Self employment is a huge amount of decisions you have to make in relation to the government. First, you have to decide if you want it to be
- Jednoosobowa Działalność Gospodarcza (Sole Proprietorship)
I will use the abbreviation “JDG“
- Spółka z ograniczoną odpowiedzialnością (Limited Liability Company)
– official abbreviation: “Sp. z o. o.”
– foreign equivalent “Ltd.”
– I will also use the abbreviation “LLC”.
So what to choose?
If you are from outside the European Union and have not done anything to obtain the required documents – you do not have a business visa or the “Voivode’s Decision” (“Decyzja Wojewody”), etc., you have no choice: you need to set up a “Spółka z ograniczoną odpowiedzialnością”.
However, if you have a choice, there are a few things you need to think about. JDG is simpler. Establishment takes several minutes. You can even do it yourself for free. Accounting is simpler and cheaper. At Ltd. you have a lot of additional cases and costs to start (lawyer, fees, notary), you have to pay a minimum core capital of PLN 5,000 (something like a deposit), and LLC accounting is:
Pełna Księgowość (Full accounting) – “Księgi Handlowe” (KH)
Accurate and meticulous that everything has to be right down to the penny accounting. Every movement of money is accounted and the money owned by the company does not belong to you – it belongs to the LLC. You can’t pay out them on your own. You get a monthly salary and you can pay yourself the profit once a year in line with the calculations in the Annual Financial Statements. What is it? This is your next extra work. Besides, this statement is public. At JDG, you account incomes and costs (or sometimes only incomes) to a small book: KPiR or Ewidencja Przychodów mainly to know what tax you pay. Your earning aren’t separated, so you can dispose of the money as you like. JDG (up to a 2 mln euro of incomes) does not require full accounting, so there are lower costs of accounting.
However, this has a huge downside:
If you fall into big debt in JDG you can even lose ALL your private property – car, house. Separation in LLC makes you safety. When you fall into debt, everything that belongs to the company, including core capital, will be forfeited, but your private property and even your salaries are safe.
Tax values are different, but to simplify: doing the same you have 19% in JDG and 9% in LLC. So there is less in the LLC, but you have to calculate whether it pays off for you comparing other costs. Of course, this is just an example because depending on different situations in JDG you have taxes of 3% -32%, and in LLC 9% / 19%. Moreover in LLC you have to pay full ZUS insurance when you are only one owner or not have to pay ZUS if there are more owners. At JDG you pay ZUS always but you have a lot of discounts.
Generally, the smaller the company, the more profitable JDG. LLC is more safety. If you still don’t know then you just have to count, compare and think about risk level.
“Nowy Ład” / „Polski Ład”
The “New Polish Order” may slightly change what is written above, but since there is no specificity in this topic, it makes no sense to write something about it here now. We have to wait a for specific informations.