VAT

Flat-rate scheme

A simplified tax regime where tax is calculated as a percentage of turnover or a fixed amount, instead of from actual profit or VAT records.

What Flat-rate scheme means

Several EU countries offer flat-rate regimes to sole traders and very small businesses. The common idea is to replace detailed profit calculation with a percentage: income tax is charged on turnover reduced by a notional expense allowance, or a fixed lump sum covers income tax and social contributions together. Some regimes also simplify or remove VAT obligations.

The trade-off is always the same. Administration is minimal, but actual expenses cannot be deducted, so the regime pays off for businesses with low costs and hurts those with high costs. Eligibility depends on turnover ceilings, the type of activity and sometimes on not having employees. Examples include the Italian regime forfettario, the Polish ryczalt, the French micro-entrepreneur and the Czech flat tax.

Related terms

Small business scheme (VAT exemption)A simplification that exempts businesses under a turnover limit from charging VAT, filing regular VAT returns and deducting input tax.Regime forfettario (Italy)The Italian flat-rate regime for individuals with revenue up to a fixed ceiling: a substitute tax on a percentage of turnover, no VAT and simplified bookkeeping.Ryczałt od przychodów ewidencjonowanych (Poland)The Polish lump-sum tax on recorded revenue: income tax as a percentage of turnover, with rates depending on the activity, instead of tax on profit.Auto-entrepreneur / micro-entrepreneur (France)The French simplified status for sole traders: contributions and, optionally, income tax paid as a percentage of turnover, with VAT exemption under the franchise thresholds.Flat tax (pausalni dan, Czechia)The Czech flat tax for sole traders: one monthly payment that covers income tax, pension and health insurance, in three bands by revenue.

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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