Freelancer according to the tax administration

A freelancer’s income can consist of a salary, remuneration and royalties, for example for the use of intellectual property rights. Salaries are remuneration paid in an employment relationship, while remuneration for work is remuneration paid in a commissioned relationship without an employment relationship. If the activity takes the form of a business, the freelancer may also be subject to VAT. In addition, the freelancer is entitled to deduct the expenses incurred in earning the income for tax purposes.

Workers’ compensation

According to Section 25(1)(1) of the Prepayment of Taxes Act, remuneration for work, tasks or services other than remuneration in the form of wages is regarded as remuneration for work. For example, remuneration for work is paid when the work is done on a commission basis and not as part of an employment relationship. A relationship of commission is established between the freelancer and the person who performs the work when the parties enter into a contract of commission.

When you sign a contract and invoice the work you have done, you are responsible for social insurance. If you are registered in the Prepayment Register, you pay tax on your income, the amount of which is claimed and paid through the Tax Administration.

If you are not registered as a taxpayer, the employer will withhold tax on the remuneration, including reimbursement of expenses. Reimbursement of costs includes, for example, materials purchased for the assignment.

It’s important to be careful when signing contracts – if in doubt, contact the union.

VAT

You will have to declare and pay VAT if your invoiced income exceeds €20 000 during the calendar year. Keep an eye on your invoicing throughout the year. For example, if you exceed the €20 000 threshold on 1 October, you will be liable for VAT from that date, but only the turnover above the threshold will be subject to VAT.

• Please note that if your billable income exceeds €9208.43 per year, you will need to take out YEL insurance. Check the general guidelines, limits and fees in the link below.

Always check with your pension company!

Revenue generation costs

Freelancers can deduct the costs incurred in carrying out their work, such as the cost of an office, work space, materials, supplies, tools and travel expenses. Deductions can be made on the basis of actual expenses or according to the instructions of the tax authorities. In addition, freelancers must keep records of income and expenditure and retain supporting documents for six years to enable them to complete their tax return and justify their expenses.

Accommodation expenses

If a freelancer works from home and the employer does not provide a study room, he or she can deduct the costs of working from home, either as a standard deduction from the Tax Administration’s workroom allowance or on the basis of actual expenses. Alternatively, the freelancer may also have a separate workspace, the expenses of which are deductible.

The formulaic workplace deduction will be abolished after the 2025 tax year. After that, only the actual costs of working at home will be deductible. It is generally not worth taking the deduction if your expenses are less than €920 and more than half of your work is done at home. Only the space used to carry out the work will count towards the deduction. For example, if you have a whole room at home to work in, the costs are calculated in proportion to the square metres of the room or the actual costs. If you are in doubt, ask your union for advice.

Working in a workspace outside the home

Freelancers can also work in a workspace outside the home, such as a rented room or their own office. In this case, rent, electricity, heating and other expenses related to the workspace are deductible as income-generating expenses. If the workspace is bought or built, the cost is deducted at an annual depreciation rate of 4% for residential or office buildings and 7% for shop, warehouse or workshop buildings.

Cost of materials, supplies and tools

Freelancers are allowed to deduct the cost of materials and supplies used to earn taxable income. Expenses for the purchase, maintenance and repair of tools, machinery and equipment are also deductible. If the tool is used for both work and private purposes, only the portion of the expenditure relating to work is deductible. Expenditure on clothing is generally not deductible, but protective clothing and special working clothes may be deductible if they cannot be used for any other purpose.

Commuting expenses

The freelancer is allowed to deduct travel expenses incurred for business travel according to the actual expenses incurred. If you use your own car for your business trip, the deduction is in line with the Tax Administration’s travel expense deduction decision (in 2024: €0.27/km).The contractor does not deduct travel expenses for tax purposes, but they are still taxable as earned income.

Be careful about the deductibility of travel expenses – not all expenses are deductible. If you receive travel expenses as a tax-free expense allowance and do not invoice them, you cannot deduct them for tax purposes.

Accommodation costs and increased living expenses, such as extra food costs, are also deductible. Meal costs can be deducted up to €12.75 per day, according to the tax administration’s harmonisation guidelines.

If the actual costs cannot be substantiated, formulaic deductions can be used: €19 for domestic journeys of more than 6 hours and €34 per day for journeys of more than 10 hours. The specific place of work must be more than 15 km from either the place of work or the dwelling and more than 5 km from both.

Declaration of income and deductions

The freelancer must keep records containing the information needed for tax purposes, such as income and expenditure, VAT amounts and tax bases, and subsidies received. The notes are recorded chronologically and must be based on supporting documents. The notes and supporting documents must be kept for six years after the end of the tax year.

So keep regular records in Excel or another spreadsheet to make it as easy as possible to complete your tax return. The employer or grant provider will report the information for the recipient’s tax purposes, so be sure to check your tax return for this information too.

Supporting documents can be stored electronically, so there is no need to maintain a paper archive. However, make sure that the supporting documents are photographed or scanned into an electronic archive (Drive, Dropbox, memory stick) where you can find them for the entire six-year retention period.

From 2019 onwards, payroll data and remuneration paid by tax card will be visible in the Incomes Register, where you can log in with your bank ID. The Incomes Register makes it easy to check your own data and the declarations made there, and the data sent to the Incomes Register will also appear on your tax return if, for example, you apply for a new tax card in the middle of the year.