JDG – what does that mean?

A sole trader business, commonly referred to by the abbreviation JDG, is the most popular form of business organisation in Poland. Under current law, it is an organised, profit-making activity carried out by a natural person in their own name and on a continuous basis. The main objective of this form of business is to generate profit, with the entrepreneur making all decisions independently and being liable for the company’s obligations with all their assets.

The sole trader plays a huge role in the Polish legal and economic system – it forms the basis for over 2.5 million entrepreneurs who value the simplicity of registration, flexibility and full control over their business. Unlike companies, a sole trader does not have legal personality, which affects the scope of liability and the way the business is managed.

Registration procedure and formalities relating to a sole trader

Registration with the CEIDG

Setting up a sole trader business requires registration with the Central Register and Information on Economic Activity (CEIDG). This process is straightforward and can be carried out electronically via the biznes.gov.pl portal, where the entrepreneur completes the CEIDG-1 form. Personal details are required, such as first name, surname, PESEL number, as well as information about the business, including the business name (which must contain at least the owner’s first name and surname), the registered office address, NIP and REGON numbers (if assigned) and PKD codes specifying the scope of activity.

PKD codes and their significance

The Polish Classification of Economic Activities (PKD) is crucial for defining the profile of the business being run. The selection of appropriate codes affects tax obligations, the need to use a cash register, and any requirements regarding licences. The entrepreneur must select one main code and may specify additional codes corresponding to other types of business activity carried out within the sole trader business.

Tax and social security obligations of a sole trader

Taxation methods

A person running a sole trader business is liable for personal income tax (PIT) and may choose one of three basic forms of taxation:

• Tax scale – rates of 12% on income up to PLN 120,000 and 32% on the excess, with the option to claim tax reliefs and file a joint return with a spouse;
• Flat-rate tax – a fixed rate of 19 per cent, advantageous for higher incomes, but without the option to claim most tax allowances;
• Lump-sum tax on recorded income – taxation of income at rates depending on the type of business, without the possibility of deducting costs.

The decision on which form of taxation to choose should take into account the specific nature of the business, anticipated revenue and costs, as well as the availability of tax reliefs.

VAT registration and accounting

Businesses may become VAT taxpayers by registering using the VAT-R form. The obligation to register arises once annual turnover exceeds PLN 200,000 or in the case of providing services or selling goods subject to VAT. Subject-based and supply-based exemptions allow businesses to avoid VAT liability in certain situations, which is of significant importance to micro-entrepreneurs.

Social security and health insurance contributions

Every entrepreneur running a sole trader business (JDG) is obliged to pay contributions to the Social Insurance Institution (ZUS), covering pension, disability, accident and sickness (voluntary) insurance, the Labour Fund and the health insurance contribution. The contribution base for 2024 is 60 per cent of the projected average monthly wage, which amounts to approximately 1,500 PLN per month, with an additional health insurance contribution depending on the form of taxation and income (minimum approx. 380 zł per month).

Entrepreneurs starting a business may benefit from relief schemes such as:

• Start-up relief – exemption from paying social security contributions for the first 6 months (only the health insurance contribution is payable);
• Preferential ZUS – reduced social security contributions for the following 24 months;
• ‘Mały ZUS Plus’ – contributions calculated in proportion to the previous year’s income, available for 36 months.

Advantages and challenges of running a sole trader business

Benefits

• Simplicity and speed of setting up a business without the need to raise share capital;
• Full control over the business and freedom to make decisions;
• Flexibility in running the business, including the ease of suspending or winding up operations;
• The possibility of benefiting from preferential tax regimes and tax reliefs;
• Low accounting costs and simplified formal requirements;
• Access to credit facilities and funding, including from government and EU programmes.

Limitations and risks

• The owner bears full financial liability for the company’s debts, which entails a risk of losing personal assets;
• The obligation to keep the accounts yourself or to commission professionals to do so;
• High social security contribution costs, which may affect the profitability of the business, particularly in the early stages;
• The need to settle taxes and contributions in a timely and comprehensive manner;
• Lack of legal personality, which may make it difficult to work with investors or business partners on a larger scale;
• Challenges associated with managing all aspects of the business, which requires extensive knowledge and commitment.

Alternatives to a sole trader business

For entrepreneurs seeking to limit financial risk or planning to expand their business with partners, alternatives include companies such as a limited liability company (sp. z o.o.) or a general partnership. A limited liability company (sp. z o.o.) allows the liability of the shareholders to be limited to the capital they have contributed, but requires full accounting records and involves higher administrative costs. The decision on which form to choose should take into account the scale of the business, the level of risk and the entrepreneur’s individual needs.

Summary

A sole trader business is an effective way to start a business in Poland, particularly for those who value simplicity and independence. However, before making a decision, it is worth carefully analysing the financial, legal and organisational implications of this form of business. It is essential to take into account the costs of running the business, including social security contributions, and to choose the most suitable form of taxation.

It is also advisable to make use of professional advisory services covering accounting, taxation and legal matters. This allows you to optimise the running of your business and avoid mistakes that could lead to unnecessary costs or risks. Other forms of business organisation remain an alternative to a sole trader business, which may be more advantageous for larger ventures or where limiting financial liability is important.

In summary, a sole trader business remains an attractive and flexible way of running a business, but it requires a thoughtful approach and careful planning, which are key to long-term success in the market.

Frequently asked questions

What is a sole trader (JDG)?

A sole trader is the simplest form of running a business in Poland, where a single individual carries out business activities on their own account and under their own name. The entrepreneur bears full financial liability for the business’s obligations and manages the business independently.

How do you set up a sole trader business?

Setting up a sole trader business involves registering the business with the CEIDG by completing the CEIDG-1 form online or in person. Registration is quick and free, and upon registration the entrepreneur receives their NIP and REGON numbers. After registration, you must register with ZUS and choose a form of taxation.

What taxation schemes are available for a sole trader?

The business owner can choose one of three taxation schemes: the general rules (a progressive tax scale with rates of 12% and 32%), a flat-rate tax (19 per cent with no tax-free allowance) and a flat-rate tax on recorded income (rates ranging from 2 per cent to 17 per cent depending on the type of business). The choice depends on the nature of the business and the expected income.

Do I have to pay social security contributions when running a sole trader business?

Yes, when running a sole trader business, you are obliged to pay social security and health insurance contributions. New entrepreneurs can benefit from relief schemes, such as the start-up relief, preferential ZUS or ‘small ZUS plus’, which reduce the amount of contributions in the first few years of operation.

Can a sole trader employ staff?

Yes, despite the name, a sole trader business can employ any number of staff. However, the business owner remains the sole proprietor and is personally liable for the business’s debts with all their assets.

What are the main advantages and disadvantages of running a sole trader business?

The advantages include the simplicity of registration, low start-up costs, full control over the business and flexibility in decision-making. The disadvantages include the business owner’s full financial liability, the need to handle bookkeeping and tax returns independently, and the financial risk associated with the business’s debts.

Is it possible to run a business without registering as a sole trader?

Yes, if your monthly income does not exceed 75 per cent of the minimum wage, you can run a so-called unregistered business, which does not require registration with the CEIDG or the payment of social security contributions, but involves restrictions and simplified sales records.