Publication date: January 08, 2025
The classification of business activity is a system used to classify types of business activity and is regulated by the Regulation of the Council of Ministers on the Polish Classification of Activities. This system plays a key role when starting a business, because entrepreneurs are required to assign appropriate business activity codes, which precisely define the scope of the business activity conducted. In practice, however, as shown by the judgment of the Supreme Administrative Court of 7 July 2016 (ref. II GSK 342/15) [1], assigning the appropriate business activity code is not always unambiguous. The court ruled on a case in which the entrepreneur had doubts as to which category of activity he should choose to best reflect the actual nature of his company. What seems like a simple formality – assigning one of the many available business activity codes – in practice can become a problematic issue, with serious legal consequences. In this particular case, the entrepreneur indicated a code that he believed best suited his business, but the administrative authorities found that the assigned business activity code may not correspond to the actual activity, which led to the need to correct the registration. This judgment emphasizes how important it is for the business activity code to accurately reflect the scope of the business activity conducted. Correct classification is the foundation for the correct settlement of business activities in terms of tax liabilities, such as VAT or income, as well as other administrative obligations. Correct assignment of the business activity code affects what regulations will apply to the entrepreneur, and thus what VAT rates apply to his services or goods, or what group of tax reliefs he falls into. In the discussed judgment, the Supreme Administrative Court pointed out that incorrect assignment of the business activity code may result not only in problems with tax settlement, but also in negative consequences in the context of tax audits. In practice, the tax administration may question the incorrectly assigned code, and as a result of such verification, the entrepreneur is forced to correct tax returns, which is associated with additional costs and formalities. Moreover, the court indicated that entrepreneurs may be forced to re-verify their activities, which in the long term may lead to unnecessary administrative complications. An equally important aspect that appeared in the ruling is the issue of the ambiguity of some business code categories. In many cases, business activities may cover different areas that fit several business activity codes, which is why the entrepreneur may encounter difficulties in choosing the right one. The Supreme Administrative Court ruling shows that in such situations, the entrepreneur must demonstrate great diligence in choosing the code so as not to mislead the administrative authorities, and thus avoid potential consequences. For this reason, it is so important for entrepreneurs to take special care to correctly assign the appropriate business activity code already at the stage of registering the business.
The correct business activity code is of key importance not only for the classification of activities, but also for other areas, such as the correct calculation and application of VAT rates. Thanks to the appropriate code, entrepreneurs can apply different VAT rates, which depend on the type of business activity. In this way, the entrepreneur is sure that the VAT rates applied are consistent with the applicable tax regulations. In Poland, there are three basic VAT rates: 23%, 8% and 5%, as well as a 0% rate for selected types of activity. The appropriate business activity code allows the entrepreneur to be assigned the appropriate VAT rate, which depends on the nature of the services provided or goods sold. For example, the sale of books is subject to a 5% rate, while construction services are subject to an 8% rate. In the case of activities that are not covered by preferential rates, entrepreneurs are required to apply the basic rate of 23%.
In addition to the VAT issue, the business activity code also plays a key role in determining the form of taxation of an entrepreneur. Depending on the nature of the activity, entrepreneurs have the opportunity to choose the appropriate form of taxation, such as a flat-rate tax, full accounting or other forms adapted to the specifics of the industry. Assigning the correct business activity code also affects the social insurance contribution obligations, as well as property tax, in the case when the company has properties related to the conducted activity. Additionally, the business activity code facilitates monitoring of business activity by tax and statistical authorities. Thanks to the precise assignment of the code, entrepreneurs are more visible in the business registration system, which facilitates control over the correctness of tax settlements. Such a solution allows entrepreneurs to avoid problems related to inconsistencies in tax reports and prevents irregularities in the scope of the conducted activity.
Business codes classification – structure
The business codes classification structure was created based on the classification of economic activities of the European Union NACE Rev. 2. PKD-2007 and consists of five levels, each of which has its own specificity and is responsible for defining the type of economic activity in Poland. The first level is the SECTION, marked with a single-letter symbol, which divides the economy into 21 broad groups covering activities of a similar nature. Sections group activities due to the traditional division of labor and general characteristics of production.
The second level is the DEPARTMENT, marked with a two-digit numerical code. The departments divide the general set of activities into 88 groups, taking into account features that are of key importance both in determining the degree of similarity of activities and in the context of the links existing in the national economy.
The third level is the GROUP, marked with a three-digit numerical code, including 272 groupings of types of activities. Groups are distinguished from the perspective of the production process, the purpose of production or the characteristics of services and their recipients.
The fourth level is CLASS, marked with a four-digit numeric code. Classes include 615 groupings of activities, which can be distinguished mainly in terms of the specialization of the production process or the type of services provided. The last, fifth level is SUBCLASS, marked with a five-character alphanumeric code. Within this level, 654 groupings are distinguished, which allow for the precise separation of types of activities characteristic of the Polish economy. The subclass was introduced to enable more detailed observation of economic activity in Poland. If no additional division has been made at the national level in relation to the international one (where the class corresponds to the subclass), such subclass is marked with the letter Z.[2]
Thanks to this hierarchical structure, business classification codes enable detailed classification of economic activities, ensuring compliance with international standards and enabling precise monitoring.
Special rules for business classifications
The previous paragraph explained the elements that make up business activities codes. Now we will focus on the specific rules that define guidelines for assigning units to individual sections.
An example is Section A, which deals with agriculture, forestry, hunting and fishing. This section classifies units carrying out activities that combine agricultural production and processing of these products. Examples include grape growing and wine production or olive growing and oil production. In such cases, it is difficult to determine which of these activities is predominant.
Moving on to section G, covering wholesale and retail trade, we also encounter a situation in which a company conducts integrated commercial activities in various forms. This may include both wholesale and retail sales, sales in physical stores and outside the chain of stores, as well as trade in different types of goods. In such cases, when sales in a given class do not constitute at least 50% of the total activity, special consideration should be given to other classification criteria, which requires the use of the top-down method.
It is also worth noting section K, where two subclasses have been introduced that go beyond the traditional scope of economic activity. We are talking about 64.20.Z – activities of financial holding companies and 64.30.Z – activities of trusts, funds and similar financial institutions. Entities belonging to these subclasses usually do not generate income from the sale of products, and their activities do not involve broad employment, except for a few people acting as legal representatives. Such entities are sometimes referred to as “letter boxes” or “empty boxes”.
In the context of section O, it is worth noting that there is no separate grouping for institutional sector units as defined in the SNA[3] and ESA[4]. There is no single code that would cover all the activities carried out by public sector units. Consequently, not all public units are automatically classified in this section, which can lead to some difficulties in classification.
In turn, section T refers only to the activity of households employing employees, for example in the field of domestic help. The inclusion of this type of activity in Polish Business Activities Classification 2007 results from the needs of national accounts, which treat it as production, as well as from the need to conduct appropriate surveys. However, the work performed by household employees is not classified in this section.[5]
In this way, the classification of economic activities according to business activities codes takes into account both the specificity of traditional activities and modern forms of activity, while maintaining specific rules for assignment to the appropriate sections.
New rules in Business Classification Codes for 2025
The amendment to the Polish Classification of Activities for 2025 is a significant step towards adapting the Polish classification system to the current needs of the economy and international standards. These changes are aimed not only at simplifying administrative processes, but also at improving the quality of data in statistical systems and public registers, which will result in easier cooperation with foreign partners. Entrepreneurs who start their business after 1 January 2025 will be classified according to the new business classification codes, while those who are already running a business will have time to adapt to the new rules. The amendment to business classification codes 2025 introduces changes that aim to more accurately reflect contemporary economic realities. First of all, the new classification includes dynamically developing sectors such as the digital economy, green energy, medical technologies and new services. These changes are a response to the growing need to include industries that have not been reflected in the classification so far. The introduction of new codes allows for a better understanding of market structures and supports more accurate economic forecasts, which is particularly important in times of rapid change and globalization. The aim of the amendment is also to better integrate with European and international standards, which will enable entrepreneurs to cooperate more easily with foreign contractors. The unification of classification systems allows for better collection and analysis of statistical data, which in the long term will improve the quality of reports and market analyses. This will be particularly important in the context of the global economy, where data consistency is key to making business and political decisions. In order for the process of adapting to the new regulations to run smoothly, transitional provisions have been introduced. Entrepreneurs who conduct business before 1 January 2025 will be able to use the business classification of 2007 in parallel with business classification of 2025 for a period of two years – until 31 December 2026. Thanks to this flexibility, entrepreneurs will have time to gradually adapt their activities to the new codes, as well as to update their data in public registers such as the Central Registration and Information on Business (CEIDG), the National Court Register (KRS) and the National Official Register of National Economy Entities (REGON). Two years is the time during which entrepreneurs will be able to implement the changes gradually, minimizing the risk of disruption to their operations[6]. This will give them enough time to update their documents, IT systems and adjust their business strategies, which will allow them to fully benefit from the new opportunities offered by the updated classification. The introduction of the new business classification codes of 2025 brings numerous benefits to both entrepreneurs and public administration. For companies, the key advantage is the precise mapping of new economic trends, which will help to better adapt their activities to the real needs of the market. The new classification allows for a more precise definition of the sector of activity, which facilitates the identification of the industry and improves the quality of data in statistical reports. Adjustment to international classification standards also has a positive impact on cooperation with foreign partners. This will make it easier for entrepreneurs to exchange data and documents, which will simplify administrative procedures in international relations. Better consistency with European and global classification systems can also help in gaining new sales markets, which is crucial for the further development of companies and their competitiveness on the global market. Despite the numerous benefits, the process of adapting to the new business classification codes may involve certain challenges. Especially for companies that have not yet updated their documents or IT systems, changing business codes in public registers, adapting accounting and record documentation may pose significant difficulties. In order to avoid problems related to incorrect entries or delays in updating, entrepreneurs should plan changes in advance.
[1]Judgment of the Supreme Administrative Court of 7 July 2016 (ref. II GSK 342/15).
[2] Regulation of the Council of Ministers of 24 December 2007 on the Polish Classification of Activities (PKD).
[3]System of National Accounts.
[4]European System of Accounts.
[5] Regulation of the Council of Ministers of 24 December 2007 on the Polish Classification of Activities (PKD).
[6] Regulation of the Council of Ministers of 18 December 2024 on the Polish Classification of Activities (PKD).