Do you know where you fit in? Possibly not in life, but in terms of taxes? Laura Foulds from Analie can explain. *although you are on your own after she clarifies how you report your income. She’s only human.
Categories of income
Income is split into 8 categories as listed below. Each category has its own set of deductions available to it and net income is calculated for each category separately.
Agricultural & forestry
Investments (including interest & dividends)
Miscellaneous (including capital gains)
Most commonly reported items
The main types of income/expenses are described in more detail below:
Employment income – all cash payments and benefits are reported through the payroll. Monthly tax and social security is withheld based on your tax card. Deductions are available for home to office travel (up to €2,574) and unreimbursed expenses (standard deduction of €540, but more can be claimed in certain cases).
Independent workers (incl. directors fees): depending on the nature of the activity, this is considered either Commercial income or Self-employed income. Individuals with income exceeding €100,000 must maintain double entry bookkeeping records and prepare annual financial statements. Business related expenses are deductible and, in some cases, it is possible to apply a fixed exemption of up to €3,400 in lieu of actual expenses.
Investments – interest & dividend income are the primary sources routinely reported here. Certain dividends can be treated as 50% exempt and some interest income is exempt from tax. An exemption of €1,500 (€3,000 joint filing) is available on taxable investment income and incidental costs incurred relating to the investment income can be deducted.
Rental – the most common income here is income from real estate. Gross income can be reduced by related expenses, mortgage interest and real estate is depreciated at a rate of 2% – 6% depending on the age of the property.
Capital Gains – short term gains (immovable property sold within 2 years or movable property sold within 6 months) in excess of €500 are taxable. In general, long term gains from movable property sold after 6 months are tax exempt (unless there is 10% direct or indirect holding). Other long term gains can attract certain reliefs and may be taxed at a reduced rate equal to 50% of the global tax rate.