Sole trader in Poland – absolutely all you need to know – 1. characteristics, 2. taxes, 3. liability

From this post you will learn: 

– everything you need to know about a sole trader in Poland

Sole trader in Poland – advantages and disadvantages

Millions of Polish entrepreneurs run their business as sole proprietors – jednoosobowa działalność gospodarcza – JDG – sole trader in Poland. It is the simplest form of business available in Poland, which can be set up “on the spot”. Setting up your own business in this form is almost cost-free in Poland. All you need to do is register with the Central Register of Business Activity as a sole trader in Poland. The next step is usually registration for VAT. The entrepreneur does not have to pay any share capital as, for example, in a Polish joint-stock company, where the share capital is as much as PLN 100,000. An entrepreneur conducting business in Poland in this form – sole trader in Poland – also has the possibility to choose the most convenient form of taxation. He/she also has the possibility of keeping simplified accounting records.

Among the disadvantages of a Polish JDG (sole trader in Poland), it is always mentioned first and foremost that an entrepreneur who operates in this form bears liability without limitation – with all of his or her personal assets – for the liabilities associated with running a sole proprietorship business in Poland. 

What taxes apply to a sole trader in Poland?

An entrepreneur operating as a JDG in Poland – sole trader in Poland- has a choice of several possible forms of taxation. An entrepreneur in Poland may decide to settle under the general rules, i.e. according to the tax scale. This rate will currently be 12% for the first tax threshold (which is PLN 120,000). After exceeding it, the entrepreneur’s income will be taxed at 32%.

The entrepreneur in Poland – sole trader in Poland- may also decide to settle at the flat rate of 19%. In this case, regardless of the level of income, a single rate will always apply in businesses’ income.

Within the Polish JGD – sole trader in Poland – it is also possible to be taxed at a flat rate on registered income. Lump sum rates depend on the type of business and can range from 2% to 17%. However, when using the lump sum, it is not possible to deduct any costs from the income received.

For Polish JDGs, there is theoretically another way of taxation – namely in the form of a tax card. From 2022, only those taxpayers who continue to be taxed in this form – they were already taxed in this way in 2021 – may use the tax card. New entrepreneurs or those changing their form of taxation cannot use the tax card.

The entrepreneur’s profits are therefore taxed once, different from the profits of a limited liability company. (which you can read about here).

What kind of Social Security (ZUS) is applicable to a sole trader in Poland?

For an entrepreneur in Poland – sole trader in Poland – the establishment of a business involves the obligation to pay Social Security contributions. In certain cases, however, Polish entrepreneurs may benefit from certain preferences with regard to the payment of ZUS contributions, which are not available, for example, to partners in a limited liability partnership (of which you may read here).

Such preferences may be used primarily by entrepreneurs starting their business in Poland. This is the so-called start-up relief for a sole trader in Poland. When using the start-up relief, entrepreneurs in Poland pay Social Security contributions in a limited form by paying only health insurance premiums. For a period of six months from the date of commencement of the business activity, the business person is exempt from being subject to social insurance. The start-up relief may be used by new entrepreneurs who start a business for the first time, or by persons resuming the business after at least 60 months from the date of its last suspension.

Subsequently, after the expiry of the start-up relief, the entrepreneur has the opportunity to benefit during the following 24 months from the preference of paying reduced social security contributions (and only them). The basis for calculating preferential ZUS contributions is a minimum of 30% of the amount of the minimum wage. This option is also available to new entrepreneurs in Poland (i.e. it is not necessary to use the start-up relief to benefit from this preference).

Entrepreneurs in Poland, whose income in 2021 did not exceed the amount of PLN 120,000 in the preceding year, from January 2022 have the possibility to use another preference – the so-called small ZUS plus, which allows them to pay lower social insurance contributions. ZUS contributions are a common levy, their obligation to pay also applies to partners of a general partnership (of which you may read here)or limited partnership (of which you may read here) and even, in certain cases, shareholders of a simple joint-stock company (details here).

What accounting is applicable to a sole trader in Poland?

Anyone operating as a JDG in Poland is always obliged to keep appropriate accounting records for the business he or she is running. A decision in this regard must be taken already at the stage of registration of the company in CEIDG. In the case of a JGD, the most frequently chosen form of bookkeeping is simplified bookkeeping (or small bookkeeping), under which one may keep accounts in the form of a lump sum or a revenue and expense ledger (KPiR).

Of course, an entrepreneur in Poland may always opt for full bookkeeping, which is mandatory for a limited liability company (read about it here) or for a joint-stock company (read more here). In certain situations, an entrepreneur operating in this form will be obliged to keep full accounting. This will happen when net revenues from the sale of goods, products and financial operations exceed the equivalent of EUR 2 million converted into PLN at the average exchange rate announced by the National Bank of Poland on the first working day of October of the year preceding the year for which full bookkeeping will be obligatory.

Who represents the sole trader in Poland?

Most often, the entrepreneur in Poland represents himself and acts on his own behalf. It is also possible for the entrepreneur in Poland to grant a civil power of attorney to perform a certain act, certain types of acts or even a general power of attorney. The entrepreneur in Poland should bear in mind that in such a case the form of the power of attorney should be the same as the legal act to be performed under the power of attorney.

For several years now, an entrepreneur in Poland conducting business in the form of a JDG may also grant a specific person a power of attorney. A power of attorney is characterised by a broader scope of action than an ordinary power of attorney. Previously, this possibility was reserved exclusively for commercial law companies entered in the Register of Entrepreneurs of the National Court Register 

Who is liable for the debts of a sole trader in Poland?

Despite the many advantages of a Polish JDG, the undoubted disadvantage of operating in this form is the lack of separation between the business assets and the private assets of the individual. An individual operating as a sole proprietorship in Poland is liable with all his or her assets for the company’s debts. A creditor can therefore enforce his claim, for example, from the entrepreneur’s private home (even if he lives there with his family). This form of business activity does not, therefore, provide the security that shareholders in a limited liability company enjoy (more here).

When is a sole trader in Poland established?

The Act on Freedom of Economic Activity indicates that an entrepreneur may start a business on the day of filing an application for entry in the Central Register and Information on Economic Activity. Thus, it is a different situation from general partnerships (more here), which may undertake business only from the moment of entry in the Register of Entrepreneurs of the National Court Register. A person who submits an application for entry may, in the application for entry in CEIDG, specify a later date for commencing economic activity than the date of submission of the application. In doing so, it is not possible to obtain the status of an entrepreneur with a retroactive date.

How do you divest the business of a sole trader in Poland?

As mentioned above in relation to liability for debts in a JDG in Poland (as written above), the private assets are not separate from the business assets of the entrepreneur. The JDG in Poland is linked directly to its owner. The business as such does not have its own assets, it is not separate from its owner (such separateness is the case, for example, with respect to limited liability companies). Nevertheless, the disposal of the business as such can be carried out by way of a sale of the business, under a contract to be concluded between the seller and the buyer. Such an agreement should be in writing with a notarised signature, but if the business component of the JDG is real estate then a notarised deed will be necessary. The signing of this agreement may involve additional obligations and risks, e.g. the need to obtain the consent of the counterparties. Other options are the transformation of the JDG into a limited liability company and the subsequent sale of the shares of the limited liability company or the contribution of the Polish JDG’s business to the company.

What is the health contribution rate in a sole trader in Poland?

There has been a revolution in the rules for paying and calculating health contributions in 2022. From 2022 health contribution for an entrepreneur depends primarily on the chosen form of taxation. For example, in 2023 an entrepreneur settling according to the tax scale pays a health contribution of 9% of income, but no less than PLN 314,10. Those settling according to the flat tax pay a contribution of 4.9% of their income, but no less than PLN 314,10.

In the case of so-called flat-rate taxpayers, the health contribution for income up to PLN 60,000 is PLN 376,16. For income above PLN 60,000, the contribution is PLN 626,93, and for income above PLN 300,000, the contribution is PLN 1128,48.

Entrepreneurs may benefit from reductions in the payment of ZUS contributions (as described above). However, these reliefs do not apply to the amount of health insurance premiums.

Sole trader in Poland – succession

Since 25 November 2018, the Law on Succession Management of Enterprises has been in force in the Polish legal system. It introduced changes to the succession process of JDGs in Poland. The purpose of this legislation was to allow the actual succession of a business conducted as a sole proprietorship in Poland and to give the possibility to continue the business after the entrepreneur’s death. It allows for the appointment of a successor manager to run the business immediately after the death of the entrepreneur in Poland. As a result, upon the death of an individual operating as a sole proprietorship in Poland, contracts with employees are not terminated, NIP numbers, concessions or licences are not canceled, as was previously the case. The company has the possibility to apply continuity of tax settlements.

A condition for the above is the appointment of a successor administrator to manage the business after the death of its owner, i.e. the inherited business. It is important that the owners of the inherited business become the heirs of the entrepreneur in Poland, on the basis of the rules of statutory succession or those set out in the will. The function of succession administrator is of a temporary nature. As a rule, he or she should carry out his or her functions until the final completion of the succession formalities.

Successor trustee in a sole trader in Poland

A sole trader in Poland operating as a JDG may appoint one successor administrator. The fact of appointing an administrator must be notified to CEIDG. Without such notification, the appointment of the administrator is not effective.

The successor administrator may be a member of the entrepreneur’s family (including his/her heir) as well as a stranger who is not related to the entrepreneur. It is a condition that the person appointed to this function has full legal capacity and that he or she is not prohibited from conducting business activity by a final and binding decision.

The appointment of the administrator should be made in writing and the administrator himself should also consent to the appointment in writing.

It is also possible to disclose in CEIDG that the proxy appointed by the parties will become the successor administrator after his death.

If you wish to find out more about types of companies available in Poland please watch our video:

If you wish to obtain more information you may also find them here

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