Government Prepares Tax Hike of Over 40 Percent: This Group of Entrepreneurs Will Pay More

The Ministry of Finance has drafted tax amendments that could raise tax burdens by over 40 percent for specific sole proprietors and transactions with related entities starting in 2027.

Government Prepares Tax Hike

The Ministry of Finance has prepared a draft of broad tax legislation covering changes to PIT, CIT, and the flat-rate income tax act. Document UD116 introduces several new solutions, but entrepreneurs’ greatest attention is drawn to proposals regarding the flat rate on registered revenues. The project does not raise rates for all taxpayers using this form of taxation, proposing new conditions for preferential rates primarily targeting selected service business groups and individuals settling specific transactions with related entities. The new regulations are scheduled to take effect on January 1, 2027, subject to the full legislative process.

Employment Condition for 8.5 Percent Flat Rate

The largest change affects entrepreneurs settling their business activity under the 8.5 percent flat tax rate. The draft assumes that maintaining this preference will depend on meeting an additional employment condition. If an entrepreneur ensures employment corresponding to at least one full-time equivalent throughout the business activity period in the tax year, they can continue using the current rules. The situation will differ for entrepreneurs running businesses independently. This is a significant difference; the project does not subject all revenue to a higher rate, but only the portion exceeding the statutory limit.

Calculation Example for Sole Proprietorship

The easiest way to understand the effects of the changes is through a specific example. Assume a female entrepreneur runs a beauty salon, settles accounts with an 8.5 percent flat rate, achieves PLN 220,000 in annual revenue, and does not employ a full-time worker. Currently, she pays: PLN 220,000 multiplied by 8.5 percent equals PLN 18,700 in tax. After the project enters into force, the total tax will amount to PLN 26,500. This means an increase of PLN 7,800 annually and approximately 41.7 percent compared to current rules.

Impacted Industries and Expert Controversies

Although public debate frequently cites hair and beauty salons, the draft covers a much broader group of service activities currently utilizing the 8.5 percent flat rate. A common feature of many such firms is that the owner performs work independently, meaning worker employment often stems from the nature of the business rather than business needs. This employment condition sparks controversy, with experts like Piotr Juszczyk pointing out that many single-person businesses operate without employees because such a business model is economically rational. Similar positions were submitted during public consultations by the Polish Chamber of Commerce, the National Chamber of Tax Advisors, and craftsman organizations.

Changes for Related Parties and Effective Date

Draft UD116 also proposes changes for taxpayers deriving revenues from rent, lease, and intellectual property rights when the contract counterparty is a related entity, such as a company owner renting their own property to the company. The Ministry argues this prevents profit shifting from companies to partners using preferential flat rates. If enacted, the highest risk of higher taxes applies to these groups, though not all flat-rate users face automatic increases. The draft remains in the legislative process, with the current version scheduling the core regulations to take effect on January 1, 2027.