Overview
The Greek market for independent workers is expanding. Because of the independence and flexibility it provides, more and more workers are choosing to work for themselves. Independent workers have to deal with many difficulties. It has a presumptive taxation model (τεκμήρια διαβίωσης). It often calculates tax obligations based on assumed, not actual, income.
Unlike salaried employees, freelancers in Greece don’t pay taxes on their earned income. Instead, they are subject to a system that presumes a certain income level. This presumption is based on several factors. It forces taxes on income they may have never earned. This unfair approach creates financial strain and uncertainty for the freelance workforce. The government is making it hard for freelancers to plan their finances. This could discourage many in the growing freelance workforce.
The following article explains how presumptive taxation operates in Greece. This text will discuss how it affects independent workers. It will also compare the measures in other EU countries. We will look at helpful ways for workers to lower their taxes. We will work on changes in policies. They are necessary to build a fairer system for Greece’s changing population.
Understanding Presumptive Taxation in Greece
Most countries base their tax computation on actual income. But in Greece, presumptive taxation is a different tactic applied under διαβίωσης. Under this arrangement, freelancers are taxed based more on presumed income levels than on actual income. Instead of using a person’s actual earnings, analysts estimate their income. They estimate this income using various lifestyle indicators and business expenses. It assumes that people make enough money to keep their way of life.
The tax officials estimate earnings using a few different factors:
- The tax officials estimate earnings using a few different factors:
- Costs for housing, such as rent or owning a home.
- Owning a car comes with expenses including repair, gasoline, and insurance.
- Investments and savings in banks.
- Office rent, machinery, tools for experts, business expenses.
- Power bills, utility consumption.
Consider this freelancer Mark, for example. Declaring €8,000 in yearly income, Mark pays €6,000 in rent and owns a car. Whether or whether his actual income is €12,000 or more, the tax authorities could tax him as if so. Freelancers must calculate, declare, and pay their taxes upfront. Unlike them, salaried employees have taxes deducted from their paychecks. This increases their financial burden considerably.
For independent contractors, this system causes many major challenges:
First of all, it results in taxes exceeding real income. Taxes on income professionals did not generate had to be paid. This overly burdens budgets, particularly those of startups or failing companies.
Second, the system adds major financial uncertainty. Freelancers pay taxes based on projected rather than real income. This makes financial planning and tax projection difficult.
Presumptive taxes is, last but not least, a challenge to enterprise. Many would-be freelancers are afraid about paying too much in taxes regardless of their degree of success. That deters others from starting their own path. In Greece’s freelancing economy, it limits choice of action and creativity.
A Comparison of Greece’s Tax System with That of Other European Nations
As a result of presumptive taxation, Greek freelancers pay one of the highest tax burdens in Europe. There are more reasonable and equitable methods of taxing the self-employed in other EU countries. Possible avenues for change can be better understood by examining these alternate systems.
Leading European Models
Germany is very supportive of freelancers. Those earning under €22,000 a year qualify for a tax-free threshold. Self-employed individuals are taxed on their reported earnings. They can deduct legitimate business expenses. This ensures their tax burden reflects their true income.
The Netherlands uses a profit-based system. It taxes freelancers by subtracting business expenses from revenue. The country has a self-employment deduction. This helps independent workers lower their taxable income by using documented business costs.
Portugal: A Case Study in Simplified Taxation
Portugal’s simplified tax regime (Regime Simplificado) is better than Greece’s presumptive system. Portugal applies fixed tax rates based on profession, not lifestyle indicators.
- The government taxes service providers at 75% of their income.
- The government taxes retail businesses at 35% of their income.
This transparent approach offers several advantages:
- Freelancers can make precise predictions about their tax obligations.
- Simplified accounting reduces the administrative burden.
- The system encourages accurate income reporting.
- Tax obligations align with actual earnings rather than assumptions.
These examples show workable alternatives to Greece’s current setup. Greece could improve its independent sector by using an income-based system like some other countries. It would help freelancers, promote starting new businesses, and make financial reports better.
Practical Ways Freelancers Can Reduce Their Tax Burden
Greece’s presumptive taxation system poses challenges. Freelancers can legally lower their tax liability by employing several strategies.
- Maximize Deductible Expenses. Freelancers can reduce their taxable income by claiming business costs. They must document these costs, which include:
- Home office expenses (rent, electricity, internet).
- Equipment and software purchases.
- Professional development and training.
- Transportation costs for work-related activities.
- Professional services (accounting, legal fees).
Keeping thorough records and receipts is vital for a successful claim for these deductions.
- Explore Special Tax Statuses. Greek freelancers may qualify for beneficial tax arrangements. One is the “KLEISTO BLOKO” (Closed Freelancer Status). This status can be helpful for professionals who:
- Work with one or two primary clients.
- Maintain income levels below the VAT registration threshold.
- Seek simplified compliance requirements.
Also, some artistic and creative jobs may qualify for reduced VAT rates or other special considerations.
- Create a Single-Member Private Company (IKE). Changing from being a worker to owning a sole-owner company (IKE) can have advantages.
- Lower corporate tax rates compared to personal income tax.
- Expanded options for deductible expenses.
- Clear separation between personal and business finances.
- Greater control over tax planning and reporting.
Before making this choice, you need to compare the admin costs and setup time with the tax saves.
Promoting Change: Why Greece Requests a More Fair Freelancer Tax Structure
The present tax code hurts Greece’s economy and affects independent contractors. Many talented individuals are moving to nations that have more possibilities for freelancing. They are carrying with them their talents and possible financial contributions. This brain flight emphasizes how urgently reform is needed.
Why reform is critical
A fair, modern tax system for freelancers would benefit both them and the Greek economy.
- Entrepreneurship drives economic growth through job creation and innovation.
- A thriving freelance sector attracts and retains skilled professionals.
- Fair taxation encourages accurate income reporting and compliance.
- Predictable tax obligations enable better business planning and growth.
Using an income-based tax model, like in Germany and Portugal, could help freelancing in Greece. This change would update the tax system for modern work. It would support the growing independent workforce.
How Freelancers Can Drive Change
Individual freelancers can contribute to reform efforts by:
- Joining professional associations that advocate for freelancer tax reform.
- Sharing personal experiences through social media and freelancer networks.
- Supporting and signing petitions for fairer taxation policies.
- Engaging directly with policymakers through letters and meetings.
- Participating in public discourse about the impact of presumptive taxation.
By raising their voices and sharing their stories, freelancers can spark reform. If more voices call for a fairer system, Greece is more likely to adopt a tax framework that supports its independent workers.
Conclusion
Greece’s presumptive tax system creates significant challenges for the country’s growing freelance workforce. Taxing independent workers on assumed income creates financial uncertainty. This approach unfairly burdens those trying to grow their businesses.
Freelancers can take steps to reduce their taxes. They can maximize deductible expenses, explore special tax statuses, or form an IKE company. But, these are just temporary fixes to a systemic problem. Real change requires policy reform. Greece should adopt an income-based tax model, like Portugal and Germany. It should support, not penalize, self-employment.
As Greece’s freelance economy grows, the tax system must evolve to meet this dynamic workforce’s needs. Freelancers can unite to push for change. This can lead to a fairer environment. It will promote entrepreneurship, reward innovation, and ensure all workers, no matter their job status, get a fair chance.
The path forward requires both individual action and collective advocacy. Freelancers can work for a future where Greece’s tax policies support its independent workforce. They should understand the current system, use tax-saving strategies, and push for reform.
