Insides

Navigating Polish Business Formation

Embarking on the journey of opening a business in Poland brings you to a crucial crossroads: choosing the appropriate legal form for your venture. In the Polish entrepreneurial landscape, two prevalent options stand out – the Polish limited company, known as ‘spółka z ograniczoną odpowiedzialnością’ (sp. z o.o.), and the sole proprietorship, referred to as ‘jednoosobowa działalność gospodarcza’ (JDG). This guide aims to demystify these options, to help you with making an informed decision.

Polish LLC (Sp. z o.o.) vs. Sole Tradership (JDG): A Comparative Overview

Understanding the key differences between these two structures is vital for your business’s legal and financial framework.

• Legal Entity Status: Sp. z o.o. operates as a separate legal entity, providing a distinction between the business and personal assets, whereas JDG is an extension of the individual, blending personal and business liabilities. Registration of JDG involves registering with CEIDG, ZUS (NATIONAL INSURANCE), and optionally, VAT with the Tax Office. In case of Sp. z o.o. you create a new legal entity with specific registration costs and a minimum share capital.
• Formation and Operational Costs: Setting up an sp. z o.o. involves higher initial costs and formalities compared to the relatively straightforward and cost-effective process of establishing a JDG. With Sp. z o.o. costs include KRS registration (online: 250 zł, traditional: 500 zł), entry in the Judicial and Economic Gazette (100 zł), and notary fees for traditional registration. Minimum share capital is 5000 zł. JDG registration incurs no additional procedural costs.
• Financial Control and Liability: Sp. z o.o. offers limited liability, safeguarding personal assets against business risks. However, access to the company’s funds is limited; financial decisions require resolutions from partners. Expenses have to be formally registered. In contrast, JDG owners face unlimited personal liability for business obligations but also gain full control over personal and business finances.
• Accounting Requirements: The sp. z o.o. is subject to more stringent accounting and reporting rules, necessitating meticulous record-keeping of every transaction, while JDG enjoys simpler accounting methods like KPiR or revenue records.
• Taxation and Social Security Contributions: In the case of Sp. z o.o., there is no obligation for ZUS contributions for the owner if there is at least one other partner. CIT (Corporate Income Tax) is at a rate of 9% for small companies (up to 2 million EUR annual revenue), with additional PIT (Personal Income Tax) on dividends. JDG owners are obliged to make mandatory ZUS contributions with possible preferential rates for startups. They contribute PIT (Personal Income Tax) based on individual rates (19% linear, 12% general, or lower on a lump sum).
• Inclusion of Partners: Sp. z o.o. allows for the inclusion of partners, with the possibility of distributing shares among them. This facilitates collaboration with investors or capital partners. There is no such option in the case of JDG.

Seek Expert Guidance: Schedule a Consultation

Choosing between an sp. z o.o. and a JDG is a decision that shapes your business’s legal, financial, and operational foundation in Poland. If you’re still pondering over the best fit for your business, our expert team is here to guide you through the nuances of each option, ensuring your decision aligns with your business goals and long-term strategies.

Jerzy Gaweł
Partner – Tax Advisor