The government has adopted a draft law on the so-called cash PIT. It provides that sole proprietors will be able to include revenues and costs in tax terms at the time of receiving payment, not issuing an invoice.
Council of Ministers adopted a draft amendment to the Personal Income Tax Act and certain other acts, submitted by the Minister of Finance.
A new opportunity for entrepreneurs
The government intends to introduce the possibility for entrepreneurs to choose the cash method of settling income and costs of obtaining incomei.e. the so-called cash register PIT“The new solution implements the announcement from Prime Minister Donald Tusk's exposé” – it was emphasized in Tuesday's statement of the Chancellery of the Prime Minister.
According to the cash method, the entrepreneur will include revenues and costs for tax purposes at the time of receiving payment, and not at the time of issuing an invoice. Even partial payment for goods or services, i.e. an advance payment, prepayment or installment, will be considered revenue. Thus, taxable revenue will arise at the time of receiving all or part of the payment. This method will apply only to transactions between entrepreneurs.
As indicated, currently, the principle in personal income tax is the so-called accrual method of determining income from business activity. This means that for entrepreneurs, income from business activity arises on the date of issuing an invoice, performing a service or delivering goods, regardless of whether they have received the payment due to them. As a result, entrepreneurs must pay income tax on income that they have not yet actually received.
“This constructed principle of determining income from business activity is particularly burdensome for entrepreneurs who run small-scale businesses. This principle negatively affects their financial liquidity, which reduces the possibility of competing with larger companies,” the press release stated.
Who will be able to benefit?
According to the project, the cash method will be available to entrepreneurs conducting business sole proprietorship (so this solution will not be used by persons running a civil or general partnership) if their revenues in the previous tax year did not exceed the equivalent of EUR 250,000 and if they keep a tax book of revenues and expenses; entrepreneurs keeping accounting books will not use this solution.
In addition, the entrepreneur must submit a declaration by February 20 (or by the 20th day of the month following the month in which the business began) that they want to settle using the cash method. This declaration will also be valid in subsequent years, until it is revoked.
Businesses using the cash method will also have to keep invoice records documenting revenues settled using the cash method. As stated in the justification, the records “will not have a specific format, but should include the date of invoice issue, invoice number, amount due from the invoice and the date of payment of the due.”
The proposed law is to enter into force on 1 January 2025.
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