What kind of birthday’s gifts shall you give to employees? Certainly, there are a lot of ideas. But, if everyone will be equally considered by the Tax Office (US) and Social Security (ZUS) ?

The definition of income from the article 12 par. 1 of Personal Income Tax Act is a key to the discussion.  According to this: “all cash payments and monetary value of benefits in kind or cash equivalents (...), as well as the value of other gratuitous benefits or benefits partially paid” are considered as the income from employment relationship”.

A question is, what is the gratuitous benefit? Law regulations don’t clarify this issue so that the polish language dictionary can be helpful. And so:
•    Benefit – “obligation to perform or provide something for someone's benefit" or "something which is carried or transmitted in respect of such liabilities”;
•    Gratuitous – „not required payment”.

Now, there is no doubt that a birthday gift in the form of a pen, chocolates, cosmetics etc. is a benefit, in addition free of charge, and therefore its value should be added to the employee's income from which you should pay personal income tax and social security contributions.

But what if an employee receives flowers? Can flowers called as a benefit? Certainly it is provided something for someone, but if for anyone's profit? Rather  no. “Someone's benefit” means that the employee has some profit, gain from it.  Flower, although beautiful, has only a symbolic meaning. It can raise a smile on employee’s face, but it doesn’t bring him any financial profits. What is more, it is not a durable property increment. It means that it is not the income for a recipient. So, a gift in the form of  a single flower or bouquet is therefore exempt from personal income tax and social security contributions. This statement was confirmed by Tax Office in Warsaw, in the individual interpretation from 30.09.2008, no. IPPB1/415-855/08-2/AM.

Katarzyna Hardek

In the moment of establishing business comes a question, which form of taxation to choose. Which register should I keep? The answer depends on several factors.

First of all we have to look at the legal form – if it is Limited Liability Company, the company will be taxed on corporation income tax. In this case you must also provide accounting books. But if you will act as a proprietorship, you have several options to choose: karta podatkowa (tax card), ryczałt od przychodów ewidencjonowanych (tax from registered revenue), PIT na zasadach ogólnych (PIT on general principals), PIT liniowy (line PIT).

Karta podatkowa – fix tax rate. It depends on place of business and quantity of employees. When city is bigger and the quantity of employees is higher, the tax rate is higher. You don’t submit any declaration and pay tax monthly till the 7th day of month for previous period. The only declaration you have to submit concerns to health insurance deducted from tax. This form doesn’t require keeping any register, except of the employees register and theirs salary statements. From the proprietorship point of view is the most convenient option. Unfortunately only a small group of people can apply it, for example cosmetic services, hairdresser, tailors. Moreover you have to pay tax even if there was no sale in the month. You may lose the right  to use this method for example in a case of too high employment.

Ryczałt od przychodów ewidencjonowanych – tax is paid on revenue, it means sales and other amounts received such us interests received on cash held in a bank accounts. Tax rate (20%, 17%, 8,5%, 5,5%, 3%) depends on type of service you provide. You have to keep the register of revenue, fix assets, intangible assets, equipment and employees. An disadvantage of this form of taxation is limited access and depends of the kind of service provided. You may also lose the right to use this method for example if your revenue generated in last year from this activity, carried out exclusively by yourself, exceeds 150,000 euros. Is a good option for those who have small costs (for example no employee costs). In contrast to karta podatkowa eliminates the problem of irregulars revenues.

PIT na zasadach ogólnych – this is a default form of taxation. If you don’t choose any option or you don’t report another one on time to Tax Office, this one will be applied. Tax is paid on income (revenue – costs) and the tax rate is 18% and 32% and depends on the amount of income (tax scale). In this case you can settle tax with your spouse and take advantage from many income and tax deductions. You have to keep book of income and expenses (podatkowa księga przychodów i rozchodów), but if your net revenue from previous year was at least 1.2 million euros you have to keep accounting books. Advance tax is paid monthly or quarterly and the finally settlement of the tax is yearly. Is a good option for those you can’t choose previously described method and at the same time don’t predict too high income in this year. Unfortunately not each expense is deductible.

PIT liniowy – tax is paid on income (revenue – costs). Fix tax rate – 19%.  You can’t settle tax with your spouse and take advantage from income and tax deductions. The register you keep on the same way as PIT na zasadach ogólnych. Advance tax is paid monthly or quarterly and the finally settlement of the tax is yearly. Is a good option for those who predict high income because of flat tax rate. You can’t use this option if you provide a service for your previous employers in the same range as in contract of employment.

To sum up, the answer for a question, which type of taxation to choose when you act as proprietorship, is in your business plan. If it assumes lack of employees and the work is mainly made by yourself, law purchase costs (in relation to the revenue), it’s better to think about karta podatkowa or ryczałt od przychodów ewidencjonowanych, only if your activity qualifies to applies those method. But if in your plan you predict high cost in relation to the revenue, it’s better to apply PIT, because the base of taxation will be lower. It would be the best to make a simulation of the tax payable basing on you predicted revenue and costs. This will help you to choose rational the method of taxation.

Małgorzata Olszewska