Prior-year losses after switching to ryczałt

Which loss are we examining?

Deducting prior-year losses under Poland’s ryczałt tax on recorded revenue requires checking when each loss arose, its source and how much has already been used. Switching from the progressive tax scale or flat-rate income tax to ryczałt does not itself rule out a deduction: Article 9(5) of the Polish PIT Act provides for the loss-relief rules to apply accordingly, reducing revenue rather than income. This does not, however, automatically make every balance labelled a “loss” deductible.

Start by distinguishing three concepts:

• A tax loss, under the general rule, is the excess of tax-deductible costs over revenue from a particular source in a tax year.
• Negative cash flow means cash outflows exceed cash inflows. It does not replace the calculation of a tax loss.
• Current expenses under ryczałt do not reduce revenue as tax-deductible costs. Deducting a historical loss is a separate mechanism.

The relevant sources are Article 9 of the PIT Act and the Ministry of Finance guidance on ryczałt returns.

This guide concerns ordinary losses from business activity in Poland, not the special rules for losses from qualifying intellectual property rights or losses from other sources. For tax-exempt revenue, check the exclusions and exceptions in Article 9(3a) separately.

Loss record: year, source, amount and use

Prepare a supporting loss record, with a separate entry for each year in which a loss arose. This is an organisational suggestion, not an official form or an additional obligation to maintain a particular register.

For each entry, note:

• the year of the loss and the revenue source;
• the original loss amount and supporting calculations;
• amounts deducted in individual years;
• amendments to returns and their effect on the balance;
• the remaining amount, the chosen relief method and the final year of the five-year period;
• the proposed deduction in the current return.

As a cross-check, compare the record with previous returns, amended returns and accounting calculations. Do not copy only the amount from the original return while ignoring subsequent deductions. Article 11(1) of the Ryczałt Act does not permit amounts already deducted from income to be deducted again.

Conditions and limits after switching tax regimes

The general mechanism in Article 9(3) of the PIT Act provides two alternatives:

1. Deductions over the next five consecutive tax years, with no more than 50% of the original amount of each loss deducted in any one year.
2. A one-off deduction of up to PLN 5,000,000 in one of those five years. The balance is deducted in the remaining years of the same period, subject to a limit of 50% of the original loss in any of those years.

These are statutory options, not an obligation to use the loss immediately. Switching tax regimes does not start a new five-year period. The deduction must also fit within the unused loss balance and the revenue eligible for reduction.

The year in which the loss arose matters: Article 38 of the 2018 amending Act makes the new wording of Article 9(3) applicable to losses arising in tax years beginning after 31 December 2018. Do not apply this method mechanically to older returns or amendments to them.

Also retain the link to the revenue source. Do not treat a sole-trader business loss as deductible from any revenue merely because it appears in the same return. Where several ryczałt rates apply, Article 11(3) requires the deduction to be allocated proportionately to annual revenue. You cannot freely assign the entire deduction to the highest rate.

Example with two losses

Fictional example for calculation purposes only. We assume correctly established ordinary losses from the same sole-trader business, no special tax regimes and revenue exclusively from that business. The taxpayer uses the method allowing deductions of up to 50% of each loss annually.

• Loss for 2021: PLN 40,000. Previously deducted: PLN 20,000. Remaining balance: PLN 20,000; the utilisation period covers 2022–2026.
• Loss for 2023: PLN 20,000. No previous deductions; the period covers 2024–2028.
• For the 2026 return, we assume a deduction of PLN 20,000 from the first loss and PLN 10,000 from the second. Each amount is within its respective limit of 50% of the original loss.

Assumed revenue is PLN 100,000: PLN 60,000 subject to one correctly determined rate and PLN 40,000 subject to another. The total deduction of PLN 30,000 is allocated in a 60% to 40% proportion:

• first category: deduction of PLN 18,000, leaving PLN 42,000;
• second category: deduction of PLN 12,000, leaving PLN 28,000.

Cross-check: PLN 18,000 + PLN 12,000 = PLN 30,000. The first loss has been used in full; PLN 10,000 of the second remains. The example excludes other deductions and is not a calculation of any particular person’s tax.

What to prepare for PIT-28

As a working pack, prepare your loss record, previous returns and amended returns, calculations of amounts already used, and an annual revenue breakdown by tax rate. Flag uncertainties too: missing documents, inconsistent balances or a special tax regime applied in the loss year.

Before entering the deduction, check the source, five-year period, limit for each loss, remaining balance and allocation proportion, in that order. This checklist helps organise the assessment but does not replace a review of your individual documents.

If you need a review of your Polish sole-trader business documents, contact Oxyok at [email protected].