Income taxation - who and what does it apply to?

Income taxation is included in the Personal Income Tax Act. In the article, we will focus on the most important concepts that are regulated by the aforementioned legal act, i.e. the subject of the tax, the subject of taxation, as well as the sources of income that are subject to income tax.

Natural persons and legal persons

A natural person is not strictly defined in the regulations, but we can infer from them that it is a legal term for a person from birth to death. A natural person running a business is the simplest organizationally and the most popular form of running a business in Poland. How is it different from a legal entity?

Legal persons are the State Treasury and organizational units to which the legislator grants legal personality. Such entities include, inter alia:

• capital companies of commercial law (sp.z o.o., joint-stock companies),

• associations, foundations, cooperatives, including housing cooperatives.

The main difference is therefore that we deal with a natural person from the moment of birth, while a legal person is granted legal personality by special provisions.

Subject of taxation with personal income tax

Taxation with personal income tax covers all natural persons who earn an income. The tax obligation can be divided into:

• unlimited - all earned income is taxable;

• limited - taxation with income tax covers income earned on the territory of Poland.

Every natural person residing in the territory of Poland has unlimited tax liability. Having a place of residence in the territory of the country means that a given person:

1. has a center of personal or economic interests in Poland (center of vital interests), or

2. stays in the territory of the country for more than 183 days in a tax year.

Limited tax obligation applies to natural persons who do not have their place of residence in Poland. If natural persons do not have a place of residence in the territory of the Republic of Poland, they are subject to tax only on income (income) obtained in Poland.

Taxation with personal income tax - subject

Income taxation applies to all income except those listed in:

• art. 21 (e.g. certain pensions, compensations, allowances or winnings in casinos, number games and cash lotteries),

• 52 (e.g. national pensions and other social security benefits due for the period up to 31 December 1991);

• 52a (e.g. interest and discount income on securities issued by the State Treasury and bonds issued by local government units - acquired by the taxpayer before December 1, 2001);

• 52c (e.g. a financial benefit paid to a soldier to cover the cost of renting a flat up to PLN 500) and

• income from which, pursuant to the provisions of the tax ordinance, tax collection was abandoned.

Income and income - the fundamental difference

In practice, it often happens that taxpayers have problems with correctly distinguishing between the concepts of income and revenue. These are two completely different concepts, even though they are closely related.

Pursuant to Art. 14 sec. 1 of the PIT Act, income from business activity is considered to be the amounts due, even if they were not actually received after excluding the value of goods, reimbursed discounts and discounts granted. Importantly, in the case of taxpayers selling goods and services subject to tax on goods and services, the revenue from this sale is considered to be revenue less the due tax on goods and services. This means that in most cases the revenue is the net amount resulting from the invoice documenting the sale of goods or the performance of the service.

However, it should be emphasized that the income is the surplus of the sum of revenues over the costs of obtaining them, achieved in the tax year. If the deductible costs are greater than the sum of revenues, a loss is recognized. In other words, income is income less tax deductible costs.

Important! Income> tax deductible costs = income Revenue <tax deductible costs = loss

Taxation with income tax - sources of income

The legislator does not list strictly all sources of income that are subject to income tax. However, the lack of a given source in the Act does not mean that such income is not subject to income tax - only income exempted under Art. 21 of the PIT Act, income for which tax collection has been abandoned or to which the PIT Act does not apply (Article 2 (1)).

If a specific source of income is not explicitly mentioned in the Act and none of the exemptions referred to above apply to it, then it is defined as Other sources.

Examples of revenue streams are:

1. business relationship, employment relationship, including a cooperative employment relationship, membership in an agricultural production cooperative or other cooperative engaged in agricultural production, outwork, retirement or disability pension;

2. activities performed in person;

3. non-agricultural economic activity;

4. special departments of agricultural production;

5. rental, sublet, lease, sublease and other contracts of a similar nature, including the lease, sublease of special departments of agricultural production and a farm or its components for non-agricultural purposes or for running special departments of agricultural production, with the exception of assets related to economic activity;

6. cash capitals and property rights, including the sale of property rights other than real estate against payment, cooperative ownership rights to a flat and the right to perpetual usufruct of land.