VOLUNTARY CASH-BASED PIT FROM 2025

Starting January 1, 2025, a voluntary cash-based Personal Income Tax (PIT) will be implemented in Poland. This solution is designed for small entrepreneurs, allowing them to pay income tax only on revenue that has actually been received. The law provides an option for this type of tax settlement to entrepreneurs with annual revenue not exceeding 1 million PLN, as well as for those just starting a business.

Currently, the standard practice is the accrual method, under which income is recognized at the time of invoicing, service completion, or delivery of goods, regardless of actual payment receipt. This method can create financial strain for businesses with low liquidity.

The new system will allow entrepreneurs greater flexibility in managing their tax obligations, potentially improving cash flow and facilitating day-to-day operations in a dynamic business environment. The new cash-based PIT is targeted at individuals operating businesses whose annual revenue has not exceeded 1 million PLN. Importantly, entrepreneurs who exceed this threshold lose the right to use the cash-based PIT only from the following tax year. This form of settlement is not available to those operating through partnerships (such as civil or general partnerships), though self-employed individuals are allowed to employ workers. Additionally, the cash-based PIT applies solely to transactions between businesses that are documented by invoices.

To opt into this system, entrepreneurs must submit the appropriate declaration to the tax office. The filing deadline is February 20 of the tax year, or the 20th day of the month following the commencement of business activity for new entrepreneurs. Once they choose cash-based PIT, they must use this method for the entire tax year, regardless of any changes in their business profile during the year.

Cash-based PIT enables entrepreneurs to pay income tax only upon receiving payment from their contractors, which is especially beneficial when waiting for client payments for extended periods. However, if payment is not received within two years from the invoice issuance or contract signing, the entrepreneur must recognize the income and pay the due tax. An exception is made for depreciation write-offs, which can be recognized as a deductible cost even if payment for the fixed asset has not yet been made.

It is worth noting that cash-based PIT applies to both revenue and expenses. Revenue is only recognized after actual receipt, and expenses after payment. While this provides greater flexibility, it also requires entrepreneurs to meticulously track payment deadlines from clients. Managing this independently may introduce an administrative burden, which is one reason experts highlight the voluntary nature of this new solution.

In summary, the voluntary cash-based PIT is a promising solution that can provide financial support for small businesses. The new system allows for greater tax flexibility, but also requires entrepreneurs to closely monitor cash flows and decide whether this form of settlement best suits their needs.