Recently, lump-sum taxation as a form of PIT settlement has become an attractive alternative for many entrepreneurs, especially in the IT industry. Since the choice of the form of taxation is made for the entire year “in advance,” we must thoroughly analyze everything before making a decision.
What is the lump-sum taxation?
In simplified terms, lump-sum taxation is a simplified form of income tax settlement characterized by a very low level of formalities and, in principle, the inability to deduct costs of obtaining income.
Potentially, any type of service provided by individuals within their business activities can be subject to lump-sum taxation (from 2% to 17% income tax). However, there are several exclusions or restrictions for specific types of services, and the application of lump-sum taxation requires meeting certain conditions.
We previously discussed the pros and cons of lump-sum taxation:
Exclusions from lump-sum taxation
Not every entrepreneur can choose lump-sum taxation. Although the list of exclusions and exceptions has been significantly reduced in recent years, there are still certain conditions that must be met to choose this form of taxation.
To check exactly what these exceptions pertain to, you should refer to the Act on Lump-Sum Income Tax… (direct link).
Lump-sum taxation – income limit
Among the various exceptions, attention should be paid to the annual income limit set at 2 million EUR, as stated in Article 6 of the aforementioned act. If meeting this condition is still a distant future, we can move on to further aspects.
Exceptions for specific services
It is definitely worth checking Article 8 of the above-mentioned Act on Lump-Sum Income Tax. It contains a list of premises that exclude lump-sum taxation. Currently, these include:
- operating pharmacies,
- activities in the purchase and sale of foreign exchange (currency exchange offices), and
- activities in the trade of parts and accessories for motor vehicles,
- manufacturing products subject to excise tax, except for the production of electricity from renewable energy sources.
Transformations and other forms of taxation
A general obstacle to choosing the lump-sum taxation is also the choice of another form of taxation (such as a tax card) or the right to income tax exemption. The exclusion also applies to company transformations into sole proprietorships and vice versa or changes in this regard made by spouses (see Article 8(1)(5)).
Invoicing a former employer
It is worth emphasizing that entrepreneurs who, within their business activities, generate income from providing services or selling goods or products to their former or current employer will not apply lump-sum taxation. This refers to activities corresponding to those performed in the current or previous tax year as part of an employment relationship. Recently, there have been many controversies related to changes in the contract, changes in the scope of duties – however, this is a subject for a separate article!
What if we do not meet these conditions
Unfortunately, in such a case, lump-sum taxation will not be possible, and a taxpayer who has already made this choice will be forced to change the form of taxation to the tax scale, with all its consequences. In some cases, it will be necessary to correct social security contributions (ZUS) and tax to the tax office (generally with an obligation to pay the difference), often also with penalty interest and the obligation to submit corrections of declarations, as well as to keep a revenue and expense ledger.
Lump-sum taxation- how can we help?
We support our clients by verifying the possibility of applying lump-sum taxation in their activities and helping to choose the appropriate lump-sum rate. This usually requires an analysis of the B2B contract and performed activities, and we prepare relevant calculations. During individual consultations, we explain all questions or doubts and discuss the possibilities of limiting tax risks.
In more complex cases or when wanting to take advantage of lower lump-sum rates (e.g., 8.5%), we assist in the proper analysis of the B2B contract, preparing an opinion for the GUS, a tax ruling request to KIS, and indicating the necessary changes to be made in CEIDG.
If you have questions about applying lump-sum taxation, visit us at www.outsourced.pl .
This is an annother post explaining the essence of lump-sum taxation in the IT industry. Other publications will follow soon.
