What You Need to Know About Taxation as a Freelancer or a Small Business Owner in Different Countries
What You Need to Know About Taxation as a Freelancer or a Small Business Owner in Different Countries
Freelancing is a popular and flexible way of working, but it also comes with some challenges, especially when it comes to taxation. Different countries have different tax systems, rules, and rates that affect freelancers and small business owners.
Freelancing is a popular and flexible way of working, but it also comes with some challenges, especially when it comes to taxation. Different countries have different tax systems, rules, and rates that affect freelancers and small business owners. In this article, we will compare the taxation for freelancers in five European countries: the Netherlands, the UK, Portugal, Germany, and Romania. We will look at the following aspects of taxation:
• Income tax rates and bands
• Social security contributions
• VAT and other taxes
• Tax deductions and allowances
• Tax filing and payment methods
Income Tax Rates and Bands
Income tax is the tax levied on the income earned by freelancers and small business owners. The income tax rates and bands vary by country and by the type and amount of income.
|
|
United Kindom |
The Netherlands |
Germany |
Romania |
Portugal |
|
Basic
income tax rate |
20%
(£0–£37,700) 40% (£37,701–£150,000) 45% (£150,001 and above) |
37.10%
(€0–€68,507) 49.50% (€68,508 and above) |
14-42% €9,744
(single), €19,488 (married) 42% (€57,918015–€274,612 [single],
€115,836–€549,224 [married]) 45% (€274,612 and above [single], €549,224 and
above [married]) |
10% flat rate |
14.5%
(€0–€7,112) 23% (€7,113–€10,732) 28.5% (€10,733–€20,322) 35%
(€20,323–€25,075) 37% (€25,076–€36,967) 45% (€36,968–€80,882) 48% (€80,883
and above) |
|
Income tax
by band |
N/A |
N/A |
N/A |
N/A |
25% flat rate
for non-habitual residents |
The income tax rates and bands vary significantly by country. The Netherlands and the UK have two income tax bands, while Portugal has seven. Germany has a progressive income tax system that depends on the marital status of the taxpayer. Romania has a flat income tax rate of 10% for all income levels. Portugal also offers a special tax regime for non-habitual residents, who pay a flat rate of 25% on their income from certain activities.
Social Security Contributions
Social security contributions are the payments made by freelancers and small business owners to the social security system of their country. The social security system provides benefits such as pensions, health care, unemployment, disability, and family allowances. The social security contributions vary by country and by the type and amount of income.
|
|
United Kindom |
The Netherlands |
Germany |
Romania |
Portugal |
|
Social security
contributions |
9% of profits
between £9,568 and £50,270, plus 2% of profits above £50,270 for the Class 4
National Insurance |
28.15% of
taxable income (up to €58,311) for the national insurance (AOW, ANW, and Wlz)
and the employee insurance (WW, WIA, and ZW) |
18.6% of
income (up to €85,200) for the statutory pension insurance, 14.6% of income
(up to €64,350) for the statutory health insurance, 3.05% of income (up to
€64,350) for the long-term care insurance, and 2.4% of income (up to €85,200)
for the unemployment insurance |
25% of income
for the social security contribution, 10% of income for the health insurance
contribution, and 2.25% of income for the work insurance contribution |
21.4% of
taxable income for the general social security regime, or 25.2% of 70% of
taxable income for the simplified regime |
The social security contributions vary significantly by country and by the type of regime. The Netherlands and Germany have the highest social security contributions, but they also have the most comprehensive social security benefits. The UK and Romania have the lowest social security contributions, but they also have the least generous social security benefits. Portugal has a choice between two social security regimes, depending on the income and activity of the freelancer.
VAT and Other Taxes
VAT (value-added tax) is a tax levied on the value added to goods and services by freelancers and small business owners. VAT is usually charged at each stage of the production and distribution process, and the final consumer pays the full VAT. The VAT rates and thresholds vary by country and by the type of goods and services.
|
|
United Kindom |
The Netherlands |
Germany |
Romania |
Portugal |
|
VAT rate |
20% (standard
rate) 5% (reduced rate for certain goods and services) 0% (zero rate for
certain goods and services) |
21% (standard
rate) 9% (reduced rate for certain goods and services) 0% (zero rate for
certain exports and intra-community supplies) |
19% (standard
rate) 7% (reduced rate for certain goods and services) 0% (zero rate for
certain exports and intra-community supplies) |
19% (standard
rate) 9% (reduced rate for certain goods and services) 5% (reduced rate for
certain goods and services) 0% (zero rate for certain exports and
intra-community supplies) |
23% (standard
rate) 13% (intermediate rate for certain goods and services) 6% (reduced rate
for certain goods and services) 0% (zero rate for certain exports and
intra-community supplies) |
|
VAT
threshold |
£85,000 of
annual turnover |
€20,000 of
annual turnover |
€22,000 of
annual turnover |
€88,500 of
annual turnover |
€12,500 of
annual turnover |
VAT rates and thresholds vary significantly by country and by the type of goods and services. The Netherlands and Portugal have the highest standard VAT rate, while Romania has the lowest. The UK and Romania have the highest VAT threshold, while Portugal has the lowest. The VAT rates and thresholds may also change depending on the country of destination or origin of the goods and services.
Other taxes that may affect freelancers and small business owners include:
• Corporate tax: a tax levied on the profits of companies. Freelancers and small business owners may have to pay corporate tax if they operate as a limited company or a similar legal entity. The corporate tax rates and rules vary by country and by the type and size of the company.
• Local tax: a tax levied by local authorities on the property or income of freelancers and small business owners. Local tax may include municipal tax, property tax, trade tax, or other taxes depending on the country and the region.
• Withholding tax: a tax deducted at source from the income of freelancers and small business owners by their clients or customers. Withholding tax may apply to dividends, interest, royalties, or other types of income depending on the country and the type of income.
• Double taxation: a situation where freelancers and small business owners have to pay tax on the same income in more than one country. Double taxation may arise when freelancers and small business owners have cross-border activities or income sources. Double taxation can be avoided or reduced by using tax treaties, tax credits, or tax exemptions depending on the country and the type of income.
Tax Deductions and Allowances
Tax deductions and allowances are the expenses or income that freelancers and small business owners can deduct from their taxable income or profit to reduce their tax liability. Tax deductions and allowances vary by country and by the type and amount of income or expense.
|
|
United Kindom |
The Netherlands |
Germany |
Romania |
Portugal |
|
Tax
deductions and allowances |
Personal
allowance, trading allowance, marriage allowance, blind person's allowance,
business expenses, capital allowances, losses, pension contributions,
charitable donations, etc. |
General tax
credit, labor tax credit, self-employed tax credit, start-up tax credit,
small business tax credit, investment tax credit, research and development
tax credit, personal allowance, business expenses, depreciation, losses,
pension contributions, etc. |
Income-related
expenses lump sum, basic tax-free allowance, commuter allowance, home office
lump sum, volunteer work, moving expenses, special expenses |
Business
expenses, personal deductions, tax rate of 10% and deductibles |
Business
expenses, personal deductions, simplified regime, and tax as a freelancer |
Tax Filing and Payment Methods
Tax filing and payment methods are the procedures and deadlines that freelancers and small business owners have to follow to report and pay their taxes to the relevant authorities. Tax filing and payment methods vary by country and by the type and amount of income.
|
|
United Kindom |
The Netherlands |
Germany |
Romania |
Portugal |
|
Tax filing
and payment methods |
Freelancers
have to file a self-assessment tax return online by January 31 of the
following year, and pay the tax due by the same date. They may also have to
make payments on account twice a year, based on their previous year's tax
liability. Freelancers have to register for VAT and file VAT returns and pay
VAT on a quarterly basis, unless they opt for the annual accounting scheme or
the flat rate scheme. |
Freelancers
have to file an annual income tax return by May 1 of the following year, and
pay the tax due by July 1. They may also have to make provisional tax
payments four times a year, based on their estimated income. Freelancers have
to register for VAT and file VAT returns and pay VAT on a monthly, quarterly,
or annual basis, depending on their turnover. |
Freelancers
have to file an annual income tax return by July 31 of the following year,
and pay the tax due in four installments, in March, June, September, and
December. They may also have to make prepayments four times a year, based on
their estimated income. Freelancers have to register for VAT and file VAT
returns and pay VAT on a monthly, quarterly, or annual basis, depending on
their turnover. |
Freelancers
have to file an annual income tax return by May 25 of the following year, and
pay the tax due by the same date. They may also have to make quarterly tax
payments, based on their actual income. Freelancers have to register for VAT
and file VAT returns and pay VAT on a monthly or quarterly basis, depending
on their turnover. |
Freelancers
have to file an annual income tax return by June 30 of the following year,
and pay the tax due in three installments, in July, August, and September.
They may also have to make advance payments twice a year, based on their
previous year's income. Freelancers have to register for VAT and file VAT
returns and pay VAT on a monthly or quarterly basis, depending on their
turnover. |
The tax filing and payment methods vary significantly by country and by the type of income. The Netherlands and Germany have the latest deadline for filing the income tax return, while Romania has the earliest. The UK and Portugal have the most frequent payments for income tax, while Romania has the least. The VAT filing and payment frequency depends on the turnover of the freelancer in each country.
More resources for each country:
- Tax-Deductible Expenses for Businesses in Romania: A Comprehensive Guide
- Taxation for Freelancers in UK
- Taxation for Freelancers in Portugal: A Complete Guide
- ELSTER: Simplifying Tax for Freelancers and Small Business Owners in Germany
- Demystifying Social Security Taxes in the Netherlands
Freelancing is a rewarding and flexible way of working, but it also comes with some tax challenges and responsibilities. As a freelancer, you have to be aware of the tax systems, rules, and rates that apply to your income and activities in different countries. We hope this article helped you gain a better understanding of the tax implications of freelancing in different countries. Happy freelancing!
Disclaimer: The information provided in this article is for general guidance and reference purposes only. It is not intended to be a substitute for professional tax advice. Tax laws and regulations are complex and subject to change. Different countries have different tax systems, rules, and rates that affect freelancers and small business owners. Therefore, we recommend that you consult a qualified fiscal consultant before you start freelancing in a new country or across borders. We do not accept any responsibility or liability for any errors or omissions in the information or the consequences of relying on it.
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