Taxation: What’s changing for freelancers – 10 examples

The tax burden on employees in Greece is many times greater since, due to tax evasion, employees and pensioners pay more taxes than freelancers.

The official figures of the European Commission, the AADE and the General Accounting Office of the State on tax revenues show that due to tax evasion the average employee in Greece pays more tax annually in the State by 85% of freelancers who declare incomes purely from self-employment.

At the same time, again due to the problem of tax evasion, the contribution of the self-employed in Greece to the budget is 2.1% of the revenue, it is less than half compared to the EU and the Eurozone, which reaches 5.2%.

Taxation: 71% of freelancers report income below the minimum wage

According to the statistics of AADE and the General Accounting Office of the State, 71% of freelancers declare an income lower than the minimum wage.

Furthermore:

– Of the 750,000 self-employed, approximately 500,000 have income only from self-employment, while 250,000 also have income from salaries/pensions. 54% of purely freelancers declare zero income, while 85% of them declare an annual income below 10,000 euros. The average income tax collected by the state from this 85% of self-employed -that is, 425,000 professional employees- it is 217 euros per years, an amount that rises to 867 euros with the pretension fee.

On the other hand, the mean fqualifying income for 3.5 million employees is 12,300 euros per year, and the average tax they are asked to pay is 1,160 euros. Accordingly, pensioners pay an average of 847 euros in income tax.

-The 37% of the self-employed (272,000) pay zero income tax. Of these, 75,000 (10%) do not even pay the levy, so they have zero participation in direct tax revenue, and the remaining 197,000 (27% of the total) pay only the levy.

-It is indicative that 21,000 freelancers report incomes below the limits of the Minimum Guaranteed Income (2,400 euros for a one-person household, 3,600 euros for a couple, etc.) and thus finally collect at least 200 euros monthly through the Minimum Guaranteed Income.

-4% of the self-employed pay 50% of the taxes in this category of taxpayers. That is, those self-employed people who normally declare their incomes bear a disproportionately large burden on their backs. This means that if the current system is perpetuated, it also strengthens the injustices within the freelancers themselves.

Taxation compared to Europe

Again because of the problem of tax evasion, according to the European Commission’s annual report on taxation self-employed tax revenue in 2021 was 0.8% of GDP compared to the EU average of 2.1%.

In addition, as mentioned above, the taxation of freelancers in our country corresponds to 2.1% of total tax revenue compared to 5.2% in the Eurozone. This means that the Greek State collects from professionals less than half of the European average.

If we factor in the fact that freelancers in Greece, in proportion to the employed, are much more than in the EU (the participation of freelancers in Greece is 27%, more than double the European average of 13%), the image for our country is deteriorating. In other words, the Greek state collects from the self-employed a quarter of the income tax collected by other countries – EU members from the specific group of taxpayers.

Taxation: What will apply after the reform

With its reform taxation of the self-employed, the State’s revenue from self-employed taxation will be 1.1-1.2% of GDP, up from 0.8% currently. That is, with the implementation of the provisions of the bill, the state’s revenues increase, without in any case the contribution of freelancers approaching the 2.1% of GDP which is the EU average.

Today 47% of freelancers pay tax up to 1,000 euros per year and 27% pay from 1,000-3,000 euros. With the new system the situation changes: up to 1,000 euros 17% will pay and 54% (double compared to before) will pay 1,000-3,000 euros. Therefore, those who paid nothing or paid little in relation to their incomes will pay what they are entitled to.

From the point of view of the Ministry of National Economy and Finance, it is pointed out that we must decide as a society if we are satisfied with the current system, which is grossly unfair, or if we want to correct it in the direction of a fairer system for freelancers, employees, pensioners as well as freelancers themselves among themselves.

Taxation: What changes with the new system

A basic rule of the new system is that freelancers and the self-employed can no longer be taxed on income lower than that of an employee who is paid the minimum wage. In other words, the amounts that they will now have to declare as income cannot fall short of 10,920 euros/year (with certain exceptions that are analyzed below), which is what the employee who is paid the minimum wage also declares. The presumption of minimum wage is therefore established which reflects the minimum value of the self-employed person’s personal work in his business.

The presumption of minimum wage is rebuttable. That is, it can be disputed by the taxpayer as long as he can prove based on real evidence (reasons of force majeure, military service, hospitalization, etc.) that his earnings were less.

For reasons of tax justice, a reduction of the minimum wage is foreseen in several cases. For example for freelancers with disabilities equal to or greater than 80% (reduction of 50%) and to those who carry out an activity and have their main residence in villages with a population of up to 500 inhabitants and on islands of less than 3,100 inhabitants (also a reduction of 50%). It is emphasized that to professionals with a newly established business activity a full exemption from the new system is provided for the first three years, a reduction of 67% in the fourth and 33% in the fifth. Therefore, as shown in the examples, there will be many cases of new professionals who will pay less with the new system compared to the current one.

Also, on the other hand, the bill provides for an increase in the presumption of the minimum wage in relation to the turnover, the number of employees and the age of the activity.

Detailed examples:

Here are examples of the new system:

1) Insurer with a start in 2006 and a turnover of 52,699 euros, it declared zero profits, had zero tax and paid a 1,250 euro registration fee. Under the new taxation system, his taxable income is determined at 15,011 euros (14,196 + 815 euros due to 10% payroll) and his tax at 2,002 euros (+752 euros).

2) El. Professional with electrical shop, estarted in 1992 and a turnover of 51,215 euros, declared profits of 4,156 euros, paid tax of 374 euros and a business fee of 650 euros. With the new taxation system, his taxable income is determined at 14,196 euros and his tax at 1,823 euros (+799 euros).

3) Businessman with tourism, started in 2000 and had a turnover of 55,776 euros, declared 4,163 euros, paid tax of 375 euros and a business fee of 650 euros. With the new taxation system, his taxable income is determined at 14,196 euros and his tax at 1,823 euros (+798 euros).

4) Baker with a start in 2006 and a turnover of 59,737 euros, it declared zero profits, had zero tax and paid 650 euros in business tax. Under the new system, his taxable income is determined at 15,393 euros (14,196 + 1,196 euros due to 10% payroll) and his tax at 2,086 euros (+1,436 euros).

5) Lawyer since 2012 and a turnover of 22,326 euros, declared profits of 17,691 euros, paid tax of 2,592 euros and a business fee of 650 euros. With the new taxation system, his taxable income remains at 17,691 euros and his tax will be 2,592 euros. The taxpayer in question will have a reduction of 650 euros (he is gradually exempted from the pretense fee).

6) Oil painter with a start in 2007 and a turnover of 43,458 euros, declared a profit of 4,859 euros, paid a tax of 438 euros and a business fee of 650 euros. With the new taxation system, his taxable income will amount to 19,165 euros (14,196 + 35% VAT surcharge) and his tax to 2,916 euros (+1,828 euros).

7) New lawyer starting in 2022 with a turnover of 17,140 euros, he declared profits of 5,548 euros and had a tax of 499 euros, while he is not liable for business tax. Under the new system, his taxable income will be €10,920 and his tax will be zero for the years 2023 and 2024 (2nd and 3rd year of operation), so he will have a tax reduction for the next two years. In the year 2025 (4th year of operation) he will pay 33% of the corresponding tax, i.e. 364 euros. In the year 2026 (5th year of operation), its tax will amount to 738 euros (67% of the corresponding tax), while from the year 2027 (6th year of operation) etc. the tax will amount to 1,102 euros.

8) Young entrepreneur in the field of retail trade cafe starting in 2022 with a turnover of 28,253 euros and an employee, declared profits of 0 euros and had zero tax and professional fees. With the new system, his taxable income will amount to 11,716 euros and his tax will be zero for the years 2023 and 2024 (2nd and 3rd year of operation). In the year 2025 (4th year of operation) he will pay 33% of the corresponding tax, i.e. 422 euros. In the year 2026 (5th year of operation), its tax will amount to 856 euros (67% of the corresponding tax), while from the year 2027 (6th year of operation) etc. the tax will amount to 1,278 euros.

9) Plumber with a start in 2009 and a turnover of 40,510 euros, declared a profit of 6,155 euros, had zero tax and was not liable to a profit tax. He is entitled to a 50% reduction due to living on an island with less than 3,100 inhabitants or in a village with less than 500 inhabitants. With the new system, his taxable income will rise to 7,290 euros (14,196 + 383 due to salary costs – 50% due to residence) and his tax to 656 euros.

10) Carpenter with a start in 1997 and a turnover of 24,591 euros in a village of less than 500 inhabitants, it declared profits of 3,404 euros, paid a tax of 306 euros and a business fee of 0 euros. With the new taxation system, his taxable income will rise to 7,098 euros (50% of 14,196) and his tax to 639 euros (+332 euros).

With information from APE-MPE