Running Business in Poland: Sole Proprietorship vs. Business Incubator

Business in a Business Incubator

In the global understanding, a business incubator is an organization that supports young projects (startups) at all stages of development – from idea generation and development to implementation and monetization. For example, it was with the help of the YCombinator business incubator from the USA that we all know brands like Airbnb, Dropbox, Reddit.

In Poland, business incubators not only support startups but also promote specialists individually. Essentially, such companies hire professionals for work and legally process payments from clients, deducting taxes. In other words, through a business incubator, accounting is handled, and the specialist works independently with their clients.

Who can work through a business incubator?

This work type is best suited for:

• IT specialists
• Creative digital professions
• Micro-businesses (for example, beauty industry)
• Startups

Working conditions through a business incubator

Services. A business incubator not only hires a specialist to legalize income but also provides a range of services: permission to work in Poland, a recommendation letter for obtaining a visa, opening a sub-account, the opportunity to consult with experts (lawyers and accountants), as well as attend training sessions and use the resources of the business incubator – CRM, workspace, and more.

Cost. The business incubator typically charges a monthly fee ranging from 300 to 450PLN. This fee covers a package of services as well as special tax conditions.

Taxes. The tax amount depends on the specialist's type of activity, age, and contract type. For individuals under 26, there's a tax exemption – no income tax is required for creative professions involving the provision of copyrighted material.

For older specialists still in creative fields, the income tax under the "umowa o dzieło" contract for the transfer of copyrights is around 9.6%. However, this does not include contributions to the pension fund and social insurance payments.

For specialists not involved in producing copyrighted material, the tax burden can reach 43%. In this case, a different civil law contract – "umowa zlecenia" – is usually signed.

For further consultation on the terms and tax implications of working through a business incubator, feel free to reach out to the experts at Reloaction.io. Contact us on Telegram or choose the service on our platform.

Benefits of Working in a Business Incubator

Conducting business through a business incubator is easy and practical, as the organization handles most of the necessary document issues and provides its own services for the specialist's development.

Pros of working with a business incubator:

• Opportunity to obtain a work permit and enter Poland on its basis. In the future, this provides a basis for applying for a residence permit, obtaining social insurance, and even a mortgage.
• CRM and infrastructure: the business incubator provides services for business management and control, including workspace.
• Training and consultations in the field of business.
• Assistance in finding financing and investors for startups and the opportunity to develop your business idea in the EU.
• Legal and accounting support.
• Minimal bureaucracy: the business incubator provides ready-made documents and instructions for them (templates of contracts, privacy policies, personal data protection, etc.).

However, it's important to realize that this method of legalizing income may not be the best choice for everyone.

Drawbacks of Working in a Business Incubator

Despite all the extra services provided by the business incubator, another option might work better for some.

Among the main drawbacks of dealing with business incubators:

• Speed ​​of receiving funds to personal checking accounts. The process of transferring funds from the business incubator to the worker can take up to 3-4 days, limiting mobility.
• Tax amount. When working with business incubators, different types of civil law contracts may apply. According to one – umowa o dzieło – the tax is only 9.6% (personal income tax; PIT). But it is suitable only for creative professions. Another – umowa zlecenia – is suitable for all others. Under this contract, taxes will be higher, but they include not only income tax but also social contributions. Thus, sometimes working through a business incubator can be more expensive than being self-employed.

Signing an umowa o dzieło contract does not require payment of ZUS – these are contributions to social insurance. Without this, there will be no opportunity to receive social insurance, pension, and other social protection benefits.

When working through a business incubator, there is no opportunity to scale the business: you cannot hire employees, open branches, transfer shares, or enter into partnerships.

Running Business as a SP

An individual entrepreneur in Poland – jednoosobowa działalność gospodarcza (JDG) – can be both a Polish citizen and some foreigners residing here.

The status of an individual entrepreneur in Poland allows for legally working in Poland, earning profits in one's own name, and under one's own responsibility.

• In other countries, equivalents to the JDG status include:
• Individual entrepreneur (IE) – Belarus and Russia
• ФОП (Фiзична особа пiдприємець) – Ukraine
• Živnostenské oprávnění (živnostenský list) – Czech Republic
• Einzelunternehmer (or Kaufmann) – Germany
• Sole proprietorship – USA.

Who can work as a SP?

SP are often established by IT specialists for cooperation with large companies instead of entering into employment contracts under umowa o pracę or umowa zlecenia agreements.

However, sole proprietorship is available to a much wider range of individuals:

• Residing in Poland on the basis of permanent residence;
• Residing in Poland on the basis of an EU Resident Card;
• Holding a valid Polish Card;
• Citizens of EU member states;
• Holding a valid Poland.Business Harbour visa;
• Having refugee status;
• Holding a residence permit based on studying at Polish universities;

Citizens of Ukraine, according to the law on assistance to citizens of Ukraine.

Individuals lacking the mentioned documents cannot start an Individual Entrepreneurship in Poland. This includes non-residents living in Poland under humanitarian visas, Blue Cards, or work visas (excluding PBH). Also, certain types of activities are not eligible for IP registration:

• Growing certain types of plants
• Animal husbandry
• Insurance
• Firefighting activities
• Trade union work
• Sports clubs
• Banking activities

Conditions of working as a SP

Conditions. Unlike with a business incubator, an individual entrepreneur does not need to wait for any services. They open bank accounts, manage accounting, and search for specialists independently.

Documents for registering a SP also need to be arranged independently. This can be done online or in person at the municipality. After that, registration with ZUS and the local tax office must be completed within 7 days.

Taxes. Sole proprietors do not need to pay monthly fees like those in a business incubator, but the tax situation is more complex. An individual entrepreneur must pay monthly:

• Profit tax – from 2% to 32% of income depending on the chosen tax regime and type of activity.
• ZUS contributions – from 4.9% to 9% depending on the tax regime.
• and VAT – the basic rate is 23%, however, there are types of activities with rates from 0% to 8%).

In total, the tax for a sole proprietor greatly varies. Its amount can only be calculated for a specific type of activity, tax regime, and projected average salary for the reporting year.

Benefits of Working as a SP

Being a SP entails individual responsibility, which implies both greater freedom and more decision-making.

The key advantages of working as a SP include:

• Ease of registration, suspension, and liquidation of the sole proprietorship (possibly even online at https://www.biznes.gov.pl/pl);
• Independence in decision-making – no need for coordination of actions, as in the case of a business incubator.
• Personal responsibility for financial obligations – you manage the funds independently. Funds also come directly to you, not through an intermediary's account, which reduces transaction time.
• Choice of business direction – there are no restrictions like when working with a business incubator.
• More favorable taxation compared to working under an umowa zlecenia contract through a business incubator.

Drawbacks of Working as a SP

Some downsides also exist when working as a SP:

• Self-provision of resources: renting workspace, looking for partners or investors, infrastructure, and contacts.
• Independent search for specialists for consultations – accountant, lawyer.
• Sole proprietors in Poland are personally liable for all their property.
• Sole proprietorship is not suitable if the business grows and requires physical assets, licenses, permits, equipment purchases, and employee hiring.

Summary

Working through a business incubator sometimes may be more expensive than through SP in certain circumstances. However, we advise you to calculate your specific situation.

While working as a SP offers more freedom of action, it also entails greater responsibility. No one will provide expert consultations, business training, and workspace as with working through a business incubator.

Having an employment contract from a business incubator ensures the possibility of having social insurance, obtaining a residence permit, and a mortgage in Poland. Sole proprietors, on the other hand, are required to pay monthly contributions for social insurance to ZUS.

Legalization and adaptation are complex processes. But Reloaction.io can make it easier and faster. We can help you open a sole proprietorship, legalize your business, and even handle accounting. Contact us on Telegram or through the platform.