What are the tax issues for an IT contractor (B2B)?

Choosing a form of income taxation

One of the first and most important decisions is to choose the form of taxation of business income. In Poland, there are usually three main options available for IT professionals (programmers, testers, etc.):

• Tax scale (general rules): Tax paid according to tax thresholds (currently 12% and 32% after the threshold). Allows deduction of deductible expenses and use of various allowances (e.g. child tax credit, joint taxation with spouse). Can be advantageous with lower incomes or high expenses.
• Flat tax: A fixed tax rate (currently 19%) independent of the amount of income. Also allows deduction of deductible expenses, but restricts eligibility for certain tax breaks. Often chosen by professionals with higher incomes.
• Lump sum tax on registered income: Tax paid on income, without deductibility of deductible expenses. Lump sum rates vary depending on the type of services provided (12% or 8.5% rates are often used for IT services). It is an attractive form for those with relatively low business costs. The choice of this form requires verification that the services provided qualify for lump sum taxation at the appropriate rate of the PAC.

Choosing the optimal form of taxation depends on your individual situation, anticipated income and expenses, so it is worth consulting a tax advisor.

VAT

A B2B IT specialist must also decide whether he will be an active VAT taxpayer or take advantage of the entity exemption (if his annual revenues do not exceed a certain limit, currently PLN 200,000). Registering as an active VAT taxpayer means having to add VAT (usually 23%) to invoices issued, but at the same time gives the right to deduct input VAT on business-related purchases. The decision to be a “VAT taxpayer” depends, among other things, on whether the customers are other companies (VAT payers) and on the cost structure.

Social Security Contributions

An entrepreneur on a JDG is obliged to pay social insurance (pension, disability, sickness – voluntary, accident) and health insurance contributions on his own. The amount of contributions depends on the selected assessment base. New entrepreneurs can often benefit from preferential Social Security contributions for the first years of operation (relief for start-up, preferential Social Security, small Social Security plus). Health premiums from 2022 depend on income or revenue, depending on the form of taxation chosen, which has significantly complicated the system.

Accounting and documentation

Running a business involves the obligation to keep proper accounting records (such as a tax ledger for income and expenses – P&L, or income records for a lump sum), issue invoices and keep financial records. Many contractors choose to outsource bookkeeping to a professional accounting firm.

Summary

Tax and contribution settlements are a key aspect of B2B cooperation for IT contractors. Informed choice of the form of taxation, VAT decision and regular and timely payment of Social Security contributions are essential for legal and effective business. Due to the complexity of regulations, especially with regard to the health contribution, consultation with a tax advisor or accountant is recommended.