Individual business activity in Poland

The concept of individual entrepreneurial activity

According to the Law of March 6, 2018 on entrepreneurship, entrepreneurial activity is "an organized activity aimed at obtaining profit, which is carried out in one's own name and on a permanent basis." It can be said that it is a form of organized economic activity in which an individual or legal entity carries out activities aimed at obtaining profit through production, trade or provision of services.

It is worth noting that there are several different legal forms of doing business in Poland, such as:

• individual entrepreneurial activity (jednoosobowej zasztivnogo gospodarcza, JDG), which is the equivalent of a Ukrainian individual entrepreneur (FOP);
• civil partnership (spółka cywilna);
• commercial companies (spółki handlowe);
• partnerships (spółki osobowe): (full (jawna), partnership (partnerska), limited (komandytowa) and limited joint-stock (komandytowo-akcyjna);
• economic companies (spółki kapitalowe): (spółka z o.o.) and joint-stock company (spółka akcyjna).

The choice of the appropriate form depends on many factors, such as the field of activity, number of partners, type of capital, development plans, as well as preferences regarding legal and financial responsibility. Each form has its advantages and limitations, so it is advisable to carefully understand their differences and consult with a lawyer or expert before making a choice. Instead, the easiest and fastest form of creating and running a business is sole proprietorship (JDG).

Taking into account the definition of entrepreneurial activity, an important element is personal conduct of activity and on one's own account. As for individual entrepreneurial activity, this form assumes that the entrepreneur personally conducts entrepreneurial activity on his own, on his own behalf and at his own expense. This means that the entrepreneur is personally responsible for all obligations related to the activity. Running a business as a sole proprietorship is a popular option in fields such as programming, graphic design, and others where the entrepreneur personally provides services to clients.

Persons who have the right to carry out individual entrepreneurial activity

A JDG can be founded by an adult, capable person. A minor can also open a JDG, but this requires the consent of a legal representative (e.g. a parent). On the other hand, there are certain restrictions and additional requirements when it comes to foreigners.

A foreigner has the right to establish a sole proprietorship and manage it if he meets one of the conditions, in particular:

• is a citizen of the countries that are members of the European Union and the European Economic Area,
• is a citizen of the United States of America or the Swiss Confederation, 
• is a citizen of Ukraine who legally resides in Poland and has a PESEL number (described in more detail in the next part), 
• has a valid Pole's Card, 
• has a permanent residence permit, 
• has a residence permit of a long-term resident of the European Union,
• has a temporary residence permit granted in connection with, among other things, reunification with a family legally residing in Poland, studying at a university,
• has refugee status, 
• has additional protection, 
• has a residence permit for humanitarian reasons or a tolerant residence permit,
• has a temporary residence permit and is married to a Polish citizen living in Poland,
• has a temporary residence permit for the purpose of carrying out entrepreneurial activities, issued in connection with the continuation of already carried out entrepreneurial activities on the basis of an entry in the Central Register of Entrepreneurial Activities and Information (CEIDG), 
• has temporary protection in Poland,
• is a participant in the program of support for foreigners in the field of starting and conducting business activities on the territory of Poland: Poland. Business harbor.

According to the Law of March 12, 2022 on assistance to citizens of Ukraine in connection with the armed conflict on the territory of this country (the so-called Special Law), citizens of Ukraine have the right to establish and conduct business activities in the territory of the Republic of Poland under the same conditions, as well as citizens of Poland, in the event that their stay is considered legal and provided that the citizen of Ukraine has received a PESEL number.

A special law allows a citizen of Ukraine who intends to open a company in Poland to choose the organizational and legal form of his activity in accordance with his needs. However, it should be taken into account that on the basis of the same Special Law, in the event that the stay of an entrepreneur (citizen of Ukraine) who performs JDG on the territory of Poland loses its legality, then he is subject to removal from the Centralized Register of Information and Information on Economic Activity (CEIDG, the counterpart of the Ukrainian EDRPOU).

Foreigners who do not meet the conditions that allow them to directly carry out individual entrepreneurial activity have the opportunity to engage in entrepreneurial activity on the basis of other legal forms, for example, to manage a company in the form of a partnership.

Advantages and disadvantages of individual entrepreneurial activity

JDG is undoubtedly the simplest form of doing business, which has both certain advantages and certain challenges. The main advantages of doing business in the form of JDG include:

• the process of setting up and running a JDG is usually less complicated than, for example, in the case of partnerships,
• absence of payments related to the creation of entrepreneurial activity,
• lack of requirements regarding the introduction of authorized capital,
• flexibility when opening, suspending and liquidating business activities,
• the possibility of optimizing taxation through the choice of the form of tax payment,
• the possibility of simplified accounting,
• the opportunity to take advantage of benefits at the start (for example, the so-called "small ZUS").

In turn, the main shortcomings of JDG can be attributed to: 

• liability with all his property for obligations (in case of bankruptcy, the entrepreneur is responsible for the losses of the company with his personal property),
• payment of full insurance contributions during entrepreneurial activity (with the exception of the initial period associated with the so-called start-up allowance and reduction of contributions),
• lack of employee benefits such as paid vacations, etc,
• a risky form for enterprises with large scales (the entrepreneur is also responsible for the actions of his employees).

The above advantages and disadvantages apply to JDG. It is also important to consider that JDG is one of several possible legal forms of entrepreneurial activity. However, running a business itself has its own advantages and disadvantages. The main advantages include:

• independence and flexibility in work, 
• earnings without an upper limit , 
• the possibility of self-development and self-realization.

In turn, the main disadvantages are:

• lack of guarantee of stable income and irregularity of earnings, 
• the entrepreneur is obliged to resolve formal issues and timely pay tax obligations, as well as payments of contributions to the Social Insurance Office (ZUS),
• risk of failure,
• absence of paid leave.

Finally, before making a decision to open a business, it is advisable to carefully analyze all aspects and think whether it is optimal for a specific person who plans to run a business. It is worth remembering that there is always a certain risk of failure, but the entrepreneur must plan his actions in such a way as to reduce this risk as much as possible.

Procedure for registration of individual entrepreneurial activity

Registration of individual business activity in Poland is related to obtaining an entry in the CEIDG register. If a person (after analyzing the requirements for opening a JDG) has the right to open a business and decides to conduct business in this way, there are two ways to register a business: online or at the relevant institution.

Traditionally, a business can be registered with the city or commune (community) administration, while online it can be done on the website: https://www.biznes.gov.pl/pl. Registration at the institution can be done by proxy or independently (by downloading an application from the administration's website, creating it in the appropriate application or receiving a form directly from the administration). The application can be sent by registered mail. However, the most popular and convenient way is online registration. In such a situation, you must first create an account, then fill out the registration form and sign it with a trusted profile, a qualified signature or a personal signature. At the same time as applying for registration with CEIDG, you can apply for insurance with ZUS or apply for VAT-R registration or updating in both ways. Unfortunately, when submitting an application via the Internet, registration by proxy is not possible. Of course, regardless of the method, before registration it is advisable to first prepare the necessary data and documents, for example, ID card or passport, PESEL number, email address and contact phone number. It is also desirable to analyze in advance the issues of the entrepreneurial activity itself, which will arise at the stage of registration.

One of these elements is the name, which in the CEIDG register must necessarily include the name and surname of the entrepreneur. However, it is also possible to add a second part of the name, which can, for example, describe the activity being performed.

When starting a business, there is a requirement to specify an address or addresses. One of these addresses is the address for correspondence - that is, the place where correspondence related to business activities will be received. The following address is the address of the permanent place of business if the business will be conducted at a fixed location. It may be necessary to submit more than one address if the activity will be performed at different locations, such as branches, divisions, warehouses or order fulfillment points. It is worth remembering that when submitting each of these addresses to the CEIDG, it is necessary to have the appropriate rights to the real estate, and also, in some situations (e.g. rent), also the consent of the owner of the premises to conduct business at the specified address. In cases where the entrepreneur provides services directly on the client's territory, there is a possibility of conducting mobile activities.

Another no less important element are the codes of the Polish Classification of Activities (PKD, the counterpart of the Ukrainian KVED). PKD codes are a set of numerical codes used to classify different types of business activities. Choosing the appropriate PKD code is important when registering a company, as it determines the main areas in which the company will carry out its activities. The list of PKD codes can be found on the website https://www.biznes.gov.pl/pl/tabela-pkd. When registering an economic activity in CEIDG, you need to select one main PKD code, i.e. the so-called the main activity that will be performed most often and other PKD codes that relate to other activities. It is important to choose the PKD codes that best reflect the areas in which the entrepreneur will operate, as they may affect various aspects of his business, such as tax benefits or regulations governing a certain industry. Please note that some PKD codes may require additional permits, concessions, licenses or registration in the regulated activity register before a company can start operating. An example of such an activity could be the transport industry, which requires a corresponding license, or gastronomy (eg a license to sell alcohol). More information on this topic can be found on the page https://www.biznes.gov.pl/pl/portal/00116 .

One of the most important elements is the choice of the form of income taxation for individuals, the so-called PIT. We have several options for taxation of business income: 

• on general terms according to the tax scale (skali podatkowej) (tax rate 12% / 32%),
• at a fixed rate (stawki liniowej) (tax rate 19%), 
• a single contribution to fixed income (ryczałtem od przychodów ewidencjonowanych). 

In the case of taxation based on a tax scale and a fixed rate, the basis for taxation is the received profit (income). However, in the case of a single contribution on fixed incomes, the basis for taxation is the received income (przychód). The application of a single contribution to recorded income is not always possible, mainly due to restrictions on certain types of activities that do not meet the conditions of application of this form of taxation. When choosing a form of taxation, it is worth taking into account the expected income, the costs of running a business and the tax benefits that this or that option offers. It is always a good idea to consult with a tax expert or accountant to choose the form of taxation that best suits your planned activities.

When doing business, it is important to keep in mind issues related to Value Added Tax (VAT), i.e. Goods and Services Tax. This is a type of tax that is paid at each stage of production and trade of goods and services and is added to each transaction. As a general rule, an entrepreneur must register as a VAT payer, but there is no obligation to do so if sales do not exceed PLN 200,000 per year and if only VAT-exempt goods and services are sold. For additional information on VAT and details of VAT exemption, please visit: https://www.biznes.gov.pl/pl/portal/00246.

Next, you should choose the form of accounting. It can be simplified or full accounting. It is also necessary to analyze issues related to the fiscal cash register, the necessity of which also depends on the details of business activity. Due to the complexity of aspects related to tax law, social security and accounting rules, it is advisable to seek help from accounting experts and tax consultants. Such specialists can help you choose the optimal form of taxation, keep accounting records and calculate the appropriate taxes and social insurance contributions. In addition, bookkeeping can be outsourced (e.g. to an accounting firm).

A bank account is required for conducting business activities. It can be a private account, but if the entrepreneur is a VAT payer or transactions are carried out using the mechanism of split payments, an enterprise account will be required.

An entrepreneur engaged in entrepreneurial activities must pay contributions to the ZUS for social insurance, of which pension, disability and accident contributions are mandatory, and the payment of insurance contributions in the event of illness is voluntary.

Importantly!

Entrepreneurs who start their business, if they meet certain conditions, have the opportunity to take advantage of the so-called "start-up benefit" during the first six months. It allows a partial exemption from the payment of contributions (the start-up benefit does not apply to health insurance). After the end of these six months, there is another opportunity to reduce contributions, that is, during the next 24 months, the entrepreneur can pay reduced contributions on a preferential basis.

It should be remembered that the registration of a company in the CEIDG is associated with certain obligations. After registering the company in the CEIDG, the entrepreneur will automatically be registered as a taxpayer in the ZUS and as a taxpayer in the tax inspectorate. However, if the entrepreneur will be a VAT payer, he must register as a VAT payer no later than one day before the start of activity. As for social insurance in ZUS, it is necessary to submit an application for insurance within seven days after the start of business activity. Depending on the type of activity, other obligations may arise, for example, data protection requirements or the need to obtain appropriate permits, licenses or concessions.

Expenses related to the creation of individual entrepreneurial activity

There are no fees for applying to CEIDG. Of course, if we want to use the support of a competent person in registering our company, this may be accompanied by a fee for such a service. It is also worth considering that entrepreneurial activity will be associated with certain payments and expenses, which should include the previously described income taxes depending on the chosen form, value added tax (VAT), if the activity is subject to VAT, as well as ZUS contributions . To this should be added the costs of accounting.

Depending on the type of activity, there may be fees for licenses, permits or concessions, or, for example, office maintenance costs if the activity is carried out in rented premises. Other operating costs can also be added here: for example, costs for marketing services, the purchase of equipment, materials or reagents for production, and fees for external services, as well as contributions to other insurance, depending on the need (such as business liability insurance). In the event that the help of an expert (e.g. a lawyer) is required, this will also be accompanied by additional costs.

It is worth noting that costs may vary depending on the industry, location and scale of activity. It is always a good idea to prepare a detailed estimate before starting a business in order to have a complete overview of the costs associated with it.

The term of registration of individual entrepreneurial activity

Consideration of the application for registration of the company in the CEIDG must take place no later than the next working day after the day of receipt of the application. However, in practice, there are situations when entry into the CEIDG or assignment of a NIP number takes place within several working days.

Final remarks

In summary, JDG registration can be an attractive option for those who want more independence, develop their own ideas and control their professional path. Especially, taking into account the relief regarding the possibility of creating a JDG for foreigners, in particular for citizens of Ukraine. However, you should carefully weigh the advantages and disadvantages of running a business and adapt the choice to your goals and financial situation. Before making a decision, it's a good idea to consult with an accounting, tax or legal professional to get a full understanding of what registering and running a JDG might entail.