In the light of the Polish Order effective form 1stJanuary 2022, many entrepreneurs have started to wonder about which business structure will turn out to be best for them, considering tax consequences of announced changes in legislation. These changes connected to, among others, principles of health insurance contribution and reliefs burden, will be especially severe for those entrepreneurs, who are operating as sole traders. That’s why they are most interested in finding the best solution for their business.
The most beneficial and most frequently chosen option is transforming sole-trader business into limited liability company. Undoubtedly, this kind of transformation will result in higher business conducting formalism. However, advantages of this solution might outweigh its flaws. As intended in Polish Order, in case of sole traders, health insurance contribution is about to be increased whilst it won’t be possible to deduct it from the tax. Although conducting business in a form of at least two-person company implies that partners aren’t subject to social security contributions nor to health insurance contributions. Exemption from this obligation doesn’t apply to the members of company’s board of directors, because the company will be obliged to collect 9% of health insurance contribution form their salary. Another advantage of this solution is limitation of liability for company’s obligations. That is, in limited liability company, this kind of liability, with an exception included in article 299 of Commercial Companies Code, has been excluded. In case of sole traders, above – mentioned liability remains unlimited. One of the biggest advantages of this solution is possibility to benefit, under certain conditions, from 9 % CIT rate. Generally, 19% CIT tax is due on limited liability company’s tax. However, so called ‘small taxpayers’, whose operating income did not exceed 2 millions euro in a given tax year, will be allowed to benefit from previously mentioned preferential 9% CIT rate. The limitation of this preferential rate applies to companies arising from the transformation of sole traders. However, this limitation is temporary and concerns only this tax year, in which the company started operation and the following year.
Some entrepreneurs decides to continue conducting their business in its current form, however modifying a form of tax calculations. It is connected to the choice of benefiting from the lump sum on registered income for sole traders. It is worth mentioning, that this form of tax calculations does not allow to deduct tax-deductible costs from its income. The important fact is that, tax rates depends here on the type of business activity, that’s why choosing this option won’t be beneficial or possible for everyone.