Taxes

Personal income tax

The tax individuals, including sole traders, pay on their income. Business profit is taxed together with other income under national progressive or flat rates.

What Personal income tax means

Personal income tax applies to the income of natural persons: employment, business and professional activity, capital income, rent and other sources. A sole trader's business profit is one category of this income and is taxed at the personal rates of the country of residence, usually a progressive scale with a tax-free allowance, though several member states apply a flat rate.

The business profit is computed from the accounts, on a cash or accrual basis, or under a flat-rate scheme where expenses are replaced by a percentage. Social security contributions are often deductible or calculated on the same base. Residents are taxed on worldwide income with treaty relief for foreign tax; non-residents only on income from the country. Payment is through advance instalments and an annual return. Kontevia keeps the income and expense records that the return is built on.

Related terms

Sole trader (self-employed)An individual running a business in their own name with unlimited liability. The simplest legal form, taxed under personal income tax.Social security contributionsMandatory payments for pension, health and other insurance schemes, paid by employers, employees and the self-employed under national rules.Flat-rate schemeA simplified tax regime where tax is calculated as a percentage of turnover or a fixed amount, instead of from actual profit or VAT records.Tax returnThe periodic declaration a business files with the tax authority to report its tax base and the tax due. VAT returns are monthly or quarterly; income tax returns are annual.Advance payment (tax prepayment)Instalments of income or corporate tax paid during the year based on the previous year's tax, settled against the final liability in the annual return.

This entry is general information, not tax advice. Rules change; check the current position with your adviser or the tax authority of your country.

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