The most popular forms of economic activity in Poland

If you’re interested in the Polish market, you have to do some research concerning possible forms of economic activity in Poland. And while there are several different options to choose from, two of the most popular are sole proprietorship and limited liability companies. Therefore, what do you need to know about them, and what are the pros and cons of both solutions? Let’s find out!

When you examine the data provided by the GOV.pl website, you will learn that there are about 2.4 million entrepreneurs in Poland who run their businesses as sole proprietors[1]. The number of LLC companies in Poland hovers around 410,000[2]. These two forms are the most popular ones in the Polish business environment. So, what do you need to know about them, and which form is best for your company.

Sole proprietorship or LLC?

First things first: If you want to find out more about forms of Polish companies, you need to know the terminology:

• Sole proprietorship in Polish is called “jednoosobowa działalność gospodarcza” (the literal translation would be one-person economic activity). Sole proprietors are also frequently referred to as self-employed persons (Pol. samozatrudnieni).
• The LLC company in Polish is called “spółka z ograniczoną odpowiedzialnością” (the literal translation: A company with limited liability). An abbreviated form is also very popular: “sp. z o.o.”.

Obviously, you can select the form of your business based only on its popularity, so let’s dig deeper. In the following paragraphs, we will talk about:

• Costs of registration and formalities
• Finances and your liability for the company’s obligations
• Accounting
• Taxes
• Social insurance

For each of these points, we are going to compare sole proprietorship and LLC companies.

Costs of registration and formalities

Here, sole proprietorship has a clear edge as they can be registered quickly and free of charge by submitting an electronic application to the Polish Central Registration and Information On Business (CEiDG). Having a Trusted Profile (which is available via most banks in Poland) or an electronic signature along with your Polish tax identification number (NIP) is all you need to finish the process of registering your company. Getting everything up and running takes less than an hour, and your company is ready to operate almost instantly (usually, you have to wait around 24h for the so-called REGON number, but it happens automatically).

On the other hand, the procedure related to establishing a limited liability company is much more complicated and time-consuming. In addition, in order to be able to register a limited liability company in Poland, you have to have capital of at least PLN 5,000 (~1,100 EUR).

Setting up a limited liability company in the traditional way may take up to a month and requires submitting necessary documents to the National Court Register. You will also need an agreement prepared by the notary. All this involves court fees in the amount of around PLN 1,000, notary fees and related expenses (the notary will explain everything to you during the procedure).

The good news is that it is also possible to register an LLC company online, which usually takes several days and allows you to avoid the majority of the costs associated with notarial activities and registration in the National Court Register. We will discuss this option later in the text.

Finances and your liability for the company’s obligations

A self-employed person is free to use all the funds that will be deposited on their business bank account as they are their personal property. The situation is different in a limited liability company, which has its own legal personality. This means that the partners and members of the management board cannot freely use the company’s account. Any payment or withdrawal must be reflected in contracts or invoices.

Accounting

When it comes to sole proprietorship, accounting can be kept in a simplified form, which is not possible in a limited liability company where it is necessary to keep full commercial books and prepare balance sheets. This involves additional expenses, as keeping the company’s accounting requires much more knowledge and work.

The costs of the full accounting service in Poland vary and range from 500 to even several thousand PLN per month in the case of large companies. In the case of sole proprietorships, the cost of accounting starts from 150 PLN per month.

Contrary to appearances, full accounting in a limited liability company is a great advantage because it allows the partners and the company’s bodies to control all cash flows and business performance. It also allows you to accurately assess the company’s financial situation and categorise costs according to their purpose.

Taxes

Concerning sole proprietorship, the taxpayer is the entrepreneur himself, who is obliged to pay advances for personal income tax (PIT). The LLC company, as an independent entity, is subject to a flat corporate tax (CIT) in the amount of 19% of the gross profit achieved. As of 2019, due to the introduced changes to CIT, small limited liability companies starting their business may benefit from a reduced rate of 9%.

A sole proprietor can settle their taxes in four ways:

1. Based on general rules: depending on the amount of income, 17% or 32%.
2. Flat tax: a fixed rate of 19%.
3. Lump sum: depending on the type of your activity: 2%, 3%, 5.5%, 8.5%, 17%, or 20%.
4. A Tax card: currently, this form of tax deduction is used the least because it is subject to a number of restrictions. The amount of tax is determined individually for each company, depending on the type of services provided and the size of employment. Additionally, only companies that meet specific requirements can apply for a tax card.

Social insurance (ZUS)

In Poland, there is one central body that regulates social security issues and costs. It’s called ZUS – Zakład Ubezpieczeń Społecznych (Polish Social Insurance Institution). Every self-employed person is responsible for paying a monthly ZUS premium which comprises social security and health insurance. The combined amount of these two premiums is around 1,500 PLN per month.

In the case of a limited liability company (let’s add the one with at least two partners), the obligation to pay ZUS contributions does not apply to both partners and members of the management board. And we have to be honest here, ZUS contributions are undoubtedly one of the biggest burdens for every entrepreneur in Poland. Establishing a limited liability company can be a great way to eliminate these burdens and thus generate additional savings in your business.

Registering an LLC company online

Currently, you can register online in Poland:

• A limited liability company (spółka z ograniczoną odpowiedzialnością)
• General partnership (spółka jawna)
• Limited partnership (spółka komandytowa)

Electronic registration of business entities is possible via the S24 Platform provided by the Polish Ministry of Justice. Companies registered online do not require the notarial agreement, and the entire procedure takes place online via the platform.

All the necessary documents for the registration processes are created within one account and then sent to partners for signing with a qualified electronic signature or with the Trusted Profile (e-PUAP). The S24 system does not require the manual completion of these documents. The platform has been equipped with a generator that allows you to fill in and generate:

• The partnership agreement
• The list of partners
• The application for company registration in the National Court Register.

After submitting the application for company registration, you must pay all the fees within 7 days. Establishing a company online is not only much easier and faster than the traditional form but also much cheaper. The court fee for entering an electronically registered company is PLN 250, which is half the cost of traditional registration. Moreover, the cost of drawing up the partnership agreement by a notary is eliminated.

The one-stop-shop principle

Registering a company (whether it’s a sole proprietorship or an LLC) can be done within one online dashboard. This means that the information concerning your company is automatically shared with other registers, and you, as an entrepreneur, don’t have to take any additional steps.

So far, we have discussed two of the most popular forms of companies in Poland. Of course, your choice is much wider:

Other forms of business activity in Poland

• Joint-stock company (Pol. spółka akcyjna): A type of capital company, the form of which is based on the circulation of shares held by shareholders. The share capital consists of contributions from the founders who become co-owners of the company.
• Limited partnership (Pol. spółka komandytowa): It’s a partnership company aimed at running an enterprise under its own name, in which at least one partner (so-called komplementariusz/general partner) is unlimitedly liable for the company’s obligations towards creditors, and the liability of at least one partner is limited (komandytariusz/limited partner).
• General partnership (Pol. spółka jawna): It’s an entity that’s separate from its partners, operating under its individual name. As a personal commercial company, general partnership does not have a legal personality. However, it participates in business transactions as a subject of rights and obligations because it has been granted legal capacity.

Of course, when it comes to deciding which option is best for you, you need more information than any single article can offer. We sincerely advise you to contact a trusted tax advisor before making any decisions. Please be informed that this article has been written based on publicly available data, and it does not exhaust the whole subject.

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[1] https://www.gov.pl/web/rozwoj-technologia/ceidg—od-miesiaca-rosnie-liczba-aktywnych-firm

[2] https://medium.com/blog-transparent-data/polskie-firmy-2020-raport-podsumowuj%C4%85cy-rok-9f16e89ce4cb