Private car of an employee used for business purposes – a possibility of a payment to the employee without social insurance contributions

I’ve been asked about a possibility of payments to the employee without social insurance contributions. Here is an explanation of the tax implications and rules regarding the use of a private car of an employee for business purposes, with a distinction between the local trips and the business trips to another municipality:

Local trips

The refunds incurred by an employee for using a private car for business purposes in local trips are exempt from ZUS. That’s the most common possibility for payments to the employee without ZUS.

The amount of these refunds is determined on the basis of:

  1. lump sum

or

  1. records of the vehicle’s mileage filled in by the employee.

The simplest option, which doesn’t require writing down each kilometer of the private car use for business purposes, is solution 1: The lump sum.

The lump sum solution requires establishing by the employer a monthly mileage limit for local …

Becoming a farmer in Poland – a possibility to optimize the tax burden?

Yes, it would be a good possibility to optimise the tax burden, but we have to check if you meet the conditions. Farmers in Poland don’t pay any income tax, they pay only agricultural tax, which is based only on the area of agricultural land – however, that’s the case if the size of activity is lower, than the sizes envisaged for the special departments of agricultural production – art. 2, paragraph 1 of the Natural Persons Income Tax Act:

“The provisions of the Income Tax Act do not apply to: 1) income from agricultural activities, with the exception of special departments of agricultural production”.

So first of all we have to check if you perform agricultural activities. The definition is in art. 2 paragraph 2 of the Natural Persons Income Tax Act:

“2. Agricultural activities, as defined in paragraph 1 point 1, is the activity consisting in the production …

Customers are not paying – uncollectable debts

As a general rule, debts written off as uncollectable cannot be considered as tax deductible. However, in certain situations, the provisions of Polish tax law provide some exceptions. According to these provisions, only strictly defined uncollectable debts (which based on the tax law were firstly booked as taxable revenues) may be considered by the taxpayer as a tax-deductible cost, provided that:

a) their uncollectability was properly documented (e.g. by a court decision),

b) their uncollectability may be considered probable (e.g. debtor’s death).

The difference between a) and b) is that in a) you can simply deduct the uncollectable debt from the tax revenues and forget about it, but in b) you can deduct the uncollectable debt from the tax revenues temporarily and if the uncollectability is not properly documented before the expiration of the right to claim this debt, the taxpayer must treat the debt as a taxable revenue at …

Exit tax

Introduction of exit tax to the Polish tax system results from an obligation to implement the Directive (UE) 2016/1164, adopted in 2016. The mentioned directive establishes provisions in order to prevent tax avoidance practices, which may have indirect impact to functioning of the internal market, so called the ATAD Directive.

A crucial assumption of the exit tax is taxation of unrealized profits in connection with moving one’s assets to another country, also those which are part of a permanent establishment.

The tax is also due in case of change of the residency status of a taxpayer, which deprives Poland from taxation of income from sale of the individual’s assets. This is not required by the ATAD Directive – the Polish law in this issue goes beyond the requirements of the ATAD Directive and implements taxation of natural persons, who change their residency.

In accordance with the provisions introduced as of …

Employee becomes self-employed – conditions and restrictions

I receive questions about a problem returning like a boomerang: can employees go on self-employment and start their own business? The answer is the one that most often falls from the tax advisor’s lips: “Yes, but it is not that easy…” 🙂 or “It depends …” 🙂

So – it is possible, but…in this case it is important to know that a freelancer can not issue invoices for a former employer for the same activities that he has carried out under an employment contract.

Condition of this solution (so that no problems arise with the tax office and social insurance institution ZUS)

A freelancer can not have an agreement with his formal employer for the same activities that he has performed as an employee. So he should have a contract with another company and this contract must involve other activities than the employee has carried out for his formal employer.…

Tax system in Poland compared with other OECD countries in 2018

According to a report published by the Tax Foundation, Poland was ranked 33rd in terms of competitiveness and tax neutrality among 35 countries belonging to the Organization for Economic Cooperation and Development (OECD). Only Italy and France proved less competitive than Poland. For the fifth year in a row Estonia is the most competitive country. According to the authors of the ranking, Estonia owes it mainly to corporate tax (20 per cent), which applies only to paid profits and flat tax rate for income of natural persons (20 per cent). The top ten also included Latvia, New Zealand, Luxembourg, the Netherlands, Switzerland, Sweden, Australia, the Czech Republic and Austria. Relatively well Poland only fell in the category of corporate taxation (9th place in the subcategory). In terms of consumption taxation, Poland took the last (35) place. What is the subject of the assessment? Here are the explanations of the authors:…