Taxation of Income Earned through Entrepreneurship Accounts Becomes Simpler

The Ministry of Finance has prepared a draft bill that changes the taxation of income earned through entrepreneurship accounts and eliminates the higher tax rate on business income. The Chamber of Commerce supports the proposed changes as they make the use of entrepreneurship accounts simpler and more profitable for individuals.

Higher Income Tax Rate to Be Eliminated
Currently, the tax rate on business income is 20% for earnings up to 25,000 euros in a calendar year, and for income exceeding 25,000 euros but below 40,000 euros, the tax rate is 40%. According to the draft bill, the current higher tax rate will be abolished, and a 20% tax rate will apply to incomes exceeding 25,000 euros but remaining under 40,000 euros annually.

The Chamber of Commerce supports the elimination of the higher tax rate as it simplifies and enhances the profitability of using entrepreneurship accounts for individuals, and encourages more widespread use of entrepreneurship accounts. Moreover, the removal of the higher tax rate is also supported by the recent high inflation and rapid wage growth.

Tax Information of Business Income Earners to Be Public
Currently, when purchasing services from an entrepreneurship account user, the client has no way of verifying whether the provided account number is an entrepreneurship account, as the details of entrepreneurship accounts are not public. This entails a certain tax risk for the payer. If the account where the transfer is made is not an entrepreneurship account, the payer is required to register the fee recipient in the employment register, declare the paid service fee, and pay labor taxes on it.

Under the proposed changes, the tax information of business income earners, namely the individual's name, personal identification code, and entrepreneurship account number, will be public. The Chamber considers this change necessary, as without the entrepreneurship account number, it is impossible to verify whether the money transferred to a service provider who is a natural person went to an entrepreneurship account or another account. Therefore, it is not clear whether the payer has correctly fulfilled their tax obligations or not.

Changes in Tax Obligations When Providing Services to Legal Entities
With the enactment of the Simplified Taxation of Business Income Act, amendments to the Income Tax Act also came into force. According to these amendments, a company must pay income tax when a user of an entrepreneurship account provides a service to the company. Hence, the entrepreneurship account user must pay business income tax on the income received from providing services, and the company must pay income tax at a rate of 20/80 on the same sum.

As a result of the planned changes, the current additional income tax obligation will be replaced with a social tax obligation. In the future, a company must pay social tax on 50% of the service fee amount. This amendment reduces the tax burden on the company and increases the social security benefits for the user of the entrepreneurship account.