B2B contracts in the Polish IT sector – where high flexibility and working remotely is the standard – are becoming increasingly popular. If you’re an employee or a person looking for employment in IT, you might have already heard about this type of contract. What is the B2B contract, and how do they work?
A B2B contract is a “business to business” agreement between you – as a self-employed person – and the company that would typically be your employer.
What are the differences between such contract and regular employment then? There are several. One of them and important to most is money. Under a regular contract of employment, your salary is only one of many costs that your employer has to incur when hiring you. When your employer does not have to carry the additional costs like employer contribution and social security, you can usually count on a higher salary.
On the other hand, the B2B contract imposes many obligations on you (i.e. tax, social security obligations) that would be your employer’s obligation under a regular contract of employment.
If you consider working under the B2B-agreement, these are the five and a half steps to take to become a B2B-contractor in Poland.
1. Consider carefully whether the B2B contract suits you
Before becoming a B2B contractor, you should learn what the pros and cons are of B2B contracts and decide what kind of contract – standard employment contract or the B2B contract – suits you better.
As mentioned before, the most significant advantage of a B2B contract is the fact that as a self-employed person, your “employment” is much cheaper for the company contracting you. That usually means higher earnings for you, because your employer does not have to pay additional costs for your employment. A B2B contract often gives you much more flexibility when it comes to working time and working place than an employment contract.
On the other hand, compared to B2B contracts, the contracts of employment are much safer. If you’re an employee, your employer cannot terminate the agreement immediately (except for extreme cases like a severe violation of essential employee duties). The employer is subject to notice periods imposed by the Polish Labor Code. However, this may also work against you. Employees in the IT industry often have many job opportunities available and don’t like to be limited by notice periods.
When you are on a B2B contract, your employer will not fulfil your tax and insurance obligations for you, which means that you will have to take care of them yourself (more about this in step 2) or use an accountant who will do this for you.
Finally, a B2B contract does not automatically give you the right to paid leave. If you don’t work because you’re sick, then you don’t earn money for that period. That is, of course, given that you did not negotiate different conditions in your contract.
This last point is crucial – remember that B2B contract is like any other business contract so that you can negotiate its terms in a way that will allow to you get the same benefits you usually get on employment contract!
Decide what is important to you. However, if you value freedom in your job, you often work remotely, you don’t mind doing a bit of accounting, and like the idea of higher wages – then the B2B contract is ideal for you.
1½. So I’m going to issue one invoice a month for a single “client”, and that makes me a business person?
That is a hard question. While typically, anyone who registers as an entrepreneur has all the related obligations as described below, the rights (lower tax rates, right to get VAT deductibles, etc.), may get contested by the authorities if the B2B has all or most of the characteristics of regular employment.
Currently, such situations do not happen very often. However, the authorities may like to verify at some point whether the relation between the supposed entrepreneur and the client was similar to the normal relationship between two independent contractors. Some of the aspects that can be checked are:
- the right to choose time and place where the work is performed,
- the right of the client to directly control the performance of the work of the contractor
- whether the contractor would be liable directly towards third parties for results of the cooperation
- whether the contractor bears any other business risk of the collaboration
The wording of the contract is essential. However, the authorities may also verify how it is performed.
2. Get ready to fulfil your obligations – “what will I have to do once I become a B2B contractor?”
If you have decided that the B2B contract might work well for you, you should make some decisions before you officially register in CEIDG (more in point 3). Some are simple but worth considering at this stage – like, for instance, the name and address of your company.
However, at this stage, you should also be aware of your future obligations. As a B2B contractor, you will have to:
- Pay social security contributions (ZUS) by the 10th day of each month.
- Pay income tax by the 20th day of each month;
- Pay VAT tax by the 25th day of each month if you decide to be a VAT payer;
Note that you are exempt from the obligation to pay contributions for the first six months unless you perform your business for the benefit of somebody that you worked for as an employee in the current or previous calendar year.
When you issue just one invoice a month, those obligations may seem to be simple enough; it is still advisable to consult an accountant.
3. Register in CEIDG – become a B2B contractor!
Once you have decided that you want to become a B2B contractor, the next step is to register in CEIDG.
CEIDG stands for Central Register of Information on Economic Activity. Registering in CEIDG is relatively simple and is free of charge. There is an online form, also available in English (https://prod.ceidg.gov.pl/ceidg.cms.engine/). The process is not 100% online, so you will need to confirm the registration in the nearest city or municipality office (unless you have an electronic certificate or an ePUAP).
There are a couple of points that you need to be aware of when filling in the form on the government website:
- “Business name of the applicant concerned” – remember to include your name and surname in your business name – this is a legal requirement.
- “The forecasted number of employees” – If you intend to carry out a self-employment economic activity and do not hire anyone, put 1 in field 06.1 and 0 in field 06.2.
- “Prevailing subject of economic activities” – is a 5-digit code that corresponds with your business activity. The PKD [Polish Classification of Activities] lists all the possible business activities. As somebody working in the IT sector, you will need section J (Information and Communication) and 62 (Computer Programming, Consultancy and Related Activities) and select one prevailing kind of economic activity and optionally other types of economic activities. And why does it matter? Choosing the PKD code can have far-reaching tax consequences, for example, on lump-sum rates.
- “Head of the tax office competent for registration of taxpayers” – select the tax office relevant for your address of residence.
- “I hereby declare that I will pay personal income tax in the following form” – In Poland, you can choose how you pay your income tax. This decision can be changed but only until the 20th day of the year. Options are:
- The general principle of taxation (progressive tax) – depending on your income 18% or 32% (over PLN 85.528 per year). What are the pros and cons of this form of taxation? Advantages are that you don’t pay the tax if you don’t have income or it doesn’t exceed the tax-free amount. You can also apply tax-deductible costs and tax breaks. There is also a possibility of joint assessment to income tax with your spouse.
- Flat tax – 19% regardless of your income. In contrast to the progressive tax, this form of taxation does not allow the use of tax breaks and joint assessment to income tax with your spouse. This form of taxation is the main alternative to progressive tax and is beneficial on a high level of income.
- The lump-sum tax on registered revenue – depending on the PKD codes you selected, for example for computer programming, consultancy and related activities it’s 17%. The advantage of this form of taxation is the minimal amount of accountancy documentation to collect. The disadvantages are that you need to pay the tax even if you have no income. There are also no tax-deductible costs. For example, if you buy a new computer, it will not reduce your taxable income.
- Fixed amount tax – this form of taxation will probably not be applicable if you work in the IT sector.
- “The type of advanced payment” – you can choose to pay monthly or quarterly. Paying every quarter has many advantages, for example, fewer formalities and higher liquidity. As a taxpayer starting a business, you have the option of paying quarterly (art. 44 par. 3g of the Polish Income Tax Act).
- “Type of accountancy documentation kept” – you can choose either accounting books or revenue and expense ledger. If you decided to select “general principles of taxation” or “flat tax” you can select revenue and expense ledger if your revenue does not exceed the amount of 1.200.000 Euros in Polish zlotys. Remember to mark the option if you decide to use the services of an accounting office.
- “I attach a ZUS application” – You can send your insurance application to ZUS together with registration in CEIDG by attaching them to CEIDG-1 form. If you only plan to work on B2B contract and you’re just starting your business, you submit ZUS ZZA form and pay health social security contributions. You have to submit this form to the nearest ZUS organisational unit within seven days from the day of starting your business. In case of any doubts, you can contact the ZUS directly.
- If you plan to be a VAT payer, you also attach VAT-R form which you should submit to the Tax Office. Remember that if the estimated value of your company’s sales exceeds PLN 200.000, you are obligated to register as a VAT payer.
- If you decide to hire an accountant, those choices should be consulted with her or him.
4. Read your contract carefully and negotiate its terms – how to make B2B the right choice for you
This point may sound obvious, but it is essential if you want to become a B2B contractor. The B2B contract usually allows you to negotiate a higher salary than a standard contract of employment. As a contractor, you are not covered by the provisions of the Polish Labor Code.
Your liability is not limited to the amount of three months of salary, but you are liable for your obligations with all your assets. Any standards set by the Labor Code do not apply to you. That means that the B2B contract may contain for example high contractual penalties, a provision that your agreement can be terminated immediately or non-compete clauses without separate remuneration for them. Make sure you are aware of that.
Read the contract carefully and try to negotiate conditions where the risks are distributed between both parties. The agreement should be balanced and try to negotiate benefits in exchange (i.e. the right to paid leave) for risks you take. However, keep in mind that if the contract gives you too much safety, your status as a business person may be contested by the tax authorities.
5. That’s all – enjoy working as a B2B contractor.
Once you have negotiated your contract, you can officially start working in the IT sector and enjoy all the benefits that come with the B2B contract!
BONUS: Check out this B2B-contract template that you can use and adapt to your needs.