most commonly settled at the 8.5% rate).
Every detail matters for correctly classifying services under specific PKWiU codes! It is essential to carefully examine the factual situation and check our contracts and the invoices we issue. Only by having a full picture of the situation we can make an aware decision.
It is importtant to notice that PKWiU 73.12.1 essentially concerns marketing services provided by “intermediaries”. Furthermore, it is classified under “sales or leasing of advertising space on radio and television carried out on behalf of others”. Everything depends on the binding contract, but most entrepreneurs do not operate “on behalf of others”. They directly sell space on their website. Therefore, at least in some cases, it may be possible to apply the 8.5% lump-sum tax rate!
Such possibility has been confirmed by numerous interpretation of the Director of the National Tax Information Service, i.a. from September 17, 2021, no. 0113-KDIPT2-1.4011.572.2021.2.ISL or the interpretation from April 15, 2022, no. 0113-KDIPT2-1.4011.1242.2021.2.RK.
What to do in inconclusive situations?
If you have any doubts regarding the PKWIU classification, you can always ask the Central Statistical Office for a classification symbol.
However, the waiting time for an opinion from the Central Statistical Office has recently been extended from one month to even 12 months.
In this respect, we recommend using the services of a tax advisor, because the taxpayer acting alone may easily overlook certain formal aspects, which, unfortunately, may result in further extension of the deadline by the Central Statistical Office.
WHAT IF I CHOOSE THE WRONG LUMP-SUM TAX RATE?
Unfortunately, in such a case, the tax office will most likely indicate the appropriate (usually higher) tax rate during the audit, which will result in negative consequences for the taxpayer.
In some cases, it will be necessary to adjust advances and the tax paid to the Tax Office (usually with the obligation to pay additional tax), often there will also be penalty interest and the obligation to submit corrections to the declarations, as well as to establish simplified accounting books.
LUMP-SUM TAX AND EARNING FROM ONLINE ADVERTISEMENTS – HOW CAN WE HELP?
We support our clients by verifying the possibility of using a lump sum in their activities and helping them choose the appropriate lump sum rate. In this case, it is usually necessary to analyze the B2B contract and the activities performed. We also prepare appropriate calculations. During individual consultations, we clarify any questions or doubts and discuss the possibilities of reducing tax risks.
In more complicated cases or if you want to take advantage of lower lump sum rates (e.g. 8.5%), we help in the proper analysis of the B2B contract, prepare an opinion for the Central Statistical Office, an application for an interpretation to the National Chamber of Commerce and indicate the changes necessary to make changes to the CEIDG.
If you have any questions about the application of the lump sum, write us www.outsourced.pl .
