Posts Tagged ‘tax’

Polish Tax Schemes for Self-Employed

Sunday, October 19th, 2008

I see from the website stats and some of the feedback I have been getting that my last article on opening a business in Poland was well received so I figured I would blog about the related task which also needs some consideration – namely which tax scheme to use.

This blog post is loosely based on the polish article at moneta.pl and also my understanding of the Polish tax system, so don’t sue me if this post contains mistakes – please treat this post as a guide and check with a qualified accountant for proper advice.  I also used podatki.pl, pit.pl and egospodarka.pl and a meeting with my own accountant as resources.

Polish Tax Year

This is nice and simple – in Poland the tax year runs from January to December.  Why don’t we do that in the UK? (For those non-Brits wondering what I am talking about in the UK the tax year runs from April to April).

Tax Schemes

There are 4 different ways to account for your tax if you are a private individual or self employed:

  • General rules (zasady ogólny).  Here you keep a ledger of your income and expenditure and you pay either 0, 19, 30 or 40% tax depending on your final profit.  You can offset expenses against your tax bill and also use your spouse’s tax allowance to reduce your tax bill.
  • Flat-rate tax (podatek liniowy).  As you might guess you pay a flat rate tax of 19% which could be good if you are going to be in the 40% tax bracket.  The catch is that you can’t get tax breaks for a number of things such as tax losses from previous years, social insurance payments or health insurance payments.  Also you can’t share your tax allowance with your spouse.
  • Tax card (karta podatkowa).   Here the amount of tax due depends on certain factors such as the type of activity you are doing, number of employees you have, number of residents in your business’s neighbourhood and so on.  The virtue of this form is there is no requirement to keep a ledger or file accounts each year.  But only certain types of company are allowed to use the tax card system such as light industrial companies like small transport firms, building companies or catering companies.
  • Outright scheme (ryczałt od przychodów ewidencjonowanych).  To be honest I am not sure if ‘outright’ is a meaningful name for this scheme but a quick look on dict.pl for ryczałt didn’t give me any better ideas so I shall refer to it only in Polish as ‘ryczałt’.  This scheme allows you to pay a lower rate of tax if your company is involved with certain specified activities.  For example if your company is involved with computer software then you pay a flat rate of 17% tax instead of 19%, 30% or 40%.  On the plus side the tax rates can be very low but on the flip side you lose the ability to use certain tax relief schemes such as deducting expenses or off-setting your tax allowance with a spouse.  Therefore it is best suited to businesses with (very) low expenses or those who want to trade for a short limited time.  The tax rates for company activites are given below.  Note that you can’t do this scheme if your pre-tax income will be more than 150,000 Euros in 2008.

For completeness I should mention that as of 2007 there is a 5th way called podatek tonażowy but that is only for people involved with international shipping so I won’t write about it.

‘Outright’ scheme (ryczałt) tax rates

  • 20% for people who are classified as having a ‘wolny zawód’ [free profession] such as painters, actors, singers, translators, architects, lawyers etc..
  • 17% for those involved with a number of activities such as hotels, guest houses, carparks, car mechanics, vechicle rental, computer hardware/software
  • 8.5% for those involved with a number of activities such as working with pre-school children, sale of alcoholic drinks, botanical/zoological/environmental protection type stuff
  • 5.5% for those involved with building works or transport with loads above 2 tonnes
  • 3% for those involved with gastronomical activities (except alcohol)

Offsetting tax with your spouse – shared tax returns for married people

If one partner earns more than the other partner, for example if one of you stays at home or works part-time then it can be beneficial to be taxed together.   There are catches to this such as:

  • the marriage must be longer than the tax year in question
  • the marriage must be based on mutual assets for tax purposes
  • if you are late with your tax return you can lose the right to do shared tax returns
  • you can’t do shared tax returns if you are using the flat-rate tax scheme or the ryczałt tax scheme

When do I have to pay tax?

For all schemes except for the ‘tax card’ system you have to account monthly and pay by the 20th of the following month.  You need to also do a tax return once the year ends.  If you are doing ‘general rules’ then that means in January 2009 you go and get a PIT-36 form and do a return for the 2008 tax year.

When do I choose a scheme?

You have until one day before your company starts trading to give a written declaration to the Polish tax office (Urząd Skarbowy).  If you are already trading then you can change only change it at the start of a tax year – up until the 20th of January.  By default your company is on ‘general rules’ unless you change it.  So if you start your company like I did in October it is not necessarily a catastraphe if you decide your tax scheme is costing you more than you thought because you are only stuck with your current tax scheme until the end of the year.  But on the other hand if you start your company early in the year and make a mistake with this you are stuck until January!

Which tax scheme should I use?

For most people the choice boils down to – should I do general rules or should I opt for ryczałt or the flat-rate scheme?

Ryczałt is very popular for small companies.  If you are doing an activity that qualifies for a low tax rate then it can be attractive.  The accounts are simpler to run than for ‘general rules’.  But you must consider that you can’t deduct expenses from your tax bill which can have a big effect.  Even if you don’t expect many expenses remember that in Poland you can still get away with claiming your car, mobile phone, internet connection etc.. without much hassle (unlike in the UK where they want to know which percentage was private use and what was business use).  There is a calculator that you can use at podatki.pl.  It is only in Polish and you have to register with their website to use it, but you enter the ryczałt tax rate (stawka), enter your expeced income (spodziewane przychody) and expected expenses (spodziewane koszty) and it will tell what your tax bill would be on both general rules and ryczałt.

General rules – I am using general rules at the moment.  There is the risk that I could pay more tax by not having opted for ryczałt or flat-rate scheme if my net profit for 2008 exceeds 44,490 PLN and therefore puts me in the 40% per year bracket.  However I like the fact that I can offset my car as an expense and all fuel bills, insurance, servicing etc.  I also can take advantage of the fact that my wife does not work and therefore use her tax allowance.  Also I have a limited company in the UK and therefore if I think my Polish company is earning too much I can issue an invoice from my UK company to remove money.  Therefore I can ensure that I remain below the 40% threshold this year.

Flat rate – this could be a good option if your income is going to put you into a higher tax band and either you don’t have a spouse or your spouse doesn’t have any spare tax allowance because he/she also works.  It is a popular option with higher earners.

‘Gotchas’ – things to watch out for

If you make a mistake somewhere along the line it can cost you dearly.  There are a couple of known issues you must be aware of:

  • your PKD code(s) affects whether you can use ryczałt or not.  This can catch you out if you added extra PKD codes for things you might want to do in the future.  Example: my PKD code is 62.01.Z for computer software.  Normally I would be able to pay 17% on the ryczałt scheme.  But because I also added code 85.59.A for teaching foreign languages (because I am thinking about doing this in the future) I am no longer eligible for the 17% ryczałt scheme. Therefore consider this when you choose your PKD codes!
  • Get a stamped copy of everything you give the Urząd Skarbowy! This is a GOLDEN RULE.  My accountant currently has a case where a woman gave a form to the Urząd Skarbowy to say she wanted to pay ryczałt back in January this year.  She didn’t get a copy.  She has paid the reduced ryczałt rate all year so far.  The Urząd Skarbowy now say they have no record of her form and therefore is on ‘general rules’.  The tax difference in her case runs into thousands of zloty.  Apparently the Urząd Skarbowy lose forms all the time.  Therefore it is critical that everything you submit you do in duplicate AND you get your duplicate copy stamped with their rubber stamp to prove it.  In fact my accountant is quite paranoid on this and asks for everything in triplicate so he has a copy too.

Polish tax terminology

Income – przychód

Expenditure – rozchód

Turnover – obrót

Costs – koszty

Earnings – dochód

Odliczenia – reductions (such as social insurance and health insurance payments)

Basic taxable earnings – podstawa opodatkowania

Income minus costs = earnings

earnings minus reductions = basic taxable earnings

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Posted in business, tax | 4 Comments »

How to get a NIP number

Thursday, October 2nd, 2008

A NIP number is a tax identification number that identifies a person or a physical entity such as a limited company.  It’s the first thing you need when dealing with the Polish tax authority – Urząd Skarbowy.

There are two forms to get a NIP for a physical person.  NIP-3 and NIP-1.

NIP-3

Form NIP-3 is the form you need if you are not registered as self-employed.  It is for reporting yourself or for making changes to an existing NIP for physical persons not conducting self-employment.  It is on two pages (front only shown below).  When you submit your form they will ask you your reason for the application.  Is it just me or does that seem a bit dumb? Obviously you are getting a NIP because you have to pay tax, you’re probably not doing it because you like filling out green forms (unless you’re into that kind of thing of course…)

There are the following sections to complete:

A – reason for application (i.e. new or update) and location of application.

B – your personal data

C – additional info

D – signature

If enough people find this post useful then I will add step-by-step instructions on how to fill out the form if you don’t speak Polish – so drop me a comment!

NIP-1

Form NIP-1 is for those people who are set up to trade through a self-employed company.  It is 4 pages long, the first sections A and B are the same as on NIP-3 and then the rest relate to your company.

NIP-1

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Posted in tax | 21 Comments »

Opening a company in Poland

Friday, September 19th, 2008

For whatever reason you may decide to trade through your own company in Poland. Therefore you want to start a Polish company. Just like in the UK there are different types of company including:

  • spólka z. o. o. (z ograniczoną odpowiadzalnością) – private limited company (a UK ltd company). You have to draw up documents at a notary and have at least a bond capital of 50 000 PLN.
  • spólka akcyna – public company – (a UK plc). No idea what the process is here but I guess if you were interested in opening an S.A. you would be talking to an accountant and not reading some guy’s Blog on the Internet..
  • działalność jako osoba fizyczna (self-employed) – the simplest way to start!

The simplest method to start trading is to therefore go self-employed. This blog post describes the steps to do that.

Things to do before you start:

  1. PESEL: In theory anyone including foreigners (who might not yet have a Pesel) can register a company, but I don’t know what extra hassles you might have if you don’t have a Pesel. When I started my company they wanted the Pesel everywhere so I guess it’s better to have it. If you don’t already have a Pesel then see here: how to get a Pesel
  2. PKD code: for the Central Statistics Office (GUS – Głowny Urząd Statystyczny) you have to tell them what the nature of your business will be. There are codes for various categories and you have to pick one. For example code 62.01.Z is software development, code 85.49.A is teaching foreign languages. These codes are called PKD codes – Polska Klasyfikacja Działalnośći – Polish activity classifications. At this stage you should therefore look up what codes you want to use. A new list was published in 2007 so make sure you use the PKD 2007 list and not an older one. I used this website to find my codes: PKD codes. Also another tip is that it’s better to put too many codes rather than have to add a code later because each change incurs a 50 PLN fee. So if you think there’s a chance you might venture into other fields at a later stage then it might be worth adding the code for it now.  But be careful if you do this because which codes you have listed may adversely affect which tax schemes you can apply for.

Now you’re ready:

  1. Wpis do ewidencji – first job is to go to the Urząd Miasta where you live and ask to do a ‘wpis do ewidencji’. Basically this is just an entry to their register of your business. You have to fill out a form and pay a fee which varies from office to office. I paid 100 PLN. When I did it the guy was very helpful and showed me exactly how to fill out the form. I checked my PKD codes in the book they had and also had to choose a date when the company officially starts. Here is the next tip – choose the 1st of the month – it will make life simpler later on. Depending on how efficient the office is you will get a confirmation of your wpis do ewidencji a few days later in the post. I have heard that sometimes it takes a couple of weeks though. Another point worth mentioning is that a company name is optional – you can either specifiy a name such as “Green Widgets” or you can leave the name blank in which case you will trade under your own name, e.g. “John Smith”.
  2. REGON - next job is to fill out form RG-1 from GUS (see above) to get your REGON number. This is where you need your PKD codes (although I also had to supply a code when I did the wpis do ewidencji). In the old days you would have to go to your nearest GUS office to do this but in a refreshing drive of efficiency you can now do this online via their website (link above). Even more efficiently (and suprisingly!) the guy asked if I wanted to do this with him when I did the wpis do ewidencji! Great – two jobs done at once!
  3. Bank account – my understanding is that your company is required to have its own bank account. I didn’t check this though so I may be mistaken. In any case once you have your REGON and Wpis it’s very simple to open a bank account for your company. According to the mBank.pl website you just need some ID, regon and wpis.
  4. NIP-1- Go to the Urząd Skarbowy and fill out form NIP-1 (info on NIP forms here).  This form is to either apply for a NIP or update your existing NIP for physical persons who are self-employed.
  5. Income tax form – Also at the Urząd Skarbowy you need to fill out a ‘declaration about starting an economic activity for the purposes of declaring income tax’.  In Polish this is a zawiadomienie o rozpoczęciu prowadzenia działalności gospodarczej dla celów ewidencyjnych podatku dochodowego.  On this form you specify which tax scheme you want.
  6. Ledger form – Another form at the Urząd Skarbowy.  On this form you declare that you will run a ledger of income and outgoings at a given address.  Note that this has to be on paper that an inspector can come and check if needed.  Therefore if you want to run your accounts on computer you are legally required to print out your records each month and keep them on file.
  7. ZUS - you have until 7 days after the date your company officially starts (the date you gave in step 1) to register your company with ZUS so that you can make social insurance payments. You have to fill out form ZUS ZFA to register your company as an employer to open an employer account (konto płatnik). You will also need to fill out form ZUS ZUA to register yourself as an employee. Again you need the proof of your wpis to do this. They ask you for your REGON but you can always provide that later if you are still waiting for it. You can find instructions in English and German about how to fill out all of their forms here: ZUS

Choosing a tax scheme:

You can choose from:

  • zasady ogólne – “general rules” – this is the default option
  • ryczałt
  • karta podatkowa

At the time of writing I haven’t had a chance to read up too much on these so I apologise that the info here is a little scant. If it helps there is some info in Polish here and also here. The pros and cons of these schemes include things such as paying a flat rate of 19% tax, not being required to keep a record of accounts, being able to split your tax burden with your spouse etc.. etc..

Also I haven’t mentioned here about registering for VAT which is a requirement if your income will exceed 20 000 EUR in a year.

But I hope the information I have given is useful and will help get you started. If anyone has any feedback, corrections, experiences, more info etc.. then as always please let me know.

Good luck

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Posted in business, welcome | 8 Comments »

Am I now a UK or Poland resident for tax purposes?

Wednesday, September 17th, 2008

Residency for tax purposes

It’s important to determine whether you are Polish or UK resident because that will determine where your taxes are due and whose health insurance system you fall under. The rule of thumb is that if you are in an EU country for 6 months or more then you are resident there.

If you are UK resident then:
* you continue to pay your taxes in the UK
* you pay national insurance in the UK
* you can get a European Health Insurance Card from the NHS to cover medical bills in Poland

If you are resident in Poland then:
* you will now fall under the Polish tax system. The tax bands are lower than those in the UK and your GLOBAL INCOME is taxable, NOT JUST MONEY YOU EARN IN POLAND!
* you will pay social insurance to ZUS
* ZUS can give you a European Health Insurance Card which you should use when you are back in the UK

What happens if I move to Poland?

In theory when you decide you are ‘resident’ in Poland you should inform the authorities accordingly. That means you tell the Inland Revenue you have left the UK and they will calculate whether they owe you any tax back or not. If you start working for a Polish company then they will sort out your tax and ZUS for you. If you were self-employed in the UK then you need to talk to an accountant. You may decide to open a new Polish company, or you may decide to register your UK company as an employer in Poland so that it can pay social insurance for you.

What happens if I work in the UK during the week but return to Poland at the weekends?

In situations such as this it comes down to defining your ‘place of living’. If you stay in hotels during the week but your house is in Poland that’s one point for Poland. If your family (spouse, kids etc..) live in Poland that’s another point for Poland. If you spend your spare time in Poland, again that counts as living in Poland. If you think your situation is arguable then you can ask the Polish tax office (Urząd Skarbowy) to make a ruling. An application for a ruling is free of charge. You describe your situation and put your point of view in it. They have 3 months to rule. If they don’t rule within this time then your point of view prevails and is binding for all tax offices in Poland.

What happens if I don’t become resident in Poland?

Probably nothing for a while. But you might get a knock on the door one day from the tax office. You run the risk that they will rule you as a Polish resident and give you a backdated tax bill for your global income. Having said that, Poland has tax agreements with most countries so that you are not charged twice for tax. But I don’t know if there are any penalties involved or if there would be a tax bill still due to differences in tax bands etc.. If this has happend to anyone I would be keen to hear about it!

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Posted in residency, tax | No Comments »