Economic or personal activity?

Economic activity or activity performed in person? Contrary to appearances, these concepts are not identical. What are the differences between them? Do they end with tax rules? How is the responsibility for the company's operation distributed? Find out more by reading the article below!

Economic activity and activity performed in person - what is it?

Pursuant to the Act on the freedom of economic activity, and more specifically art. 2, economic activity is a gainful production, construction, commercial, service activity and the exploration, recognition and extraction of minerals from deposits, as well as professional activity, carried out in an organized and continuous manner.

When the above-mentioned conditions are met, we will be able to call a person running a business activity an entrepreneur. On the other hand, the law does not clearly define an activity performed in person. It can be concluded that this is an activity that is not performed in connection with an employment contract and does not meet the definition of an economic activity.

Important! Please note that you cannot provide services to private individuals as part of a personal activity. Then the activity should be regarded as economic activity. Moreover, activities performed in person are often based on a contract for a specific task or mandate and are provided to legal persons or organizational units without legal personality and entrepreneurs.

Sources of operating income

Economic activity for income tax purposes is also defined by Art. 5a point 6 of the PIT Act.According to it, economic activity means gainful activity:

• manufacturing, construction, trade, service,

• consisting in searching for, identifying and extracting minerals from deposits,

• consisting in the use of things and intangible assets

- conducted on its own behalf, regardless of its result, in an organized and continuous manner, from which the revenues obtained are not included in other revenues from the sources listed in art. 10 sec. 1 points 1, 2 and 4-9.

Importantly, also the PIT Act, and more specifically Art. 13 indicates what counts as income from activities performed personally. These are the revenues:

1. from personally performed artistic, literary, scientific, coaching, educational and journalistic activities, including participation in competitions in the field of science, culture and art and journalism, as well as income from practicing sports, sports scholarships awarded on the basis of separate regulations and the income of judges for running sports competitions;

2. from the activities of clergymen, obtained on account other than an employment contract;

3. on the activities of Polish arbitrators participating in arbitration proceedings with foreign partners;

4. received by persons performing activities related to the performance of social or civic duties, regardless of the method of appointing these persons, including compensation for lost earnings, with the exception of the revenues referred to in point 7;

5. persons to whom a state or local government authority or administration, a court or a public prosecutor, on the basis of relevant provisions, commissioned the performance of specific activities, in particular the income of court, investigative and administrative experts and payers, subject to Art. 14 sec. 2, paragraph 10, and collectors of public law receivables, as well as income from participation in committees appointed by government or local government authorities or administration, with the exception of the income referred to in paragraph 9;

6. received by persons, regardless of the method of their appointment, belonging to management boards, supervisory boards, committees or other decision-making bodies of legal persons;

7. for the performance of services, on the basis of a mandate contract or a specific specific task contract, obtained only from:

a) a natural person conducting business activity, a legal person and its organizational unit as well as an organizational unit without legal personality,

b) the owner of the real estate in which the premises are rented, or the manager or administrator acting on his behalf - if the taxpayer performs these services only for the purposes related to the real estate - with the exception of revenues obtained on the basis of contracts concluded as part of non-agricultural business activities conducted by the taxpayer and the revenues referred to in point 9;

8. obtained on the basis of enterprise management contracts, management contracts or contracts of a similar nature, including revenues from this type of contracts concluded as part of non-agricultural business activity conducted by the taxpayer, with the exception of the revenues referred to in point 7.

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Very often there are situations in which there are doubts related to the classification of revenues, when they are listed in the catalog of revenues obtained from activities performed personally and at the same time this activity meets the criteria for qualifying it as an economic activity. An example may be the individual interpretation of the Director of the Tax Chamber in Bydgoszcz, ref. No. ITPB4 / 4511-353 / 16 / MP, of June 17, 2016, which indicated that the remuneration for acting as a probation officer for a person absent in administrative proceedings, paid to a legal counsel conducting business activity, should be qualified as income from business activity, despite the fact that revenues have been included in art. 13 sec. 6 of the PIT Act.

It was found that (...) on the basis of the above-mentioned legal provisions, doubts arose as to the classification of revenues to the appropriate source in a situation where the revenues obtained by the taxpayer are listed in the catalog of revenues from activities performed personally and at the same time the activity conducted by the taxpayer meets the conditions set out in in the definition of economic activity. Examples include: revenues obtained by artists, athletes, sports judges, attorneys providing defense ex officio, or experts and translators (...).

Moreover, (...) The Act on Personal Income Tax does not preclude the income from activities performed in person from being classified as income from economic activities, if they are performed under the conditions that meet the conditions of "business activity" (...) .

Differences between business and personal activity

Taxation rules

The economic activity carried out by the entrepreneur gives him a choice of a greater number of forms of taxation. These forms are:

• progressive tax,

• flat tax,

• a lump sum,

• tax card.

On the other hand, for activities performed in person, it is necessary to settle accounts on general principles (18 or 32% depending on the amount of income).

Attention! The only exception are mandate contracts below PLN 200, which are settled as a lump sum!

Formalities related to setting up a business

Activity performed in person, as opposed to business activity, does not require registration. The employing taxpayer must complete the formalities related to tax or insurance.

Responsibility for the operation of the company

In the case of running a business, the entrepreneur is partially liable to third parties for the performance of activities and their result, which constitute the content of the contract. In turn, in the case of activities performed personally, the taxpayer is not burdened with it, because this responsibility rests with the principal.

In conclusion, economic activity and activity performed in person are not identical concepts. When deciding on one of them, it is good to recalculate which one will be more profitable and why.