How to calculate tax on short-term rental income?

Short-term rental is a popular way to earn extra income when you have a vacant property. You can earn money this way both while running a business and without having your own business. However, in either case you need to settle the income you earn with the Tax Office (Urząd Skarbowy). Which taxes should you take into account and how do you calculate tax on short-term rental income? 

Tax on short-term rental when running a business

When property rental becomes your main or only source of income, you will need to register a business. In this situation, you need to take two types of tax into account: income tax and value added tax (VAT). Let us assume that for the purpose of registering the business we choose the simplest form, which is a sole proprietorship. In this case, we pay income tax under one of three forms of taxation:

• The tax scale: 12% on income up to PLN 120,000 and 32% on the surplus above PLN 120,000. Remember the tax-free allowance (PLN 30,000).
• Flat tax of 19% of income, regardless of the amount of income earned.
• Lump-sum tax on registered revenue (ryczałt ewidencjonowany) of 8.5% on revenue up to PLN 100,000 and 12.5% on the surplus above PLN 100,000.

Note that it is no accident that we use the terms “revenue” and “income”. To put it simply, income is revenue minus tax-deductible costs. If we earn PLN 50,000 in rental revenue a year but incur costs of PLN 8,000, our income, i.e., profit, is PLN 42,000. Depending on the chosen form of taxation, you will pay PLN 1,440 (tax scale), PLN 7,980 (flat tax) or PLN 4,250 (lump-sum tax on registered revenue) to the Tax Office. Remember also that you will pay a higher property tax – the maximum rate is PLN 33.10 per square meter. In addition, when running a business you must pay ZUS (Polish Social Insurance Institution) contributions, which without the start-up relief will amount to at least PLN 1,500 per month.

Tax on short-term rental – private rental

If you treat income from an unused apartment or house as a way to supplement your household budget, you do not need to register your own business. Here we will be talking about private rental, i.e., a situation in which a lease agreement is concluded between two private individuals. Right from the start, private rental means three important benefits for you:

1. You have more freedom – you do not need to file documents with CEIDG (the Central Register and Information on Economic Activity) and ZUS (Polish Social Insurance Institution), nor do you need to keep accounting records or install a cash register.
2. You do not need to pay ZUS (Polish Social Insurance Institution) contributions, because if you work under an employment contract or a contract of mandate, your employer or the contracting party does this for you.
3. You can still pay the lower property tax – the maximum rate for private units is PLN 1.15 per square meter.

And what does it look like from a tax perspective? Until December 31, 2022, you could choose one of two forms of settlement – the tax scale or the lump-sum tax on registered revenue. Since 2023, tax on private rental is settled exclusively through the lump-sum tax at rates of 8.5% and 12.5%. This is not as attractive a form of settlement as the income thresholds with the option of applying the tax-free allowance. On the other hand – without a business you cannot deduct costs anyway. The flat tax or the tax scale therefore had no practical application. So let us move on to practical examples and see when and how you should settle the tax.

How to calculate tax on short-term rental and where to pay it?

Calculating tax on short-term rental is simple – just multiply all the money paid by your tenants by 8.5%. If your annual revenue exceeds PLN 100,000, you multiply every złoty above PLN 100,000 by 12.5%.

Let us look at two examples:

1. Jan Kowalski rents out his house for PLN 1,000 per night. With 120 nights booked, this gives an annual revenue of PLN 120,000.
2. Anna Nowak offers her apartment at PLN 300 per night. By renting out her home for 200 days, she earns an annual revenue of PLN 60,000.

Jan Kowalski will therefore pay PLN 11,000 in tax. This consists of PLN 8,500 on revenue of PLN 100,000 at the 8.5% rate and PLN 2,500 on revenue of PLN 20,000 at the 12.5% rate. Anna Nowak, on the other hand, does not have to worry about the second lump-sum threshold – she did not exceed PLN 100,000 in revenue. Her tax will be PLN 5,100 – PLN 60,000 multiplied by 8.5%. 

Income tax is always paid to the Tax Office (Urząd Skarbowy) and always to the so-called individual tax micro-account (mikrorachunek podatkowy). This is an individual account number that you can find out by entering your PESEL number (private rental) or NIP tax ID (rental as a sole proprietorship) on the government micro-account generator website. You can also obtain this number by presenting your PESEL or NIP at any Tax Office. The tax must be paid monthly, by the 20th day of the month following the settlement month. This means that the tax for August must be paid by September 20. The September tax, in turn, must be paid by October 20, and so on. You will calculate the exact amount of tax due on the basis of the invoices you issue to your tenants.