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TAX TREaTMENT OF SELF-EMPLoYED WITHOUT PERSONNEL

Country Surveys

TABLE OF CONTENTS

  TOC \h \z \t "Title 1,1"    HYPERLINK \l "_Toc204753456"  Scope of the
survey	  PAGEREF _Toc204753456 \h  3  

  HYPERLINK \l "_Toc204753457"  Austria	  PAGEREF _Toc204753457 \h  4  

  HYPERLINK \l "_Toc204753458"  Belgium	  PAGEREF _Toc204753458 \h  8  

  HYPERLINK \l "_Toc204753459"  Denmark 	  PAGEREF _Toc204753459 \h  14 


  HYPERLINK \l "_Toc204753460"  France	  PAGEREF _Toc204753460 \h  17  

  HYPERLINK \l "_Toc204753461"  Germany	  PAGEREF _Toc204753461 \h  21  

  HYPERLINK \l "_Toc204753462"  Ireland	  PAGEREF _Toc204753462 \h  25  

  HYPERLINK \l "_Toc204753463"  Poland	  PAGEREF _Toc204753463 \h  30  

  HYPERLINK \l "_Toc204753464"  Spain		  PAGEREF _Toc204753464 \h  34  

  HYPERLINK \l "_Toc204753465"  Sweden	  PAGEREF _Toc204753465 \h  41  

  HYPERLINK \l "_Toc204753466"  United Kingdom	  PAGEREF _Toc204753466
\h  44  

 

scope of the survey

We are pleased to provide you with a survey of the tax treatment of
self-employed without personnel (hereinafter: ZZPs) in the following
jurisdictions:

Austria;

Belgium;

Denmark;

France;

Germany;

Ireland;

Poland;

Spain;

Sweden; and 

the United Kingdom.

For each of the foregoing jurisdictions, the survey addresses the
following questions:

Question 1:	Is the concept of ZZP known in the relevant jurisdiction?

Question 2:	If the answer to Question 1 is in the affirmative, how is
the term defined? What are the requirements for being treated as a ZZP?
What are the major differences with respect to other types of
employment?

Question 3:	How are ZZPs taxed? Is there a special regime for ZZPs, or
is ZZPs' income taxed under the normal income tax regime? Is a minimum
income required for taxation of a ZZP?

Question 4:	If the income is taxed under the normal tax regime, does the
ZZPs' income fall under various categories of income, or is it rather
taxed under one category of income?

Question 5:	If the total income of a ZZP is taxed under one income
category, how is such income taxed?

Question 6:	If the income of a ZZP is taxed under various income
categories, how is such income taxed under each income category and what
are the differences per category? What are the criteria to determine
under which income category the ZZPs income shall be taxed? Are factual
circumstances taken into account? Does the determination take place per
activity or per principal?

Question 7:	Do special tax incentives exist for ZZPs?

Question 8:	How are ZZPs treated for the purposes of social security
contributions? Do ZZPs or principals have to pay employee social
security contributions? Do any special rules apply?

Question 9:	In the Netherlands, often uncertainty exists with respect to
taxation and payment of employee social security contributions, since it
is often unclear how the ZZP's incoem must be classified. Does such
uncertainty exist in the relevant jurisdiction?

Question 10:	If the answer to Question 9 is in the affirmative, how does
the relevant jurisdiction deal with such uncertainty? Is it possible to
obtain certainty in advance?

Question 11:	If such certainty can be obtained in advance, is such
certainty granted only in respect of taxed, or also social security
contributions?

Question 12:	How is certainty provided? Can taxpayers obtain a
declaration?

Question 13:	What is the legal status of such certainty?

This survey is based on information available as at 15 July 2008. It is
intended for general information only and should not be construed as
advice with respect to any specific transaction or matter. IBFD
expressly disclaims any liability for action or inaction based on
information in this survey.

austria

1.	  HYPERLINK  \l "Q1"  question 1 

The concept of ZZP is unknown in Austrian tax law. There is no
distinction, for the purposes of tax, between a self-employed person and
a self-employed person "without personnel". Income derived by an
individual who is self-employed generally falls under the category of
professional services, regardless of whether or not that individual
employs other persons.

However, it has to be determined whether an individual shall be treated
as self-employed or employed. In the latter case, the income falls under
the category of employment income. Further, a taxpayer could be
classified as self-employed in respect of certain activities, while
being treated as employed with regard to others.

Austrian law is not always clear whether income from a taxpayer's
activities qualifies as employment income or income from professional
services. Although the relevant tax regime for self-employed and
employed individuals is similar (e.g. same tax rates, but minor
differences in computing the taxable income), the determination of the
status is decisive for the contributions to the social security scheme
(see (8) below). Taxes and social security contributions for
self-employed individuals are not withheld at source.

Employment is assumed if the employee conducts his work under the
supervision of the employer or must follow the employer's instructions.
The definition of an employee for tax purposes does not correspond to
that under Austrian employment law. The main criteria for an activity to
fall under the category of employment income are (1) existence of an
employer-employee relationship, and (2) the legal status thereof.
However, apart from the contractual relationship between the parties
concerned, the tax authorities would normally take into consideration
the actual facts and circumstances of each case. The following factors
would normally be considered:

whether the individual is integrated in the organization of the client's
business;

whether the individual is required to work at the client’s premises;

whether the individual’s work is supervised by the client;

whether the individual has to follow the employer's instructions;

whether the individual is subject to regular working hours; 

whether the individual provides equipment needed to do the job;

whether a remuneration is paid for the services, independent from any
specific result;

who bears responsibility for correcting any errors made by the
individual; and

whether the individual is entitled to regular holidays.

The tax authorities take an overall view of all the facts, giving due
weight to the relative significance of various factors, and then decide
on the status of the individual. Where an individual has been wrongly
classified as self-employed, the tax authorities are empowered to
reclassify that individual (even with retrospective effect), and demand
from the employer any tax or social security contributions that should
have been deducted during the period of the incorrect classification. 

2.	  HYPERLINK  \l "Q2"  question 2 

As stated in (1) above, the concept of ZZP does not exist in Austrian
tax law.

3.	  HYPERLINK  \l "Q3"  question 3 

As stated in (1) above, there is no special category of “self-employed
without personnel”. However, self-employed persons are taxed under the
normal income tax regime. No special regime exists for self-employed
persons as such.

4.	  HYPERLINK  \l "Q4"  question 4 

As stated in (3) above, the income of a self-employed person is taxed
under the normal income tax regime. The Austrian Income Tax Act provides
the general rules for the taxation of various sources of income.
Resident taxpayers are subject to income tax on 7 categories of income.
These are  (1) agriculture and forestry; (2) professional services; (3)
trade or business; (4) employment income; (5) capital investment income;
(6) rents, lease payments and royalties; and (7) certain other specified
income, including certain annuities and capital gains from the
disposition of privately held property. The income of a ZZP may be
classed either (1) as income from professional services, or (2) as trade
or business income.

5.	  HYPERLINK  \l "Q5"  question 5 

The concept of ZZP does not exist in Austrian tax law (see (1) above).
With regard to self-employed persons, as explained in (4) above, the
normal income tax rules apply. The income of self-employed persons may
be classed either as (1) income from professional services, or (2) as
trade or business income.

6.	  HYPERLINK  \l "Q6"  question 6 

As mentioned above, it must be determined whether the respective
activities of an individual fall under the category of trade or business
income or professional services, although the same rates of income tax
apply to income from both categories. Since Austria has abolished the
municipal business tax, the difference between the two income categories
is of minor importance.  However, for individuals providing certain
professional services, the lump sum deduction for business expenses is
lower than that for individuals deriving income from trade or business. 

Moreover, there are differences in computing the income from the two
categories. Trade or business income is generally calculated using the
net equity comparison method. Under the net equity comparison method,
profit is the difference between net equity of the business at the end
of the business year and that at the end of the immediately preceding
business year, increased by the value of withdrawals from capital and
reduced by the value of contributions to capital during the business
year. Income from professional services is generally determined
according to the cash method, unless the taxpayer opts for the net
equity comparison method. Under the cash method, taxable income is
computed by reducing the gross income by income-related expenses in
accordance with the cash receipts and disbursements method.

There is no definition of "professional services" in Austrian law.
However, there is a negative differentiation in relation to business
income, according to which any independent and lasting activity
exercised with the intention of earning profit by participating in the
open market, which does not qualify as professional or agricultural or
forestry activities, is considered as business income. The Austrian
Income Tax Act stipulates that income from professional services
includes income derived from the following activities: scientific,
artistic, literary, teaching or educational activities, the professional
activity of state-certified engineers or a similar activity, physicians,
veterinarians and dentists, attorneys-at-law, patent attorneys, notaries
public, certified public accountants, business consultants, actuaries,
arbitrators in arbitration proceedings, photographic reporters and
journalists, interpreters and translators, activities of graduated
psychologists, midwifery and certain medical services. The list of
professions is not exhaustive. The main characteristics of professional
activities are that they require high intellectual input, as well as the
attainment of high qualifications. Also relevant is the fact that these
professions are usually subject to professional regulations. The
personal element in the exercise of such activity is of particular
significance.

If a professional is assisted by professionally trained staff who do not
possess the qualifications required for that particular profession,
income derived through the assistance of that staff also constitutes
professional income, subject to the proviso that the professional is in
charge of his staff, and is acting under his own responsibility.

The following two types of income are also deemed to be professional
income: (1) income from the administration of property (e.g. property
management or as a trustee or member of a supervisory board of
directors), and (2) salaries and other forms of compensation of any kind
granted by a corporation to substantial shareholders in consideration
for an engagement which includes all the features of employment. A
person is deemed to be a substantial shareholder if his share of the
share capital of the corporation amounts to more than 25%. A
participation via a trustee or a company is treated as a direct
participation. Salaries and other forms of compensation of any kind that
are granted for previous activities of former shareholders also
constitute income from other professional services.

Income derived by partners of a professional partnership  constitutes
solely professional income, if (1) the activity of the partnership is to
be viewed solely as independent professional services, and (2) each
partner performs professional services. This requirement does not apply
where the rules on professional conduct permit association with
non-professionals.

Income categories are determined per activity, if it is possible to
identify separate activities. If business and professional activities
cannot be separated, because they are interconnected or dependent on
each other, the tax authorities would normally take an overall view of
all the facts, giving due weight to the relative significance of both
activities, and then decide, on a case by case basis, under which
category the income from such activity falls.

7.	  HYPERLINK  \l "Q7"  question 7 

As stated in (1) above, the concept of ZZP does not exist in Austrian
tax law. Thus, there are no special tax incentives for ZZPs. 

8.	  HYPERLINK  \l "Q8"  question 8 

As stated in (1) above, the concept of ZZP does not exist in Austrian
tax law. Both employees and employers contribute to the Austrian social
security system at a flat percentage rate of remuneration, up to a
certain maximum amount (ceiling). Employers must pay social security
contributions for all employees whose place of work is in Austria.
Contributions are due from an employee's remuneration up to EUR 47,160
per year or EUR 3,930 per month (a separate ceiling of EUR 7,860 applies
for special remuneration, such as the 13th or 14th month's salary).
Contributions payable by self-employed persons are based upon taxable
income of the third preceding year. If income is less than a minimum
amount (EUR 6,453.36 per year; EUR 4,188.12 for those who conduct a
“registered trade or business”), the contributions are based on that
amount.

9.	  HYPERLINK  \l "Q9"  question 9 

Such uncertainty does indeed exist in Austria. The problems arising from
uncertainty and incorrect classifications may be avoided by obtaining
certainty in advance, as explained in (10) below.

10.	  HYPERLINK  \l "Q10"  question 10 

Before an individual commences his own business (i.e. the conduct of a
trade, or the provision of professional services), he must notify the
respective competent tax authorities, which should request the taxpayer
to submit a form ( HYPERLINK
"http://formulare.bmf.gv.at/service/formulare/Inter-Steuern/pdfs/9999/ve
rf24.pdf" Fragebogen für natürliche Personen ) for the purpose of
fiscal registration. After approval of the form, the tax authorities
should provide the taxpayer with his tax number. During this process,
doubts about the qualification of the taxpayer's activities may be
clarified in consultation with the tax authorities.

11.	  HYPERLINK  \l "Q11"  question 11 

For tax purposes, the individual may obtain certainty after receiving
the approved form and his tax number from the tax authorities, as
described under (10) above. The individual's classification for tax
purposes is decisive for the purposes of social security contributions
(see (8) above). If the individual is classified as self-employed, he
must register for the relevant social security scheme by filing an  
HYPERLINK
"https://www.sozialversicherung.at/onlineformulare-sva/showVersicherungs
erklaerungFreiberufler.do?traeger=SVA"  insurance declaration  for the
self-employed.

12.	  HYPERLINK  \l "Q12"  question 12 

As to how certainty is provided, see (10) above. On submitting a form
for the purpose of fiscal registration, the taxpayer should be
registered with the tax authorities based on the information he
provided.

The tax authorities conduct tax audits on a regular basis. The tax
authorities are empowered to reclassify individuals who have been
wrongly classified as self-employed (even with retrospective effect) and
demand from the employer any tax or social security contributions that
should have been deducted during the period of the incorrect
classification.

13.	  HYPERLINK  \l "Q13"  question 13 

For the legal status, see (10) above. Advance ruling requests may be
addressed to the local tax office, to the regional fiscal directorate or
to the Ministry of Finance. Rulings obtained from the Ministry of
Finance or the regional fiscal directorate are never binding. Rulings of
the local tax office are binding on the tax administration on the
principle of good faith as long as there are no contradicting legal
provisions. However, rulings are generally not binding on the taxpayer
and on the courts. The taxpayer cannot appeal against a ruling.

belgium

1.	  HYPERLINK  \l "Q1"  question 1 

In Belgium, the term ZZP is used as a term of ordinary language and
means an individual who works independently and does not employ
personnel. The term is not defined in Belgian tax law, which only uses
the concept of self-employed. No distinction is made between
self-employed and self-employed without personnel. A taxpayer classified
as self-employed for tax purposes is automatically subject to the tax
rules for the self-employed, regardless of whether or not he employs
personnel. 

By statute, the term "self-employed" is defined only for the purpose of
social security contributions as “any individual who exercises a
profession in Belgium and who is not bound by an employment contract or
a statute". 

For fiscal law purposes, the term "self-employed" is defined in the case
law as “an individual who exercises activities on his own account".
Tax law provides only for a definition of income derived by a
self-employed, i.e. “income from a liberal profession, a function or
position and any other income from a profit-seeking activity, other than
business profits or employment income”.

The tax regime applicable to self-employed taxpayers does not differ
substantially from that applicable to employees. The same tax rates
apply. In addition, documented expenses incurred by employees and
self-employed are deductible for tax purposes. Actual deductible
expenses of a self-employed person include rental costs and depreciation
of tangible and intangible fixed assets.

If no proof of expenditure is available, both employees and
self-employed are entitled to the same lump sum deductions. 

However, the self-employed enjoy a substantially more beneficial social
security regime (see (8) below).

A taxpayer may have multiple capacities, i.e. he could be treated as
employed in respect of part of his activities, and as self-employed with
regard to others. In particular, it is crucial to determine taxpayer’s
main activities for social security purposes (see (8) below).

The Belgian tax authorities are vigilant to reclassify as
self-employment, an arrangement that suggests a de facto employment
relationship. However, according to settled Belgian case law, if a
company and a service provider (either an individual or a
management/service company) enter into a contract on independent
cooperation, this contract is valid towards third parties. This line of
case law suggests that the individual concerned should be classified as
self-employed, even where a de facto employment relationship exists. 

In order to counter hidden employment relationships, a list of criteria
to distinguish between employed and self-employed persons was published
in 2006, and applies from 1 January 2007.

The following criteria should be considered in order to distinguish
between employed and self-employed individuals:

Self-employed	Employed

The individual is free to arrange his work, without the need to follow
the instructions of his principal.	The individual is obliged to follow
the instructions of his employer.

The individual can arrange his own working hours. 	The individual is
subject to regular working hours.

The individual is not supervised by his principal.	The individual is
under the hierarchical supervision of his employer.



The name of the relevant contract, registration with the social security
institutions or in the company register, VAT registration or the manner
of declaration of income with the tax authorities are not decisive for
the determination of the individual's status.

In addition, from 1 January 2008, the following facts are taken into
account in order to determine whether or not an individual conducts
himself as self-employed:

a self-employed person must be able to prove that he is running a
business, which supplies goods and services, and must also behave
accordingly when dealing with third parties; 

a self-employed person is responsible for running his business and
taking managerial decisions;

a self-employed person must bear entrepreneurial risks;

a self-employed person must own or rent his premises; 

a self-employed person shall not be entitled to a fixed fee or salary,
since this would imply that no business risks are borne; and

a self-employed person may hire his own staff, and appoint his own
representative.

Finally, additional criteria may be set out for each branch of activity
by virtue of a Royal Decree.

If the application of the tests results in a reclassification of
employment status, serious consequences may arise for taxpayers.
However, these consequences are mitigated by the Program Law of 2006,
see (10) below. As a result of the entry into force of this law, unpaid
employer's social security contributions are no longer subject to
penalties and late payment interest. It is still not clear, however,
whether or not the employer must also pay wage taxes.

2.	  HYPERLINK  \l "Q2"  question 2 

As indicated in (1) above, the term ZZP is not defined in Belgian law;
it is used only as a term of ordinary language.

3.	  HYPERLINK  \l "Q3"  question 3 

As indicated in (1) above, no special tax regime exists for the
self-employed without personnel. The self-employed are taxed under the
normal income tax regime.

4.	  HYPERLINK  \l "Q4"  question 4 

The income of a self-employed person is taxed under the normal income
tax regime. The Income Tax Code contains general rules for the taxation
of the different sources of income. A distinction is made between the
following sources of income:

income from immovable property;

income from movable property, including dividends, interest and
royalties;

earned income, including business income, professional income,
employment income and pension income; and

miscellaneous income.

The specific tax rules applicable to each source of income apply to any
individual receiving such income, regardless of his capacity (status).
This means, for example, that a self-employed receiving business or
professional income is taxed under the income tax rules applicable to
the relevant income category.

5.	  HYPERLINK  \l "Q5"  question 5 

The concept of ZZP is not defined in Belgian tax law (see (1) above). As
indicated above, the concept is used only as a term of ordinary
language. With regard to self-employed persons, as explained in (4)
above, the normal income tax rules apply, and tax law does not provide
for a separate category of income for the self-employed, as such.

6.	  HYPERLINK  \l "Q6"  question 6 

For the main sources of income, see (4) above.

Business income is defined as income derived from industrial, commercial
and agricultural enterprises carried on by individuals. It includes
profits derived from the business activities, the director's salary and
benefits in kind, capital gains realized on assets or decreases in the
value of liabilities, latent reserves on financial fixed assets and
portfolio securities or resulting from an intentional undervaluation of
assets or overvaluation of liabilities. Business income is taxed on an
accruals basis. 

Professional income from the exercise of a profession, a function or a
position or any other profit-seeking activity covers all receipts in
cash or in kind from the activity, capital gains realized on assets used
for the exercise of the activity and any payments received as a
compensation for a decrease in activities or gains. Professional income
is taxed on a cash basis.

Miscellaneous income includes, inter alia, profits resulting from
activities outside any professional, trading, employment relation or
other business activity. Transactions in the daily course of management
of private property are, however, exempt.

Net business income is computed in four steps:

First, gross profits are reduced by business expenses. Business expenses
include all expenses incurred in the taxable year in order to obtain or
maintain business income if those expenses are substantiated by the
taxpayer by way of supporting documents or any other acceptable means of
proof. Business expenses include rent, financial charges, wages and
other salary costs, depreciation, travel costs, taxes other than income
taxes, publicity and entertainment expenses. In the case of professional
income, business expenses may be computed on a lump sum basis (see (1)
above). Second, income from different business activities is combined
and any current losses from business activities are set off within that
income category. Third, business losses from previous years may be
deducted. For the fourth step, part of the income of a self-employed
person may be deducted and taxed in the hands of a spouse who helps the
taxpayer in his business.

The distinction between the various categories of income is also
relevant for the purpose of loss relief. Losses may only be set off
against the category of income in respect of which they have been
incurred.

Income categories are determined per activity. This is in particular
relevant for social security considerations, as the amount of
contributions differs depending on the taxpayer’s main activity (see
(8)).

7.	  HYPERLINK  \l "Q7"  question 7 

There are no special tax incentives for ZZPs under Belgian tax law.
However, the self-employed can benefit from certain incentives. The
incentives for 2008 (assessment year 2009) are described below. 

Every self-employed person is entitled to an investment deduction of
13.5% of the amount of the investment in respect of investments in
patents, R&D investments and energy savings investments, and 20.5% for
investments in safety measures. If the entire deduction cannot be used
in any year, a limited carry-over applies. The maximum carry-over
amounts to EUR 821,380 or 25% of the carry-over of the unused part if it
exceeds EUR 3,285,500.

Taxpayers declaring profits are entitled to a tax credit if the profits
increase the company’s assets. The credit is equal to 110% of the
difference between the fiscal value of taxpayer's assets at the end of
the taxable period and the highest amount of his assets at the end of
any of the three preceding assessment periods. The maximum amount of the
credit is EUR 3,750.

In case of a joint assessment, the amount of this deduction is
determined per spouse.

Furthermore, a tax credit is granted for low income from professional
activities. The tax credit is calculated with the following table:

Net income (EUR)	Amount of tax credit (EUR)

up to 4,320	0

4,320 - 5,760	580 x (I-L1)/(L2- L1)

5,760 - 14,410	580

14,410 - 18,370	580 x (I-L1)/(L2- L1)

over 18,370	0

Legend: I = the income derived; L2 = Upper limit of the brackets; L1 =
Lower limit of the brackets.

In case of a joint assessment, the amount of this deduction is
determined per spouse. 

In addition, the self-employed enjoy a more preferential social security
regime (see (8) below).

8.	  HYPERLINK  \l "Q8"  question 8 

A different social security regime applies as between employed and
self-employed individuals.

Employees' income is subject to mandatory social security contributions.


The social security contributions payable by employees are as follows:

Contribution	Rate (%)

Pensions	7.5

Sick leave payments	1.15

Health insurance	3.85

Unemployment	0.87

Total	13.07



The contributions are based on the employee's gross remuneration.
However, in respect of “blue-collar workers”, the computation base
is multiplied by 1.08. The contributions are deductible for income tax
purposes.

If an individual is subject to the Belgian social security system, a
special non-deductible social security contribution is levied depending
on his income. The contribution is also levied on the total income of
spouses if one spouse is subject to the Belgian social security system,
but the other is not. For 2008, the maximum contribution is EUR 731.28.

A self-employed person who has reached the age of 18 must also
participate in the mandatory social security scheme.

For self-employed persons, social security contributions are generally
calculated on the basis of the income earned in the third preceding
year, adjusted for inflation. 

Furthermore, the amount of contributions differs depending on whether on
not self-employment is the taxpayer's main activity.

The following annual contributions are due in 2008 if self-employment is
the taxpayer's main activity:

Taxable income (EUR)	Contribution (EUR or %)

up to 11,329.41	0

11,420.41	2,512.49

11,420.41 - 49,315.46	22%

49,315.46 - 72,675.38	14.16%



In respect of income from ancillary self-employment, no contributions
are due if that income does not exceed EUR 1,263.48. For ancillary
income exceeding EUR 1,263.48, contributions are payable at the same
rates as for the principal activity (see above). However, minimum
quarterly contributions are due on the excess amount as follows: EUR
64.75 in the first year, EUR 66.33 in the second year, EUR 67.91 in the
third year, and EUR 69.49 in the fourth year. The maximum contribution
is EUR 3,539.29 per quarter.

Social security contributions paid by the self-employed are deductible
for income tax purposes.

9.	  HYPERLINK  \l "Q9"  question 9 

Such uncertainty does indeed exist in Belgium. The problems arising from
uncertainty and incorrect classifications can be avoided by obtaining
certainty in advance, as explained in (10) below.

10.	  HYPERLINK  \l "Q10"  question 10 

The Program Law of 2006 provides for two new measures to obtain
certainty in advance. First, specific criteria may be formulated per
branch of activity by the trade unions of employers and employees to
determine whether or not an employment relationship exists. These
criteria must be published in a Royal Decree and they must not
contravene the general criteria stated in the law.

Second, an advance ruling may be requested from the newly established
Committee for the Regulation of Labour Relations (Commissie ter regeling
van de arbeidsrelatie) (hereinafter: Committee), which has a normative
and an administrative chamber. 

The normative chamber consists of six representatives from the
Government department for social affairs, the Directorate-General for
self-employed or the Social Security Institution for self-employed, six
representatives from the Government department for Employment, Labour
and Social Consultations or the General Institution for Social Security
for employees, the Directorate-General for Social Policy and the
Government Department for Social Security, and four independent experts.
It determines whether or not uncertainty exists with respect to the
classification of a labour relationship. It also gives advice to the
institutions as to the necessity of formulating specific criteria for a
particular branch of activities, and issues draft lists containing such
specific criteria.

A clarification from the normative chamber may also be requested by the
ministers responsible for Social Affairs, Labour or Small and
Medium-Sized companies if uncertainty exists with respect to a certain
branch or profession. The ruling received will afterwards be submitted
to the Supreme Council for Self-employed and Small and Medium-Sized
Companies (Hoge Raad voor de Zelfstandigen en Kleine en Middelgrote
ondernemingen) and the National Labour Council (Nationale Arbeidsraad).
These councils will advise on the application of specific criteria to
the case at hand.

The members of the administrative chamber are appointed by the ministers
responsible for Small and Medium-Sized Companies and for Social Affairs
and Employment. The chamber consists of employees of those ministries
and/or employees of the Belgian social security institutions. It issues
the so-called "social rulings" on the classification of a labour
relationship as employment or self-employment, and determines whether or
not the classification of the activities is in accordance with the
factual circumstances. The social rulings are, in principle, valid for a
period of three years.

The functioning of the above system will be evaluated in 2010 by the
National Labour Council and the Supreme Council for Self-Employed and
Medium-Sized Companies.

11.	  HYPERLINK  \l "Q11"  question 11 

Such certainty can be obtained in respect of both taxation and social
security issues, as explained in (10) above.

12.	  HYPERLINK  \l "Q12"  question 12 

With respect to income tax, no private rulings or declarations are
issued.

A social ruling from the administrative chamber of the Committee (see
(10) above) may be requested by:

both parties to a labour relationship which was entered into on or after
1 January 2008, or the date of publication of a Royal Decree containing
specific criteria for the relevant branch;

a party to a labour relationship and a professional (before the start of
the contractual relationship), provided that such request is made at the
time of registration with one of the social security institutions; and

a party intending to conclude a contract with a principal, if it is
unclear whether he will be treated as an employee or as self-employed.

However, no ruling will be issued in the following situations:

if, at time of lodging the request for a ruling, the social security
institutions have already initiated an investigation or criminal
proceedings; or

the case has been decided by a Labour Court.

13.	  HYPERLINK  \l "Q13"  question 13 

Social rulings are binding on all institutions represented in the
administrative chamber (see (10) above) and all social security funds.
If the conditions for the exercise of labour activities change, the
ruling ceases to be valid as from the day those conditions changed. If a
ruling is based on false or incomplete information, it is deemed never
to have been valid. The ruling becomes binding if not appealed within
one month of its being issued.

denmark

1.	  HYPERLINK  \l "Q1"  question 1 

The concept of ZZP is unknown in Danish tax law. There is no distinction
for the purposes of tax between a self-employed person and a
self-employed person “without personnel”. A taxpayer who is treated
as self-employed for tax purposes is automatically subject to the tax
rules applying to that status. 

However, the issue of whether a self-employed person actually employs
personnel will together with numerous other criteria be included in the
examination of facts and circumstances of whether a person can be
regarded as self-employed or as an employee.

Self-employment is characterised by carrying on a business of financial
character at one's own risk with the purpose of making a profit.

However, in the Danish tax law, there is no provision as to how the
activity of an employee should be characterised.

The determination may in case of doubt be made by a total evaluation of
the specific employment.

However, it is possible to list some general guidelines as to how the
determination is to be made.

When evaluating whether the salary earner is self-employed, the
following may be important:

a)	The salary earner organises, manages, distributes and supervises the
work without any further instructions from the employer beyond those
given when the order is made.

b)	The employer's obligation to the salary earner is limited to the
specific order.

c)	The salary earner is, in consequence of the order, restricted from
performing work for other employers at the same time.

d)	The salary earner is financially responsible to the employer for the
performance of the work or in other respects he undertakes an
independent financial risk.

e)	The salary earner has employed personnel, and he is free to take on
assistance.

f)	The fee is paid on a time basis, and the entire fee will not be paid
until the work has been performed as agreed, and possible defects have
been repaired.

g)	The income is received from an indeterminate number of employers.

h)	The income depends on a possible profit.

i)	The salary earner owns the instruments, machines and tools etc used.

j)	The salary earner provides all or some of the material to be used for
the performance of the work.

k)	The salary earner has set up in his own premises, e.g. a shop,
workshop, office, clinic, drawing office etc. and the work is wholly or
partly performed from that place.

l)	The salary earner's practice requires a separate authorisation,
permission or the like, and the salary earner has such a permission.

m)	The salary earner indicates by advertising, signs etc that he is a
specialist and that he undertakes to perform work of a specified kind.

n)	The salary earner is registered for VAT according to the Act on Value
Added Tax, and the work has been invoiced to take account of VAT.

o)	The liability for a possible accident during performance of the work
lies with the salary earner.

The relationship between the salary earner and the specific employer
shall be evaluated. This means that the salary earner at the same time
may be regarded as an employee in relation to some employers, and may be
regarded as self-employed in relation to other employers.

2.	  HYPERLINK  \l "Q2"  question 2 

The concept of ZZP does not exist in Danish tax law, as stated in (1)
above.

3.	  HYPERLINK  \l "Q3"  question 3 

The concept of ZZP does not exist in Danish tax law, as stated in (1)
above.

4.	  HYPERLINK  \l "Q4"  question 4 

The concept of ZZP does not exist in Danish tax law, as stated in (1)
above.

5.	  HYPERLINK  \l "Q5"  question 5 

The concept of ZZP does not exist in Danish tax law, as stated in (1)
above.

6.	  HYPERLINK  \l "Q6"  question 6 

The concept of ZZP does not exist in Danish tax law, as stated in (1)
above.

7.	  HYPERLINK  \l "Q7"  question 7 

The concept of ZZP does not exist in Danish tax law, as stated in (1)
above.

8.	  HYPERLINK  \l "Q8"  question 8 

The concept of ZZP does not exist in Danish tax law, as stated in (1)
above.

9.	  HYPERLINK  \l "Q9"  question 9 

The concept of ZZP does not exist in Danish tax law, as stated in (1)
above.

10.	  HYPERLINK  \l "Q10"  question 10 

The concept of ZZP does not exist in Danish tax law, as stated in (1)
above.

11.	  HYPERLINK  \l "Q11"  question 11 

The concept of ZZP does not exist in Danish tax law, as stated in (1)
above.

12.	  HYPERLINK  \l "Q12"  question 12 

The concept of ZZP does not exist in Danish tax law, as stated in (1)
above.

13.	  HYPERLINK  \l "Q13"  question 13 

The concept of ZZP does not exist in Danish tax law, as stated in (1)
above.

france

1.	  HYPERLINK  \l "Q1"  question 1 

The concept of ZPP is unknown in French Law.  There is no distinction
for purposes of tax between a self-employed with or without personnel.

In order for a taxpayer to be treated as a self-employed for tax
purposes, he has to choose the appropriate legal structure for his
enterprise. 

There are two different regimes a self-employed individual may opt for:

Entreprise individuelle (i.e. individual enterprise). The entrepreneur
(who must be an individual) must engage in the activity in his own name.
He must personally direct and control the company’s operations. The
entrepreneur accepts unlimited legal liability for the company’s debts
in relation to all his assets; i.e. not only the enterprise’s assets
but also those ‘privately’ owned by the owner of the enterprise. The
entrepreneur may have employees.

Entreprise Unipersonnelle à Responsabilité Limitée (i.e. single
member limited liability company – ‘EURL’). One director, who must
be an individual, runs the operations of the company. The associate (may
be the director as well) is an individual or a legal entity (except in
the case of another EURL). Liability for the debts is limited to the
amount of the associate's contribution and any guarantees that might
have been given. The liability of the director running the company may
be extended to his private assets when the company is not being properly
run. The EURL may have employees.

Further, certain formalities should be complied with the order for the
self-employed regime to apply:

registration with the tax authorities and payment of the duties;

the registration application must be addressed to the Business
Formalities Centre (Centre des formalités des entreprises) of the
district where the taxable enterprise is established; and 

the filing of the statutes and other compulsory documents with the
Commercial Court (Tribunal de Commerce) (when the activity is
commercial).

[N.B.: The “fake self-employed”: to avoid social charges or
application of the labor law, an enterprise may decide to employ a
“fake self-employed”. In that case, the enterprise who hires the
fake self-employed is liable to criminal and civil sanctions.]

2.	  HYPERLINK  \l "Q2"  question 2 

As stated above in (1) above, the concept of ZZP does not exist in
French Law. The options for individuals carrying out activities outside
the scope of an employment agreement are described in (1) above. The
taxation of income earned outside the scope of an employment agreement
is described below.

3.	  HYPERLINK  \l "Q3"  question 3 

In the case of an individual enterprise, the self-employed is subject to
the ordinary income tax regime. The applicable tax rates are progressive
and depend on the number of persons who constitute the foyer fiscal
(i.e. tax households), as a result, the general rule of taxation for a
family (tax household) assumes that both spouses enjoy equal status and
are held jointly liable for income tax on both incomes (and that of
their dependent children). Each family subject to income tax must
complete detailed tax returns showing the family's overall income for
the preceding year. The individual entrepreneur shall personally direct
and control the company's operations. He is responsible for the
company’s debts to an indefinite extent in relation to all its assets.

The tax administration considers the director of the EURL as a sole
trader (i.e. he is subject to the normal income regime). The director
may, however, opt to be taxed as a company, and pay corporate tax. See
(6) above.

4.	  HYPERLINK  \l "Q4"  question 4 

The self-employed individuals are subject to income tax (i.e. impôt sur
le revenu) on three categories of income: industrial and commercial
income (i.e. Bénéfices Industriels et Commerciaux BIC), professional
business income (i.e. Bénéfices Non Commerciaux BNC), and agricultural
income (i.e. Bénéfices Agricoles BA).

5.	  HYPERLINK  \l "Q5"  question 5 

As stated in (4) above, self-employed individuals are taxed under
different categories of income.

6.	  HYPERLINK  \l "Q6"  question 6 

Generally, the determination of the income category depends on the types
of activities, the legal structure, and on the total annual turnover.
However, different rules may apply. For example, an architect’s income
is taxed as BNC, even if he has industrial and commercial income or
agricultural income (normally taxed as BIC or BA).

There are several applicable regimes:

Déclaratif simplifié or "Micro-BIC": the taxable profit is the annual
gross turnover with a standard deduction of 71 % (50 % for services);

Micro-BNC: the taxable profit is the annual gross turnover with a
standard deduction of 34%;

Réel normal: net taxable profit; and

Réel simplifié: simplified Réel normal regime.

Industrial and commercial income (i.e. Bénéfices Industriels et
Commerciaux, BIC)

Average annual turnover (EUR)	Regime 

Goods	Services	Automatically	Option

up to 76,300	up to 27,000	"Micro-BIC"	"Réel simplifié" or "réel
normal"

76,300 - 763,000	27,000 - 230,000	"Réel simplifié"	"Réel normal"

over 763,000 	over 230,000	"Réel normal"	No option



Professional business income (i.e. Bénéfices Non Commerciaux, BNC)

Average annual turnover (EUR)	Regime 

	Automatically	Option

up to 27,000	"Micro-BNC "	Controlled declaration

27,000 or more	Controlled declaration	No option



Agricultural income (i.e. Bénéfices Agricoles BA)

Average turnover for 2 years (EUR)	Regime

	Automatically	Option 

up to 76,300	Fixed regime based on land usage for agricultural purposes
"Réel simplifié" or "Réel normal"

76,300 - 350,000	"Réel simplifié"	"Réel normal"

350,000 or more	"Réel normal"	No option



7.	  HYPERLINK  \l "Q7"  question 7 

There are no special tax incentives for self-employed individuals
without personnel. However, different incentives may generally apply to
self-employed individuals engaged in new starts-ups:

Tax exemptions on business income when the new enterprise is located in
a land settlement zone (Zone de Revitalisation Urbaine (ZRU));

State aid for innovation from the Ministry of Industry;

Aid to develop new business (Encouragement au Développement des
Entreprises Nouvelles (EDEN));

Exemption of social charges for 1 or 3 years;

Interest-free loan; 

Regional and municipal aid depending on the local councils rules; 

Local tax exemptions for 2 years;

Tax credit for research and development for Innovative New Enterprises,
and for Academic New Enterprises; and

Certain aids to facilitate employment for e.g. young people or disabled
people.

8.	  HYPERLINK  \l "Q8"  question 8 

The self-employed individuals engaged in business activities in France
are required to pay social contributions that offer social security
coverage. The following social security regimes exist:

A social regime for employees (travailleurs salariés (TS))

Employees are required to subscribe to a health insurance fund, an
industrial injuries fund, an old age pension fund, the child benefit
fund, and a supplementary pension. He may voluntarily subscribe to an
unemployment fund. The subscription premiums are based on the gross
salary. The employer contributions represent about 40% of the gross
salary and the employee contributions represent about 20% of the gross
salary.

A social regime for non-salaried workers (travailleurs non salariés
(NTS))

Non-salaried workers are required to subscribe to the health insurance
fund (Régime Social des Indépendants, i.e. Independent Social Regime),
the child benefit fund, old age insurance, disablement insurance, and a
"whole" life insurance. There is no obligation to subscribe to an
unemployment fund. The subscription premiums are based on the taxable
income before tax deductions. The premiums are linked to the French
social professional categories.

Self-employed individuals are covered by the social regime for
non-salaried workers with respect to both the individual enterprise, and
the EURL. However, in the case of the EURL, if the associate is not the
director, the other regime applies to him (the social regime for
employees (TS)). 

9.	  HYPERLINK  \l "Q9"  question 9 

This uncertainty is addressed through the requirement of selecting an
appropriate legal structure.

10.	  HYPERLINK  \l "Q10"  question 10 

See (9) above.

11.	  HYPERLINK  \l "Q11"  question 11 

After having registered the company (see (12) below), certainty is
obtained with respect to both taxation and social security premiums.

12.	  HYPERLINK  \l "Q12"  question 12 

In order to start business, it is necessary to register with the Trade
and Companies Registry (Registre national du Commerce et des Sociétés,
RCS) to obtain an identification number. A person may self-employed only
if he obtain such identification. In addition, if the activity is
regulated, it may be necessary to comply with special conditions
(diploma, experience, etc.). The identification number is on the RCS
certificate, K-bis.

13.	  HYPERLINK  \l "Q13"  question 13 

A K-bis certificate is a virtual corporate identity card and the only
official legal document that certifies the legal existence of an
enterprise. A K-bis certificate provides information about the
company’s business activity and the identity of the executive
officers, directors and auditors.

germany

1.	  HYPERLINK  \l "Q1"  question 1 

The concept of ZZP is unknown in German tax law. There is no
distinction, for the purposes of tax, between a self-employed person and
a self-employed person "without personnel". Income derived by an
individual who is self-employed generally falls under the category of
independent personal services, regardless of the fact whether or not
that individual employs other persons.

However, it has to be determined whether an individual shall be treated
as self-employed or employed. In the latter case, the income falls under
the category for dependant personal services (employment). Further, a
taxpayer could be classified as self-employed in respect of certain
activities, while being treated as employed with regard to others.

It is difficult to determine whether income from a taxpayer's activities
qualifies as employment income or income from independent personal
services. Although the relevant tax regime for self-employed and
employed individuals is similar (e.g. same tax rates, but minor
differences in computing the taxable income) the determination of the
status is decisive for the contributions to the social security scheme
(see (8) below). Taxes and social security contributions for
self-employed individuals are not withheld at source.

The determination of income falling within the relevant category takes
place per activity. The Income Tax Act does not define the term
"employment income". The main criterion for an activity to fall under
the category of employment income is the existence of a de facto
employer-employee relationship. However, apart from the contractual
relationship between the parties concerned, the tax authorities would
normally take into account the actual facts and circumstances of each
case. Indications for an employment relationship include (1) the fact
that the taxpayer is integrated into a client's business and is bound by
his instructions, and (2) the lack of entrepreneurial risk borne by the
taxpayer. On the other hand, indicators for self-employment include (1)
the fact that the individual works for several clients, (2) the
individual does not have regular fixed working hours, (3) there is no
statutory holiday entitlement, (4) the individual uses his own working
materials, (5) the individual employs his own workers, and (6) the
individual is not supervised by the principal.

The tax authorities take an overall view of all the facts, giving due
weight to the relative significance of various factors, and then
determine the status of the individual. Where an individual has been
wrongly classified as self-employed, the tax authorities are empowered
to reclassify that individual (even with retrospective effect), and
demand from the employer any tax or social security contributions that
should have been deducted during the period of the incorrect
classification.

2.	  HYPERLINK  \l "Q2"  question 2 

As stated in (1) above, the concept of ZZP does not exist in German tax
law.

3.	  HYPERLINK  \l "Q3"  question 3 

As stated in (1) above, there is no special category of “self-employed
without personnel”, however, self-employed persons are taxed under the
normal income tax regime. No special regime exists for self-employed
persons as such.

4.	  HYPERLINK  \l "Q4"  question 4 

As stated in (3) above, the income of a self-employed person is taxed
under the normal income tax regime. The German Income Tax Act provides
the general rules for the taxation of various sources of income.
Resident taxpayers are subject to income tax on 7 categories of income.
These are (1) agriculture and forestry, (2) trade or business; (3)
independent personal services, (4) employment (dependent personal
services), (5) investment of capital (e.g. interest and dividend
income), (6) rental income from real estate or other assets, and (7)
other income, including annuities, private capital gains and, income of
a recurring nature. The income of a ZZP may be classed either (1) as
income from independent personal services, or (2) as trade or business
income.

5.	  HYPERLINK  \l "Q5"  question 5 

The concept of ZZP does not exist in German tax law (see (1) above).
With regard to self-employed persons, as explained in (4) above, the
normal income tax rules apply. The income of self-employed persons may
be classed either (1) as income from independent personal services, or
(2) as trade or business income.

6.	  HYPERLINK  \l "Q6"  question 6 

A determination must be made as to whether the respective activities of
a taxpayer fall under the category of trade or business income or of
independent personal services. Although the same rates of income tax
apply to both categories, individuals deriving business income are also
liable to municipal business tax on their business. The business tax is
levied on a taxpayer's business income and is not deductible for income
tax purposes. A lump-sum credit against individual income tax is
granted, up to the amount of tax due on the business income. 

There are also differences in computing the income from the two
categories. Trade or business income is calculated using the difference
in net worth at the end of the business year and that at the end of the
preceding business year (net worth comparison), subject to adjustments
for items such as capital contributions or other non-taxable receipts.
Furthermore, withdrawals by owners or stockholders and disbursements for
non-business purposes or otherwise unallowable deductions are
disregarded. The Commercial Code and the Income Tax Act require every
business to keep certain books and records, and, at the end of each
business year, to draw up financial statements. Accounting records must
generally be kept for 10 years. 

Income from independent personal services is generally determined
according to the net income method, unless the taxpayers opt for the net
worth comparison method (see above). According to the net income method,
taxable income is computed by reducing the gross income by
income-related expenses in accordance with the cash receipts and
disbursements method.

There is no definition of "independent personal services" in German law.
However, there is a negative differentiation in relation to business
income, according to which any independent and lasting activity
exercised with the intention of earning profit by participating in the
open market, and which does not qualify as professional or agricultural
or forestry activities, is considered as business income. The Income Tax
Act stipulates that income from independent personal services includes
income derived from professional activities, e.g. scientific, artistic,
literary, teaching or educational activities which includes: activities
of state certified engineers, architects or similar professions;
physicians, veterinarians and dentists; attorneys-at-law, patent
attorneys, notaries public, certified public accountants; business
consultants, tax advisors, auditors; photographic reporters and
journalists; interpreters and translators; and other similar activities,
e.g. activities of graduated psychologists; activities of experts;
certain medical services and certain advisory activities in tax and law
affairs. The list of professions is not exhaustive. The main
characteristics of professional activities are that they require high
intellectual input, as well as the attainment of high qualifications.
Also relevant is the fact that these professions are usually subject to
professional regulations. The personal element in the exercise of such
activity is of particular significance.

 

The local chambers of commerce of the federal states publish an  
HYPERLINK
"http://www.frankfurt-main.ihk.de/starthilfe_foerderung/existenzgruendun
g/rechtsfragen/gewerberecht/freie/berufe/index.html"  index , indicating
which professions are considered to fall under the category of business
income, and which are considered to qualify as personal independent
services.

If a professional is assisted by professionally trained staff who do not
possess the qualifications required for that particular profession,
income derived through the assistance of that staff also constitutes
professional income, subject to the proviso that the professional is in
charge of his staff, and is acting under his own responsibility.

Income categories are determined per activity, if it is possible to
identify separate activities. If the business and professional
activities cannot be separated, because they are interconnected or
dependent on each other, the tax authorities would normally take an
overall view of all the facts, giving due weight to the relative
significance of both activities and then decide on a case-by-case basis
under which category the income from such activity falls.

Professional services (e.g. legal services) may also be rendered by
partnerships. However, in this case, all partners must be professionals,
must be in a managerial position, and must personally be responsible for
their work. If one partner of the partnership is not a professional or
is a corporation, e.g. a limited liability company, the income of all
the partners will be categorized as business income.

7.	  HYPERLINK  \l "Q7"  question 7 

As stated in (1) above, the concept of ZZP does not exist in German tax
law. Thus, there are no special tax incentives for ZZPs.

8.	  HYPERLINK  \l "Q8"  question 8 

As stated in (1) above, the concept of ZZP does not exist in German tax
law.

The German compulsory social insurance scheme includes pension
insurance, unemployment insurance, health insurance and nursing
insurance for disability and old age. Employees are subject to the
compulsory social security system. However, the costs are shared equally
between the employer and the employee. The employer withholds the
employee's contribution from wage and salary payments. From 1 January
2008, the monthly rates are applied to the actual monthly income,
subject to a ceiling.

Self-employed persons are not subject to the compulsory German social
security scheme. If they opt to contribute to the scheme on a voluntary
basis, they must pay both the employer's and the employee's part.
However, from 1 January 2009, all individuals should be subject to a
mandatory health insurance scheme.

If self-employed individuals employ personnel, they are liable to pay
contributions into the compulsory social security system for their
personnel, and to withhold the employee's contribution from wage and
salary payments.

9.	  HYPERLINK  \l "Q9"  question 9 

Such uncertainty does indeed exist in Germany. The problems arising from
uncertainty and incorrect classifications may be avoided by obtaining
certainty in advance, as explained in (10) below.

10.	  HYPERLINK  \l "Q10"  question 10 

Before an individual commences his own business, he is obliged to notify
the respective municipality where he intends to set up his business. The
municipality will notify the competent tax authorities, which should
request the taxpayer to submit a form (  HYPERLINK
"http://www.hk24.de/produktmarken/recht_und_fair_play/steuerrecht/anlage
n/Fragebogen_zur_steuerlichen_Erfassung.pdf"  Fragebogen zur
steuerlichen Erfassung ) for the purpose of fiscal registration. After
approval of the form, the tax authorities should provide the taxpayer
with his tax number. During this process, doubts about the qualification
of the taxpayer's activities may be clarified in consultation with the
tax authorities. The same applies to individuals who receive income from
independent personal services. However, they must request the form
directly from the tax authorities without first notifying the
municipality.

Moreover, taxpayers and possible employers may apply to the Federal
German Pension Fund for a formal status ruling concerning the taxpayer's
classification for the purposes of the compulsory social insurance
scheme. Such ruling is binding upon the parties. The request should be
made in writing to the Federal German Pension Fund. The relevant
document for a ruling request is available at   HYPERLINK
"http://www.deutsche-rentenversicherung.de/nn_12376/SharedDocs/de/Inhalt
/04__Formulare__Publikationen/01__formulare/01__versicherung/__DRV__Pake
t__Versicherung__Statusfeststellung.html" 
http://www.deutsche-rentenversicherung.de .

11.	  HYPERLINK  \l "Q11"  question 11 

For tax purposes, the individual may obtain certainty after receiving
the approved form and his tax number from the tax authorities, as
described under (10). As to his status for the purposes of the social
security scheme, he may obtain certainty by requesting a status ruling
from the German Pension fund as described under (10).

12.	  HYPERLINK  \l "Q12"  question 12 

As to how certainty is provided, see (10) above. The taxpayer should
receive a written answer/declaration after requesting a status ruling
for the purposes of the social security scheme. After filing a form for
the purpose of fiscal registration, the taxpayer should be registered
with the tax authorities based on the information he provided.

The tax authorities conduct tax audits on a regular basis. The tax
authorities are empowered to reclassify individuals who have been
wrongly classified as self-employed (even with retrospective effect) and
demand from the employer any tax or social security contributions that
should have been deducted during the period of the incorrect
classification. The statute of limitation is 4 years. However, in case
of fraud, e.g. the employee was intentionally classified as
self-employed, the statute of limitation is 30 years.

13.	  HYPERLINK  \l "Q13"  question 13 

For the legal status, see (10) above.

ireland

1.	  HYPERLINK  \l "Q1"  question 1 

The concept of ZZP is unknown in Ireland. Irish tax law does not
distinguish between an individual who is self-employed with personnel,
and one who is self-employed without personnel. Once self-employment
status has been established, it is immaterial whether or not the
individual employs any personnel.

The term “self-employed” is not defined in Irish tax legislation.
However, the Revenue (i.e. the Irish tax authorities) states that a
self-employed person works “in business on his own account”. The
Code of Practice for Determining Employment Status (see (10) below)
provides for an economic test, namely whether the person is a free agent
with economic independence of the person engaging the service.

The term “employee” is also not defined in the tax legislation.
However, the Revenue have provided some guidance, stating that an
employee is someone who works “under the control of or as part of the
business of another”.

The Revenue cites with approval certain guidelines laid down by the
courts in determining employment status. Under the guidelines, an
individual is more likely to be an employee if he:

is under the control of another person who directs him as to how, when,
and where the work is to be carried out;

supplies his labour only; 

receives a fixed hourly/weekly/monthly wage;

cannot sub-contract the work;

does not supply materials for the job;

does not supply equipment other than the small tools of the trade;

is not exposed to personal financial risk in carrying out the work;

works set hours or a given number of hours per week or month;

works for one person or for one business;

is entitled to sick pay/holiday pay/pension etc;

receives expense payments to cover subsistence and/or travel expenses;
and

is entitled to extra pay or time off for overtime.

The Revenue notes that an individual may have considerable freedom and
independence, and yet be regarded as an employee. In determining
employment status, the Revenue looks at the totality of the
circumstances, i.e. the whole picture. The Revenue states, for example,
that an individual may be classed as an employee despite the fact that
he may be paid by commission, or by piecework, or that he works outside
the employer’s premises. The important thing is to examine the
arrangement as a whole. By the same token, where an individual has more
than one undertaking (e.g. working in two or more places), each
undertaking will be examined separately.

Under the guidelines, an individual is more likely to be self-employed
if he:

owns his own business;

is exposed to financial risk, by having to bear the cost of making good
faulty or substandard work carried out under the contract;

has control over what he does, how he does it, when and where he does
it, and whether he does it himself;

is free to hire other people, on terms of his own choice, to do the work
that he has agreed to undertake;

can provide the same services to more than one person or business at the
same time;

provides the materials for the job;

provides equipment and machinery necessary for the job, other than the
small tools of the trade;

has a fixed place of business where he stores materials, equipment etc;

costs and agrees a price for the job;

provides his own insurance cover e.g. public liability etc; and

controls his own hours of work in fulfilling the job obligations.

The fact that an individual has registered for self-assessment or VAT
does not automatically mean that the Revenue has accepted his status as
self-employed.

2.	  HYPERLINK  \l "Q2"  question 2 

As explained in (1) above, the concept of ZZP does not exist in Irish
tax law.

3.	  HYPERLINK  \l "Q3"  question 3 

As explained in (1) above, there is no special category of
“self-employed without personnel”, however, self-employed persons
are taxed under the normal income tax regime. Self-employed individuals
with and without employees are subject to undifferentiated personal tax
treatment. However, individuals with employees will have to register as
an employer for the purposes of PAYE (see (4) below).

4.	  HYPERLINK  \l "Q4"  question 4 

The trading income of the self-employed is taxed under Case I of
Schedule D in the schedular system, as opposed to Schedule E for
employment income. As a result, a number of differences in tax treatment
arise, one of the most important of which is the application of the
self-assessment system rather than PAYE (which applies to employment
income). PAYE (Pay As You Earn) is the system of withholding whereby an
employer deducts tax and social insurance contributions from the
employee’s salary, and pays this over to the Revenue.

Tax is levied in the same manner on the total income of the employed and
self-employed, and the same bands and credits (with the exception of a
PAYE credit) apply.

5.	  HYPERLINK  \l "Q5"  question 5 

As explained in (1) above, the concept of ZZP does not exist in Irish
tax law. Self-employed persons are taxed under the normal tax rules,
their taxable income being subject to the particular rules of the
Schedule within which it falls (see 4) above. The tax legislation does
not provide for a separate category of income for the self-employed, as
such.

6.	  HYPERLINK  \l "Q6"  question 6 

Ireland operates a schedular system of income tax, so income is taxed
according to the rules of the Schedule under which the particular income
falls. 

Set out below is a list of Schedules under which some of the main
sources of income are taxed:

trading income: Schedule D Case I;

professional income: Schedule D Case II;

interest, annuities and other annual payments: Schedule D Case III; 

rent in respect of land or premises in Ireland: Schedule D Case V; and

employment income: Schedule E.

Schedule D Case IV charges tax in respect of annual profits or gains not
within any other Case of Schedule D, and not charged by virtue of any
other Schedule.

Each Schedule has its own rules on the computation of income, allowable
deductions, and loss relief, etc. A detailed examination of these rules
is beyond the scope of this work.

Where income falls within a particular Schedule or Case, it is taxed
according to the rules of that Schedule or Case. It matters not whether
the income arises to a self-employed individual, or to any other
taxpayer. There is no separate tax regime for the self-employed, as
such. In order to determine the taxing rules for any particular income,
the important thing therefore is to look at the source of the income,
and not at the employment status of the individual.

7.	 HYPERLINK  \l "Q7" question 7 

The concept of “self-employed without personnel” is unknown in Irish
tax law (see (1) above), however self-employed persons enjoy certain tax
advantages not available to employees.

Employees have income tax and PRSI (i.e. social insurance contributions)
deducted at source from their salaries on a monthly basis. The
self-employed are required to pay their income tax and PRSI in two
stages: a preliminary payment of 90% of the tax due at the end of
October of the year of assessment, with the balance due at the end of
the following October. This gives a cash-flow advantage to self-employed
individuals.

Because of the rules on commencement, self-employed people are not
required to pay preliminary tax in their first year of trading or
carrying on a profession.

Self-employed individuals can choose their year-end for taxation
purposes. This can give rise to a significant cash-flow advantage. For
example, if a person makes up his accounts to a date early in the year
(such as 31 January), then he would not have to pay preliminary tax in
relation to that year until 31 October. This is 9 months after the
accounting period has ended, and the money has been earned. The balance
of income tax payable is then not due for a further 12 months.

Employees may only deduct expenses that they are necessarily obliged to
incur and which are wholly, exclusively and necessarily incurred in the
performance of their duties. On the other hand, the self-employed may
deduct expenses that are wholly and exclusively expended for the
purposes of their trade or profession. For self-employed individuals,
therefore, the absence of the word “necessarily” means that they can
obtain certain deductions not available to employees.

The self-employed can avail of capital allowances on equipment used in
the trade or profession (such as computers, software, reference books,
etc.), whereas employees cannot.

Self-employed people can provide themselves with benefits (loans, use of
car etc.) from their business without additional exposure to income tax.
Employees are liable to PAYE and PRSI on all perks or benefits-in-kind
received from their employers, unless there is a specific exemption.
However, there are certain benefits that employees can receive tax-free
(and for which their employer will get a deduction) that the
self-employed cannot claim.

The self-employed generally have more control over their pensions, and
more options on retirement. 

The rates for social insurance contributions differ between the employed
and self-employed (see (8) below).

8.	  HYPERLINK  \l "Q8"  question 8 

Both employed and self-employed persons are liable to pay PRSI
(pay-related social insurance).

The self-employed pay PRSI and levies at the rate of 5% (3% PRSI and 2%
health contribution levy, rising to 2.5% for salaries over EUR 100,000).

The rate for employees is 6% (4% PRSI and 2% health contribution levy,
rising to 2.5% for salaries over EUR 100,000).

There is no income limit for PRSI for self-employed persons, and PRSI is
payable on the full amount of income (as opposed to the first EUR 50,700
for employees). This can give rise to a higher overall PRSI liability
for high earners. If a self-employed individual employs personnel, he
must pay employers’ PRSI of 10.75% on the salary paid (8.5% on income
of EUR 356 per week or less). This does not apply where payments are
made to self-employed contractors.

9.	  HYPERLINK  \l "Q9"  question 9 

Such uncertainty also exists in Ireland. To this end, the Employment
Status Group was launched under the auspices of the Programme for
Prosperity and Fairness. The Group was set up in response to concerns
that individuals were avoiding their correct tax liability by sheltering
under self-employed status when they were, in fact, employees.

10.	  HYPERLINK  \l "Q10"  question 10 

The Employment Status Group (see (9) above) has published a Code of
Practice in Determining Employment Status. The Code of Practice sets out
the various factors to be taken into account in determining the
employment status of taxpayers. These factors were listed in (1) above.
The Code of Practice was updated in 2007 by the Hidden Economy
Monitoring Group. The Code states that its aim is to provide clarity and
eliminate misconceptions. It is not intended to classify as employed,
taxpayers who are genuinely self-employed.

The guidelines set out in the Code of Practice were developed based on
court decisions over the years (see (1) above). Where there is
uncertainty as to the tax status of a taxpayer, further guidance may be
sought from the local Revenue Office or the local Social Welfare Office.
A taxpayer may also seek advice from the Scope Section in the Department
of Social and Family Affairs (DSFW). Where doubt remains, the Revenue
Deciding Officer or the Scope Deciding Officer (as the case may be),
will consider all the evidence, and having established the relevant
facts, will issue a written decision as to the status of the taxpayer.

11.	  HYPERLINK  \l "Q11"  question 11 

A decision by one Department is generally accepted by the other,
provided that all the relevant facts were supplied at the time, that the
circumstances remain the same, and it is accepted that the correct legal
principles were applied to the facts established. However, the Revenue
states that “because of the varied nature of circumstances”, as well
as differing statutory provisions, it may well be the case that
consensus between both Departments may not always be possible.

12.	  HYPERLINK  \l "Q12"  question 12 

See (10) above.

13.	  HYPERLINK  \l "Q13"  question 13 

A taxpayer does not have to accept the decision on his status given by
either a Revenue Deciding Officer or a Scope Deciding Officer (see (10)
above).

A decision by a Revenue Deciding Officer may be appealed to the Appeal
Commissioners. A decision by the Appeal Commissioners may then be
appealed to the courts. 

A decision by a Scope Deciding Officer may be appealed to the Social
Welfare Appeals Office, an independent body dealing with social welfare
appeals. Decisions by this body may be appealed to the High Court on a
point of law.

poland

1.	  HYPERLINK  \l "Q1"  question 1 

The concept of ZZP is unknown in Polish law. There is no distinction,
for the purposes of tax, between a self-employed person and a
self-employed person "without personnel".

Polish tax law, labour law and social law do not use or define the term
"self-employment". When referring to the sources of income derived from
“self-employment” (as opposed to an employment relationship), the
Individual Income Tax Law (IITL) uses the terms (1) "entrepreneurship"
(business activity) and (2) "personally performed professional
activity". As such, the "self-employment" may be carried on either under
entrepreneurship (business activity) or personally performed
professional activity. While entrepreneurship generally implies
employment of personnel, personally performed professional activity is,
by definition, an activity performed by the taxpayer and does not imply
the employment of personnel.

Under the IITL, entrepreneurship is defined as any non-agricultural
business activity, including the activities performed by individual
entrepreneurs (business activity may also have other forms, e.g. civil
law company) carried out on their own account and in an organized and
uninterrupted manner.

Personally performed professional activity includes, inter alia: 

independently performed artistic, literary, scientific, educational,
sports and journalistic activities; 

independent activities of professionals rendered under service
(freelance) contracts, unless these activities qualify as business
activities; 

activities of Polish arbitrators participating in arbitration
proceedings involving non-resident parties; 

activities of members of management committees, boards of directors and
other decision-making bodies of legal entities; and 

activities performed under managerial contracts or other similar
agreements (including managerial contracts concluded by the
self-employed in the framework of their business activities). 

The IITL expressly provides that independent activities of
professionals, such as physicians, dentists, lawyers, engineers,
architects, translators and accountants, are treated as personally
performed professional activities, if they are carried out exclusively
for legal entities, partnerships or entrepreneurs (under service or
similar contracts). If performed by registered individual entrepreneurs,
these activities qualify as business activities.

In addition to significant employment cost savings, employers are not
subject to labour law regulations as a result of entering into a
self-employment relationship with former employees. Due to the common
practice of replacing employment relationships by fictitious
"self-employment", the definition of business activity in the IITL has
been revised. From 1 January 2007, "self-employment" is treated as
entrepreneurship if the following criteria are jointly met:

the taxpayer is not liable to third parties for his performance and the
services/work provided to the customer;

the services/work are performed under the supervision and at the place
and time indicated by the customer; and

the taxpayer does not bear the entrepreneurial risks related to his
business activity.

In practice, from 1 January 2007, the tax authorities may reclassify
taxpayers registered as entrepreneurs (business activity) as
"professionals personally providing their service/work" (i.e. another
form of self-employment - see above). Serious tax (see (3) below) and
social security (see (8) below) consequences may arise for the taxpayer
as a result of such reclassification.

2.	  HYPERLINK  \l "Q2"  question 2 

As stated in (1) above, the concept of ZZP does not exist in Polish law.

3.	  HYPERLINK  \l "Q3"  question 3 

As stated in (1) above, there is no special category of "self-employed
without personnel". However, self-employed persons are taxed under the
normal income tax regime. No special regime exists for self-employed
persons as such. 

4.	  HYPERLINK  \l "Q4"  question 4 

As stated in (1) above, the tax implications of activities performed
under the self-employment status depend on the form of self-employment,
i.e. (1) entrepreneurship (business activity) or (2) personally
performed professional activity under service or similar contracts.

In the case of "entrepreneurship", individual entrepreneurs may opt for
a 19% flat tax rate, as opposed to regular progressive tax rates of 19%,
30% and 40%. The taxable income is calculated under the general rules,
i.e. gross income less deductible costs; however, however, only
mandatory social security contributions are deductible as expenses. No
personal allowance may be claimed and no joint taxation of
spouses/partners is possible. If the individual entrepreneur does not
opt for the flat tax regime, he will be taxed at progressive tax rates,
with the possibility of deducting allowable costs based on actual
expenditures. 

Small-scale individual entrepreneurs, whose prior-year annual income did
not exceed EUR 150,000, may opt for taxation under a simplified regime.
In this case, depending on the type of activity, the tax is levied at
the rates of 20%, 17%, 8.5%, 5.5% or 3%. No deduction of related
expenses is allowed.

Individuals personally providing professional services/work are taxed
under the normal tax regime subject to progressive tax rates (19%, 30%
and 40%). In most cases, lump-sum expenses (20% of income) may be
deducted; higher expenses are deductible based on actual expenditures.
For income from activities of members of management committees, boards
of directors and other decision-making bodies of legal entities and
activities performed under managerial or similar agreements deductible
expenses are the same as for employment income.

If an individual provides services and/or work under various categories,
e.g. under entrepreneurship and a service contract or employment
contract, the income will be taxed separately under each category. If,
for instance, an employee has a separate service contract with the
employer for a given task, which falls out of the scope of his
employment contract, this income will be reported and taxed under a
different category than employment income.

If an individual provides services both under the registered business
activity and a civil contract he will, in principle, be taxed separately
on these two sources of income, unless his "entrepreneurship" fails to
meet the criteria referred to in (1) above and is thus reclassified.

5.	  HYPERLINK  \l "Q5"  question 5 

As stated in (1) above, the concept of ZZP does not exist in Polish law.
With regard to self-employed persons, as explained in (4) above, the
normal income tax rules apply and their income may fall under different
categories.

6.	  HYPERLINK  \l "Q6"  question 6 

See (4) above. To determine the category of income, i.e. whether it is
derived from self-employment (i.e. either entrepreneurship or personally
provided service), or employment, the tax authorities would likely start
with the statutory criteria contained in the IITL (see (1) above). Thus,
the factual circumstances, rather than contractual provisions, are
considered.

7.	  HYPERLINK  \l "Q7"  question 7 

As stated in (1) above, the concept of ZZP does not exist in Polish tax
law. Thus, there are no special tax incentives for ZZPs.

8.	  HYPERLINK  \l "Q8"  question 8 

There are different social security charges imposed on income of
employees, self-employed professionals and individual entrepreneurs. The
most beneficial system applies to individual entrepreneurs, but
self-employed professionals also pay lower social security contributions
than employees.

Employees pay social security contributions on their gross income (as
defined for income tax purposes). Employee's contribution is 13.71%
(9.76% - old-age, 1.50% - disability, 2.45% - sickness and maternity),
whereas employer's contribution is 14.93% (9.76% - old-age, 4.50% -
disability, 0.67% - injury). For old-age pension and disability
insurance, a maximum base (ceiling) applies (PLN 85,290 in 2008, approx.
EUR 23,100).

Self-employed professionals providing services/work on the basis of
service or similar contracts are subject to the same social security
contributions as employees, with the exception of sickness and injury
charges, which they are generally not required to pay. However, due to a
broader definition of the term "employee" for Social Security Law
purposes, professionals providing services/work on the basis of service
or similar contracts concluded with their employers are also subject to
sickness and injury charges.

A significantly different social security system applies, however, to
the individual entrepreneurs acting under the registered business. Their
total social security charges amount to 31.09% (19.52% - old-age, 6% -
disability, 2.45% - sickness and maternity, 2.45% - labour fund, and
0.67% - injury). The assessment base is the amount declared by the
taxpayer, but on a monthly basis the base may not be lower than 60% of
the officially published average monthly salary of the previous quarter
(currently PLN 1,790.39; approx. EUR 530). As a result, high-income
entrepreneurs may be subject to lower social security charges.

Individual entrepreneurs who recently started their business activity
can benefit from a preferential computation base, i.e. 30% of the
minimum monthly salary (currently PLN 337.80, approx. EUR 100) for an
initial period of 24 months. However, this incentive cannot be claimed
if the entrepreneur provides services to his former employer.

9.	  HYPERLINK  \l "Q9"  question 9 

Such uncertainty does indeed exist in Poland. However, the situation has
improved as a result of the inclusion in the IITL of a more precise
definition of business activity in 2007.

Taxpayers may apply to the tax authorities for a private ruling, in
order to clarify their particular situation. Special forms must be
completed by taxpayers and submitted to one of the designated tax
chambers (second tier of tax administration). 

In the request, the taxpayer must present the actual facts or planned
events, put forward the question and give his own opinion on the case at
hand. The private ruling must generally be issued within 3 months of the
date of filing.

From 2007, the tax authorities are no longer bound by their
interpretations. Nevertheless, even in these circumstances, the tax
authorities are not permitted to commence tax proceedings or impose tax
penalties for the periods covered by the ruling, subject to the proviso
that the taxpayer strictly followed the ruling and the factual situation
reflected in the ruling occurred after its receipt.

10.	  HYPERLINK  \l "Q10"  question 10 

See (9) above.

11.	  HYPERLINK  \l "Q11"  question 11 

The rulings are, in principle, issued only with respect to tax matters.

12.	  HYPERLINK  \l "Q12"  question 12 

See (9) above.

13.	  HYPERLINK  \l "Q13"  question 13 

See (9) above.

spain

1.	  HYPERLINK  \l "Q1"  question 1 

The concept of ZZP is generally unknown in Spanish tax law. However, the
new Self-Employment’s Statute Act introduced, from 12 October 2007, a
new category of self-employed individuals, i.e. “financially dependent
self-employed (autonomous) workers” (hereinafter: FDSWs). One of the
requirements for being treated as a FDSW is the lack of any employees.

2.	  HYPERLINK  \l "Q2"  question 2 

A self-employed person is defined as an individual who regularly,
personally and directly carries out an economic or professional
activity, with or without employees, which does not involve other
persons’ organization and management.

FDSWs are defined as persons who regularly, personally and directly
carry out an economic or professional activity, predominantly for one
individual or legal entity (referred to as a "client"), generating at
least 75% of their employment and business income from work performed
for and therefore financially dependent on that client.

Although in its definition of business income the Individual Income Tax
Law refers to "entrepreneurial and professional activities", rather than
“economic and professional activity” (see above), both laws
essentially address the same factual circumstances.

To be regarded as a FDSW, the following cumulative requirements must be
met:

FDSW should have no employees. He should not subcontract all or part of
his activities to third parties. He should carry out his activities in a
manner that could be distinguished from an employment relationship;

FDSW should use his own equipment needed to do the job;

FDSW should be responsible for organization of his work, while following
possible technical specifications received from the client; and

FDSW should receive a consideration for his activity under the terms
agreed with the client, while bearing the relevant risks.

This regime is not available to those who have an establishment or
business premises open to the public, or all those professionals who
carry out their activity jointly with other professionals through a
legal entity or any other kind of legal form recognized by law.

There are no definitions of self-employed and employed for tax purposes;
both concepts are defined in labour law. However, the Individual Income
Tax Law provides for specific criteria for the classification of income
from certain activities as employment income, professional income or
entrepreneurial income. While both professional and entrepreneurial
income are considered as business income, the most important difference
for tax purposes is the obligation to withhold tax in the case of
professional income that does not exist in the case of entrepreneurial
income.

The following activities are deemed to generate employment income,
unless the taxpayer disposes of the means of production and/or human
resources required for the production and distribution of goods or
services:

giving courses, seminars, lectures, etc.;

production of literary, artistic and scientific works, provided that the
author transfers the intellectual property rights;

personal services provided by the founders of a company if they are
remunerated through special economic rights reserved for them;

grants and scholarships when they are not exempt;

humanitarian or social activities promoted by charitable entities; 

activities performed under one of the special labour contracts (i.e.
high management, professional sportsmen, trading representatives,
domestic service, artists in public shows). If the requirements of the
Royal Decrees regulating these special labour contracts are not
fulfilled and the taxpayer organizes by himself the material and human
resources of his activity, the income will be considered as professional
income; The circumstances that indicate the existence of a labour
contract include (1) the use of the premises of the company (even though
the employee can use some of his own resources, e.g. vehicle), (2) lack
of personnel, and (3) the fact that the self-employed follows the
instructions and orders of the company (e.g. timetables, routes, prices
or how to place the orders); and

activities of administrators and member of the board of directors of a
company; the income from these activities is considered as employment
income subject to a special withholding tax rate of 35%, regardless of
the applicable social security regime (see (8) below).

Under the Individual Income Tax Law, professional income includes:

in general, the income derived from the activities included in its
Chapters 2 and 3 and subject to the local tax on economic activities;

in particular, the income derived by, inter alia:

authors or translators of works protected by intellectual or industrial
property rights, subject to exceptions; and

commission agents facilitating the conclusion of contracts; if they also
bear the risks of commercial transactions, their activity is considered
as an entrepreneurial activity.

3.	  HYPERLINK  \l "Q3"  question 3 

There is no special regime for FDSWs as such. FDSWs are taxed under the
normal income tax regime.

4.	  HYPERLINK  \l "Q4"  question 4 

As stated in (3) above, the income of a FDSW is taxed under the normal
income tax regime. Depending on its nature, the income of a FDSW may
fall under the category of employment income, business income, capital
income (passive income, rental income) or capital gains.

5.	  HYPERLINK  \l "Q5"  question 5 

As explained in (4) above, the normal income tax rules apply to the
income of FDSWs; such income may fall under different categories.

6.	  HYPERLINK  \l "Q6"  question 6 

As stated above, it shall be determined whether the relevant activities
of a FDSW fall under the categories of employment income, capital
income, business income or capital gains. The determination takes place
per activity.

In particular, employment income comprises any remuneration, in cash or
in kind, which (1) arises directly or indirectly from the provision of
dependent services by a taxpayer and (2) does not constitute business or
professional income.

Business income is defined as income derived from labour and/or capital,
which involves the organization by the taxpayer of control of the means
of production and/or human resources for the production or distribution
of goods or services. Professional income qualifies as business income
and is computed according to the normal business income rules. However,
salaries or wages derived by an individual who is carrying out his
functions in an enterprise under a labour law contract, and who must
register with the appropriate professional body (e.g. lawyer) is not
treated as professional income, but as employment income. Agricultural
and forestry income constitutes business income and is computed
according to the normal business income rules. All the income from
assets used for business or professional activity falls under the
category of business income; however, capital gains from the disposal of
such assets are taxed separately (see below).

There is currently a tendency for employers to replace employees with
self-employed persons due to the lower costs for the companies (in terms
of social security contributions, unemployment compensations, etc.). The
tax law has addressed this development, and therefore there is a new
specific allowance the amount of which is equal to that provided for
employment income, applicable when the difference between employees and
self-employed is not clear (see (7) below). But it is understood that it
is not up to the tax legislation to stop these situations of extending
the situations of pretended self-employment to labour contracts. The
qualification as employee or as self-employed will be given by the
labour legislation in most of the cases.

There are two different methods for computing business income derived by
FDSW:

Direct computation method

As a general rule, business income or profit is computed in accordance
with the corporate tax rules and the ordinary accounting principles on
the basis of the taxpayer's financial statements (i.e. the so-called
direct method of computation). To this end, a businessman is statutorily
required to keep certain accounting books (depending on the method of
computing net income). The direct method has two different specialties: 

Normal direct method: Under the normal direct method, net income is
computed with reference to the rules applicable to companies. It must be
independently computed in respect of each of the taxpayer's activities.
Net income is the balance of gross turnover (including self-consumption
of goods and any grants or subsidies) less income-related (necessary)
expenses and depreciation of income-related assets.

Simplified direct method: Businessmen and professionals with maximum EUR
600,000 turnover may determine their assessable base under the
simplified tax regime, which involves fewer formal obligations than the
normal direct method. Under this regime, the fixed assets are
depreciated according to the official rates and 5% of the net profits
may be deducted as notional expenses. This notional deduction is not
compatible with the net business income allowance.

Objective computation method

For businessmen and professionals with a small or medium-sized turnover
and whose professions are listed annually in a decree of the Minister of
Finance, a special computation regime based on parameters (estimación
objetiva) is available. Under the computation scheme based on
parameters, businessmen engaged in listed activities (coffee houses,
bars, pubs, 1 and 2-fork restaurants, taxi services, pharmacies and
retail food and drink shops) must determine their net income, separately
for each activity, by reference to the standards set out by the Ministry
of Economy and Finance for the listed activities (e.g. area of premises,
employees, tables, Kw consumption, km driven per year for taxis, gaming
machines, all multiplied by a notional amount per year), unless this
scheme is waived and the taxpayer elects to be taxed according to the
direct method.

The income resulting from the parameters will be lowered applying an
index (0.80, 0.75 or 0.70 according to the population of the city where
the activity is located) if (1) the activity is carried out by an
individual, (2) without personnel, (3) in a single premises, and (4)
with no more than a vehicle which has less than 1,000 kg of maximum
authorized weight.

In calculating net income under either scheme, the taxpayer must exclude
capital gains or losses from assets attached to his business or
professional activity. In addition, income generated over more than 2
years is reduced by 40%.

The tax differences between the different categories of income can be
summarized as follows.

Deductibility of expenses

Business income: According to the direct method, businessmen and
professionals may deduct virtually all duly substantiated and necessary
income-generating expenses, the appropriate allowances for depreciation,
doubtful debts, etc., and the pertinent tax credits for entrepreneurs.

Employment income: The only allowable expenses are: contributions to the
Social Security; dues paid to the trade unions; fees paid to
professional associations when the membership is compulsory, up to a
limit of EUR 500 per year; and the legal expenses derived from
litigation between the employer and the employee, up to a limit of EUR
300 per year.

Withholding taxes

Business income: Trading or entrepreneurial activities are not subject
to withholding tax unless their income is estimated under the objective
method, or the income derives from agricultural, cattle raising or
forestry activities. Professional activities are subject to a 15%
withholding tax on the gross income. The Individual Income Tax
Regulations refer to the classification of the local Economic Activities
Tax to distinguish between trading or entrepreneurial activities and
professional activities. According to this classification, whenever an
activity recognized as professional is carried out through an entity,
with or without legal personality, it has to be considered as
entrepreneurial for the local tax purposes. This is not the case for
Individual Income Tax where if the professional activity is carried out
through certain entities (in most cases without legal personality and
always look-through entities for individual income tax purposes), the
activity is still considered to be professional.

Employment income is subject to withholding tax according to the
personal and family circumstances of the taxpayer. The withholding tax
rate ranges from the minimum 2% to the maximum 43%.

Advance payments

Self-employed professionals and businessmen are required to file
quarterly returns and make advance payments by 20 April, 20 July and 20
October of the current year, and 30 January of the following year. These
advance payments are creditable against the final income tax liability
for the current year. However, self-employed professionals who had at
least 70% of their last year's income subject to withholding are exempt
from this obligation. The statutory maximum of each prepayment is: 

for businessmen and professionals computing their net income under the
direct method, 20% of the difference between income and deductible
expenses relating to the portion of the current calendar year less any
prepayments made for the preceding quarters of the year and, in the case
of professionals, the payments on account and withholding tax for the
quarter in question; professionals whose income is for at least 70%
subject to withholding, are not required to make advance payments; 

for farmers, 2% of the gross turnover in the quarter (excluding current
subsidies) less any related withholdings and payments on account, unless
70% of their income has been the object of withholding (at 1% or 2%,
depending on the case); 

for fishermen, 2% of the gross turnover in the quarter (excluding
current subsidies) less any related withholdings and payments on
account; and

for businessmen (not professionals) computing their net income under the
special scheme based on parameters (objective method):  4% of the net
yield resulting from application of such scheme on the basic figures for
the first day of the year to which the advance payments relate or the
day of commencement of a new business activity or, if this is not
feasible, the immediately preceding year; 3% if they have only one
employee; 2% if they have no employees; and 2% of the gross turnover or
receipts in the quarter in both cases less any related withholdings, in
all other cases.

A negative return must be filed where there is no advance payment to be
made.

7.	  HYPERLINK  \l "Q7"  question 7 

There are no specific tax incentives for the self-employed without
personnel. The incentives for similar categories of self-employed are
stated below.

 

Employment legislation provides for compensation for unemployment in a
lump sum payment if the receiver invests the compensation in starting an
economic activity as self-employed or as a partner of a labour
corporation or of a cooperative. The Individual Income Tax Law exempts
this lump sum up to EUR 12,020, provided that the activity or the
participation in the corporation or cooperative is held for at least 5
years.

The new Individual Income Tax Law, in force since 1 January 2007,
establishes a new fixed allowance based on the net business income (NBI)
for those activities whose net income is determined through the direct
computation method. The final amount cannot be negative. Any unused part
of the allowance is definitively lost. The allowance is the same as that
provided for employment income. The beneficiaries of the allowance are
not exactly self-employed without personnel but a similar kind of
self-employed, because to qualify for the allowance, the following
requirements must be met:

all the goods delivered, or the services rendered, must be made to a
single non-related individual or legal person;

the total amount of deductible expenses corresponding to all the
business activities of the taxpayer can not exceed the 30% of the gross
income;

the taxpayer must fulfill all the formal accounting obligations imposed
by the Individual Income Tax Law;

the taxpayer should not receive any employment income in the taxable
year. If the taxpayer receives unemployment income or any other income
derived from the welfare system, the allowance is still available,
provided the amount does not exceed EUR 4,000 per year;

at least 70% of the income should be subject to withholding tax; and

no business activity should be carried out through an entity subject to
the attribution of profits regime.

If the net income is assessed through the simplified direct estimation
method, the allowance is incompatible with the deduction of the notional
expenses (5% of the net profits).

The allowances are the same as those for employment income: 

taxpayers with NBI up to EUR 9,180: EUR 4,080; 

taxpayers with NBI over EUR 9,180 and up to EUR 13,260: the result of
the following formula: 4,080 - (0.35 x (NBI - 9,180)); and

taxpayers with NBI over EUR 13,260, or with income other than business
income over EUR 6,500: EUR 2,652.

Some Autonomous Communities (Andalucía, Asturias, Castilla-León and
Galicia) have established a specific tax credit for the promotion of
self-employment. The tax credits range from EUR 66 to EUR 1,020 and are
targeted to new enterprising people younger that 35 or 35 years and
women who start a business for the first time.

Beyond the scope of the tax legislation, and in addition to the
possibility of asking for the unemployment compensations in a lump sum
payment (see second paragraph in this section), all those starting a new
activity as self-employed are entitled to the following subsidies within
the Program for the Promotion of the Self-employed Work:

general subsidies subject to an investment in the new activity made by
the beneficiary of no less than EUR 5,000 between the 3 months before
commencing the activity and 6 months after:

EUR 5,000: without any special condition;

EUR 6,000: young unemployed (up to 31 years);

EUR 7,000: unemployed women;

EUR 8,000: handicapped unemployed;

EUR 10,000: unemployed handicapped women; and

in the case of female victims of sexist violence, the amounts are
increased by 10%;

financial subsidy: The amounts are the same as seen above and the
subsidy will be equal to a reduction of 4 points in the interest rates;

technical assistance subsidy: 75% of the cost of the services rendered
with up to EUR 2,000; and

training subsidy:75% of the cost of the courses up to EUR 3,000.

8.	  HYPERLINK  \l "Q8"  question 8 

There is a special regime in the Social Security system regarding the
self-employed or autonomous workers, with or without personnel (Régimen
Especial de Trabajadores por Cuenta Propia o Autónomos, RETA). The
affiliation and the payment of the contributions to this regime is
compulsory. The general contribution rate is 29.80 %. The contribution
rate is applicable on the contribution base chosen by the self-employed,
between a minimum base of EUR 817.20 and a maximum base of EUR 3,074.10.
Different contribution bases apply in case of self-employed older than
49 years. As a general rule, payment for protection in case of temporary
disability is voluntary. If the self-employed decide not to avail of
this protection, the contribution rate is 26.50%. Besides the general
contribution, there is a specific protection regarding industrial
accidents and occupational diseases. This is also voluntary. 

However, the new Self-Employments Statute Act of 2007 establishes that
the FDSW will always have to include and pay contributions for temporary
disability, industrial accidents and occupational diseases. This law
also foresees the possibility of different contribution bases for the
FDSW but the article has not yet been developed.

9.	  HYPERLINK  \l "Q9"  question 9 

The existence of an employment contract (oral or written) and the
affiliation to the general regime of the Social Security identify the
income derived from the activity as employment income. The difference
between employment income and business income may, depending on
circumstances, be difficult to establish. The key element is whether the
taxpayer carries out the activity under independent conditions or under
the organization and direction of another person. The relevant social
security contribution scheme will, in principle, be the criterion to
differentiate between the two kinds of income for tax purposes. If the
person is subject to the Special Regime of Self-employed or Autonomous
Workers (see (8) below), his income will be qualified as business
income. By contrast, if the General Regime applies to the person, his
income will be considered as employment income.

10.	  HYPERLINK  \l "Q10"  question 10 

There are no specific procedures to deal with uncertainty regarding the
taxation of the self-employed and/or employees. Any doubts should be
resolved through the general mechanism of the advance rulings that
taxpayers may submit to the tax authorities. The answer given by the
Administration is binding for the organs and entities in charge of the
implementation and application of taxes.

In relation to Social Security contributions, no specific regulated
mechanism exists to deal with this issue. The existence of an employment
contract that should be registered and the corresponding affiliation to
the General Regime of the Social Security are the elements that
establish the difference between being an employee or being
self-employed.

11.	  HYPERLINK  \l "Q11"  question 11 

See (10) above.

12.	  HYPERLINK  \l "Q12"  question 12 

See (10) above.

13.	  HYPERLINK  \l "Q13"  question 13 

See (10) above.

sweden

1.	  HYPERLINK  \l "Q1"  question 1 

The concept of ZZP is unknown in Swedish tax law. There is no
distinction, for tax  purposes, between a self-employed person with or
without personnel. A taxpayer who is treated as self-employed for tax
purposes is automatically subject to the tax rules applying to that
status. The term “self-employed” is not defined in the law. Guidance
published by the Tax Agency provides that a business activity arises for
tax purposes as soon as an individual taxpayer carries out any form of
business activity. If the business activity is carried out by the
individual in his own capacity, i.e. not by a legal entity, the
individual is taxed on all income from the business under the regular
individual income tax regime. Social security contributions are deemed
to be paid provided that the business income is treated as active, see
(6) below.  In this case, the taxpayer is treated as self-employed and,
therefore, social security contributions are levied accordingly (for
details see (6) below). 

2.	  HYPERLINK  \l "Q2"  question 2 

As stated in (1) above, the concept of ZZP does not exist in Swedish
law.

3.	  HYPERLINK  \l "Q3"  question 3 

As stated in (1) above, there is no special tax regime for ZZPs; their
income is taxed under the normal income tax regime.

4.	  HYPERLINK  \l "Q4"  question 4 

Income from a business activity derived by self-employed individuals is
generally taxed as business income. However, if the income does not meet
the conditions to be classified as business income, it is generally
taxed as either (1) capital income or (2) employment income.

5.	  HYPERLINK  \l "Q5"  question 5 

The concept of ZZP does not exist in Swedish tax law (see (1) above).
With regard to self-employed persons, as explained in (4) above, the
normal income tax rules apply, and the tax laws do not provide for a
separate category of income for the self-employed as such.

6.	  HYPERLINK  \l "Q6"  question 6 

Income is treated as business income provided three conditions are
satisfied: (1) the activity from which the income is derived must be an
independent activity, (2) the activity must be a commercial activity and
(3) the activity must be carried out with the purpose of making a
profit. If one or more of these conditions is not fulfilled, the income
(e.g. independent services income or income from the sale of goods) is
deemed to be employment income or income from capital.

Business income earned by an individual taxpayer may be classified as
either active or passive income depending on the nature of the
underlying activity. . Business income is treated as active if the
taxpayer has participated in the work to a significant degree, which
generally means that he should have worked more than one third of
full-time working hours in the business. This distinction is important
in determining the type of social security contributions the taxpayer is
liable to pay (see (8) below).

The distinction between active and passive income is also of importance
with regard to losses, as a loss corresponding to one source may
generally only be set off against income from the same source (e.g.
active losses may only be set off against active business income).

All business income (active and passive) is earned income and is taxed
accordingly. With respect to active business income, social security
contributions are also levied (see (8) below). Social security
contributions are not levied with respect to passive income. Instead a
special salary tax, currently 24.26%, is levied on passive income. . The
social security contributions are deductible when calculating taxable
business income. Special rules apply to individuals born in 1937 or
earlier. A special deduction is also granted for businesses carried out
in certain regions.

Furthermore, the owner of a business is liable to tax on imputed
interest in respect of the value of his shares in the business. In
addition, income retained in the business is subject to a 28% expansion
reserve tax.

Taxable business income for individuals is calculated according to the
Income Tax Act. Provisions included in other statutes may, however,
affect the computation in some instances (see (13) below).

The following items are, inter alia, taxable as business income:

gains arising on the sale of current assets;

income from professional services such as leasing goods or immovable
property, consultations, etc.;

gains arising on the sale of fixed assets, except immovable property and
shares;

recovery of depreciation and certain other deductions when immovable
property is sold; and

interest and gains from financial assets, such as bank accounts or bonds
if the assets belong to the business.

The following items are excluded from business income and are instead
taxed as income from capital:

gains arising on the sale of fixed assets when the asset is immovable;
and

dividends on shares that are fixed assets.

Expenses incurred for the purpose of acquiring or maintaining business
income are generally deductible.

7.	  HYPERLINK  \l "Q7"  question 7 

There are no special tax incentives for self-employed taxpayers, apart
from those mentioned in (6) above.

8.	  HYPERLINK  \l "Q8"  question 8 

Self-employed persons who are active in a business pay social security
contributions (30.71%) on income derived from their business. These
contributions result in future benefits only to a limited extent and
should therefore partly, and in some cases fully, be deemed to
constitute taxes. Consequently, there is a special complementary tax on
employment and business income in those cases where social security
contributions are not levied. A special social security contribution
(the pension insurance premium) is paid on earned income up to SEK
387,360 (2008): the rate is 7%. This contribution is partially
deductible from earned income (the limitation is linked to a tax credit
of the remaining amount).

The social security contributions for self-employed persons consist of
seven different components (including a general salary tax). Payments
for the retirement pension insurance and health insurance result in
increased benefits. However, those benefits are not computed on income
(i.e. income less the compulsory 7% pension insurance premium) over SEK
360,000; nevertheless, payments must be made on income over this amount.
That means that for income over SEK 360,000, the social security
contributions effectively function as taxes. The other five components
of the social security contributions (including the general salary tax)
always function as taxes. The social security contributions are levied
under the Social Security Contributions Law (SAL) and the Law on General
Salary Contributions.

In addition, self-employed individuals must pay a pension insurance
premium of 7% according to the Law on General Pension Contributions.
This payment results in benefits, i.e. it should not be considered as a
tax. It is computed on net business income, subject to a ceiling of SEK
387,360.

A special salary tax is also payable on deductible pension premiums paid
by self-employed persons in respect of a private pension for either
themselves or their employees. Social security contributions and the
special salary taxes are generally deductible for national and municipal
income tax purposes. They are included in the general income tax
assessment.

9.	  HYPERLINK  \l "Q9"  question 9 

The laws regulating the taxation of income from business activities, as
well as the payment of social security contributions, are fairly clear
(see (8.) above). As regards social security contributions the law makes
a clear distinction between employed and self-employed, and between
active and passive income.

10.	  HYPERLINK  \l "Q10"  question 10 

See (9) above.

11.	  HYPERLINK  \l "Q11"  question 11 

See (12) below.

12.	  HYPERLINK  \l "Q12"  question 12 

The Tax Agency (Skatteverket) issues binding regulations and non-binding
guidelines on how to apply and interpret the legal rules including the
rules on social security contributions. The guidelines are issued each
year. There is however no special procedure for obtaining any specific
declaration.

13.	  HYPERLINK  \l "Q13"  question 13 

See (12) above.

united kingdom

1.	  HYPERLINK  \l "Q1"  question 1 

The concept of ZZP is unknown in UK tax law. There is no distinction,
for the purposes of tax, between a self-employed person and a
self-employed person “without personnel”. A taxpayer who is treated
as self-employed for tax purposes is automatically subject to the tax
rules applying to that status; it matters not whether he employs other
people.

A self-employed person is defined as someone who is “in business on
his own account”. This is a definition that has arisen from case law.
UK tax and social security legislation does not define the term “self
employment”. Case law draws a sharp distinction between a “contract
of service” (i.e. an employment contract) and a “contract for
services” (which indicates self-employment).

The tax regime applicable to self-employed taxpayers differs in part
from that applicable to employees. Notwithstanding that the rates of tax
are the same, certain taxpayers prefer self-employment status, for
example, because of the more generous rules on deduction of expenses.
Also, the capital allowances scheme (under which taxpayers obtain relief
for depreciation of capital assets) is more generous for the
self-employed. In addition, there is a cash-flow advantage for
self-employed persons, as, unlike employees, their taxes and social
security contributions are not withheld at source. Self-employed persons
also enjoy a more advantageous social security regime (see (8) below).
As such, Her Majesty’s Revenue and Customs (HMRC - the UK tax
authorities) are concerned to ensure that taxpayers do not reduce their
tax liability by claiming self-employment status when they are in fact
employees. So even though the concept of the ZZP is unknown in the UK,
special rules apply in order to determine the status of the taxpayer
(i.e. whether employed or self-employed), and also to defeat artificial
schemes set up by taxpayers to circumvent the application of the
employment taxation rules.

It is possible for a taxpayer to have multiple capacities, i.e. he could
be classed as self-employed in respect of a particular undertaking, and
as employed in respect of another. HMRC look to the particular
circumstances of each undertaking in order to determine the exact status
of the taxpayer.

HMRC apply “employment status” rules in order to determine whether
or not an individual is, in actual fact, an employee. They look, not
only at the contract between the parties, but also at what happens in
actual practice. The factors they consider include the following:

whether the individual is required to work at the client’s premises;

whether the individual’s work is supervised by the client;

whether the individual works a set amount of hours;

whether the individual works for other people as well;

whether there is “mutuality of obligation” (i.e. that the engager is
obliged to provide work, and that the worker is obliged to perform it); 

whether the individual provides the main items of equipment needed to do
the job;

whether a fixed price is paid for the services, regardless of how long
it takes;

whether the individual has the right to substitute someone else to do
the work for him;

who bears responsibility for correcting any errors made by the
individual;

whether the individual has the opportunity to profit from sound
management; and

whether the individual is entitled to any benefits, such as holiday pay.

This is not a definitive checklist, and no single factor is
determinative of either employment or self-employment. Rather, following
the decision in Hall v Lorimer 66 TC 349, HMRC must take an overall view
of all the facts, giving due weight to the relative significance of
various factors, and then decide on the status of the individual.

HMRC have also published lists of certain occupations that, in their
view, lend themselves more to self-employed status. A special regime
exists for workers in the construction industry.

Where an individual has been wrongly classified as self-employed, HMRC
are empowered to reclassify that individual (even with retrospective
effect), and demand from the employer any tax or social security
contributions that should have been deducted during the period of the
incorrect classification. For further details on the complications
arising from such a situation see (9) below.

2.	  HYPERLINK  \l "Q2"  question 2 

As stated in (1) above, the concept of ZZP does not exist in UK tax law.

3.	  HYPERLINK  \l "Q3"  question 3 

As stated in (1) above, there is no special category of “self-employed
without personnel”, however, self-employed persons are taxed under the
normal income tax regime. No special regime exists for self-employed
persons as such.

4.	  HYPERLINK  \l "Q4"  question 4 

As stated in (3) above, the income of a self-employed person is taxed
under the normal income tax regime. The Income Tax (Trading and Other
Income) Act 2005 (ITTOIA 2005) provides the general rules for the
taxation of various sources of income. These include rules on the
taxation of trading income, property income, miscellaneous income, etc.
These rules apply to any person carrying out these activities, in
whatever capacity (i.e. whether as a sole trader or as a partnership).
For example, therefore, in the case of a self-employed person carrying
on a trade, he will be taxed under the income tax rules applicable to
trading income. There is no separate category of income for a
self-employed person as such.

HMRC are vigilant to catch taxpayers who claim self-employment status,
when in actual fact, they are employees. The tests applied by HMRC are
set out in (1) above. The issue may arise as a result of a taxpayer or
employer contacting the tax office for advice on the status of the
taxpayer. It may also arise as a result of reviews undertaken by HMRC.
For further details on HMRC reviews, see (10) below.

Apart from the obvious benefits of claiming self-employment status (as
set out in (1) above), taxpayers sometimes seek to avoid being classed
as employees, even though not claiming self-employment status. It is not
so much the tax benefits of self-employment, but rather what some see as
the disadvantages (from a tax point of view) of being an employee. As
such, an avoidance industry grew up whereby taxpayers sought to
circumvent the employment tax rules by offering their services through
an intermediary. Although self-employment was not at issue in these
cases, the tests used to determine whether an individual was employed or
self-employed, have been heavily relied upon by HMRC.

One such area relates to the anti-avoidance rules for “personal
service companies”. The regime targets the situation whereby an
individual provides services to a client through an intermediary in
circumstances where, if that intermediary did not exist, that individual
would be classed as an employee. The intermediary could be another
individual, a partnership, or a company, although more commonly, it is a
company.

The incentive for the taxpayer to operate in this way was to ensure that
he did not have a direct contract of employment with the client. What
commonly happened in practice would be that the taxpayer would set up a
company (“the intermediary”) in which he held all (or almost all)
the shares. The intermediary would then contract with a client to
provide certain services. The individual would provide the services. The
client would pay the intermediary for the services, and the taxpayer, as
shareholder, would extract the payment from the intermediary in the form
of a small salary (so as to use up the tax-free personal allowance), and
substantial dividends.

This arrangement was favourable to the taxpayer as dividends are taxed
at a lower rate than trading or employment income. In addition,
dividends do not attract a national insurance contributions (NIC)
charge, so the appeal is evident. The arrangement was favourable to the
client because it would not have to deduct income tax or social security
contributions, as it would have been required to do had the individual
been working directly for it. It would also not have to pay employers’
national insurance contributions.

The anti-avoidance rule targeted arrangements of this sort by looking at
the actual facts of the case. In doing so, the “employment versus
self-employment” tests are brought into play. The idea is to determine
whether, but for the presence of the intermediary, the individual’s
relationship with the client would be treated as an employment
relationship. In order to determine that, the intermediary is
disregarded, and the tests in (1) above apply in respect of the
individual and the client.

If, after applying the tests, it emerges that the individual’s
relationship with the client appears similar to that of an employee, the
anti-avoidance rules kick in, with the following consequences:

the intermediary (commonly a company) is allowed a flat rate deduction
for overhead costs of 5%;

the intermediary is deemed to have paid a salary to the individual;

the intermediary must account for employers’ national insurance
contributions (NICs) in respect of the deemed salary;

the intermediary must also deduct tax and employee’s NIC in respect of
the deemed salary.

The effect of the anti-avoidance rules is, in many cases, to deem the
worker to have received earnings amounting to 95% of the fees paid by
the client.

In sum, once the anti-avoidance regime is engaged, the normal rules for
the taxation of employment income apply, with the individual being
deemed to be an employee of the intermediary.

5.	  HYPERLINK  \l "Q5"  question 5 

The concept of ZZP does not exist in UK tax law (see (1) above). With
regard to self-employed persons, as explained in (4) above, the normal
income tax rules apply, and the tax laws do not provide for a separate
category of income for the self-employed as such.

6.	  HYPERLINK  \l "Q6"  question 6 

As explained in (3) above, ITTOIA 2005 provides the income tax rules
applicable to different sources of non-employment income. The main
sources of income listed in ITTOIA 2005 are:

trading income (also includes income from a profession or vocation);

property income (UK real property income and overseas real property
income);

savings and investment income; and

miscellaneous income (including receipts from intellectual property,
income from film and sound recordings, certain income from trusts, etc).

If a taxpayer obtains income on a self-employment basis under any of the
above heads of income, he will be taxed according to the rules
pertaining to that income. There are very detailed tax rules that apply
to each category, and the following paragraph contains a very brief
summary in respect of the trading income and property income rules.

With respect to both trading income and property income, the amount on
which an individual is assessed to tax is calculated in much the same
way. Deductions are given for revenue (i.e. not capital) expenditure
incurred wholly and exclusively for the purposes of trade. Capital
allowances are available in respect of capital expenditure incurred for
the purposes of the business. As to some of the differences, a “wear
and tear” allowance is available in computing taxable income from real
property (i.e. property income), but not for trading income. Special
rules also exist in respect of the taxation of lease premiums. Also,
loss relief provisions differ as between trading income and property
income. Trading losses are available for set-off against total income.
They may also be carried back one year for set-off against total income,
and also carried forward indefinitely for set-off against future profits
from the same trade. However, losses from a property business may
generally be carried forward for set-off against profits from that
business. There is also a separate regime for furnished holiday
lettings, some of the rules of which are similar to those for trading
income. However, a discussion of that regime is beyond the scope of this
work.

The determination as to whether an individual is self-employed takes
place per activity. Indeed, HMRC are very clear in stating that the fact
that a taxpayer has been classified as self-employed in one area does
not mean that he will be so classified in every other undertaking in
which he is involved. There is a common misapprehension among taxpayers
that, if a person supplied the bulk of his services to one client in
such a way as would imply an employment relationship, he could
nevertheless avoid being classified as an employee if he took on a few
extra assignments with other clients. However, HMRC have stated that, in
applying the employment status tests, they look instead at all the
activities carried out by the individual. It is therefore possible (and
frequently occurs) that an individual is classified as an employee in
respect of one undertaking, and as self-employed in respect of another.

7.	  HYPERLINK  \l "Q7"  question 7 

There are no special tax incentives for “self-employed without
personnel”, as that concept does not exist in UK tax law. However, a
self-employed person (whether or not with personnel) may take advantage
of more generous deductions than those available to an employed taxpayer
earning the same income. The effect of ITTOIA 2005 s 34 is that a
self-employed person may deduct expenses incurred “wholly and
exclusively for the purposes of the trade”. However, an employee is
subject to a much stricter test. The Income Tax (Earnings and Pensions)
Act 2003 s 336 provides that deductions may be made for amounts
“incurred wholly, exclusively and necessarily in the performance of
the employment”. The presence of the words “and necessarily”
implies greater limitations than those available to self-employed
persons.

As explained in (1) above, there is also a cash flow advantage for
self-employed persons over employees. Also, there is a greater national
insurance contributions (NIC) liability in respect of employees (see (8)
below).

8.	  HYPERLINK  \l "Q8"  question 8 

A different social security regime applies as between employed and
self-employed persons. Self-employed persons are liable to pay Class 2
and Class 4 national insurance contributions, while employees are liable
to pay Class 1 national insurance contributions.

Self-employed persons are liable to pay national insurance
contributions. As stated in (1) above, it is immaterial whether or not
they employ personnel. Obviously, if a self-employed person employs
personnel, he is liable to pay employers’ NICs in respect of their
earnings. He is also liable to deduct and pay over to HMRC, employee’s
NICs in respect of those earnings.

A self-employed person who has no personnel is liable for his own NIC
payments. As stated above, self-employed persons are liable to pay Class
2 NICs and Class 4 NICs. Class 2 NICs are calculated at a fixed weekly
rate. The rate for the 2008-09 tax year is GBP 2.30 per week. Class 2
NICs provide access to incapacity, maternity, and long-term benefits.

Class 4 NICs are calculated based on the amount of profits made by the
self-employed person. Profits between GBP 5,435 and GBP 40,040 are taxed
at 8%, and amounts over that, at 1%.

Employees are subject to Class 1 (Primary) NICs. The first GBP 5,435 is
tax-free. Amounts between GBP 5,435 and GBP 40,040 are taxed at 11%, and
amounts exceeding that, at 1%.

The NIC implications of employment do not end with the employee’s
liability. Employers also pay NICs on behalf of their employees. With
regard to salary, employers are liable to pay Class 1 (Secondary)
Contributions. The rate is 12.8%. With regard to benefits-in-kind,
employers are liable to pay Class 1A Contributions. The rate is also
12.8%.

The NICs paid by self-employed are lower than those arising from
employment, especially when one takes into account the employer’s
contribution. On the other hand, employees’ NICs lead to social
security entitlements, while Class 4 NICs do not. In this respect, Class
4 NICs are, in effect, an additional tax. Also, one must not overlook
the Class 2 NICs paid by self-employed persons.

It is clear from the above that self-employment status would be very
attractive from a NIC point of view. However, HMRC have been relentless
in resisting attempts by taxpayers to claim self-employment status for
this reason.

9.	  HYPERLINK  \l "Q9"  question 9 

Such uncertainty does indeed exist in the United Kingdom. See (10) below
for an explanation of how HMRC (the UK tax authorities) deal with
uncertainty in employment status matters.

The consequences of uncertainty (and of an incorrect classification) can
be dire, as testified to by the facts in Demibourne Ltd v Revenue and
Customs Commissioners [2005] UKSPC00486 (23 June 2005). Mr Bone was
employed by Demibourne’s organisation (a hotel) until April 1993 when
he turned 65. The hotel’s policy was for employees to retire at 65,
but as both parties wished to continue to work together, Mr Bone was
re-engaged to carry out the same duties, but on a self-employment basis.
Mr Bone then began to pay his income tax on a self-assessment basis, and
the hotel did not withhold any income tax or national insurance
contributions on his behalf. This arrangement continued until 2002, when
a compliance officer conducted a review and concluded that Mr Bone was
an employee. At that point, the hotel reclassified Mr Bone as employed
and began deducting tax and national insurance contributions. HMRC then
issued a determination in respect of the income tax that the hotel
should have withheld from Mr Bone’s salary for the period between 1993
and 2002, as well as for employers’ secondary NICs.

The hotel argued before the Special Commissioner that its tax bill (in
respect of the income tax it should have deducted) should be reduced by
the self-employed tax paid by Mr Bone during those years. However, the
case highlighted the fact that HMRC do not have the discretion to
transfer from the employer to the employee the liability to deduct and
pay income tax. The legislation was clear that, save in narrow
exceptions, this responsibility lay with the employer. The problem
highlighted by Demibourne was that there was nothing to stop a person,
who had been mistakenly classified as self-employed, from claiming back,
on the grounds of “error or mistake” (and within the stipulated time
limits) the tax he had paid as a self-employed person. The employer
would be left with no remedy; it would have to pay to HMRC the tax it
had failed to withhold, but would be unable either to receive a credit
in respect of the self-employed tax paid by the employee (which the
employee could already have reclaimed under “error or mistake”), or
to require reimbursement from the employee.

The Government has addressed the Demibourne problem by issuing
regulations that grant to HMRC, in such cases, the authority to transfer
the liability from the employer to the employee. However, as these
regulations are relatively new, there is not much guidance on how they
will work in practice.

The Demibourne issue relates only to the income tax liability. In
respect of social security contributions, HMRC already have power to
offset self-employed NICs against employees’ NICs. So, if an
individual was wrongly classified as self-employed, and paid both Class
2 and Class 4 contributions, these can be credited against the employee
NICs that would be payable when he is later reclassified as an employee.

The problems arising from uncertainty and incorrect classifications can
be averted by making obtaining certainty in advance, as explained in
(10) below.

10.	  HYPERLINK  \l "Q10"  question 10 

Taxpayers may apply to HMRC for a formal status ruling if they are
unsure of their classification for tax purposes. In giving a ruling,
HMRC are bound by the terms of their Code of Practice 10. COP 10 sets
out the circumstances in which HMRC will give information or advice.

The request should be made in writing to the relevant tax office. HMRC
have employer compliance staff (and Status Inspectors) who can advise
taxpayers on their proper classification. These officials are based in
local tax offices, and the taxpayer will typically contact his local tax
office in order to obtain their contact details. After furnishing all
the facts about the situation, the taxpayer will be given a written
opinion about his status. This opinion is not binding on the taxpayer;
the taxpayer does not have to agree to it. HMRC will reconsider their
opinion if the taxpayer furnishes them with relevant additional
information. Where an affected party does not agree with HMRC’s
opinion, that party may appeal to the Commissioners.

HMRC guidance provides that HMRC officials should treat as binding on
HMRC a written opinion which they had previously given, except where it
can be shown that the information provided was misleading and/or
incorrect, or that the facts have changed materially since that opinion
was given. If HMRC give an opinion that is technically incorrect, they
would consider themselves bound by it for the past, but would seek to
change it for the future.

HMRC state that they are not bound on the status of an individual simply
on the basis that that person has:

registered for VAT;

made returns assuming self-employment;

applied and been accepted to pay self-employed NICs, or

received a decision from an Employment Tribunal.

HMRC officials frequently conduct Employer Compliance Reviews in respect
of selected businesses etc. There are detailed procedures that HMRC must
follow. Issues relating to wrongly classified individuals are often
identified during such reviews. Following a review, an official may give
a written ruling (known as an “opinion”) on the status of the
individual. The opinion must cover both the tax and NIC aspects of the
case. In some cases, an individual may be classified one way for tax
purposes, and another way for NIC purposes (see (11) below).

A person wishing to hire someone for services may present the written
contract to a status officer for advice on whether it is a contract for
services (therefore indicating self-employment). In such a case, the
status officer may give an opinion, but he must qualify it with the
following statement:

“My view assumes the written terms reflect the true arrangements. If
the contract is not fully acted upon in practice or there are other oral
or implied conditions which have not been presented to me, my opinion
may be modified. As part of its normal compliance activities, HMRC
reserves the right to check that the working arrangements are as set out
in the contract.”

Such a statement may not be given if the status officer is presented
with a draft contract. He may also not give advice where an employer is
seeking to change the status of existing employees.

HMRC have published an   HYPERLINK
"http://www.hmrc.gov.uk/manuals/esmmanual/index.htm"  Employment Status
Manual  for use by its inspectors and officers in determining employment
status. It provides guidance for HMRC officials engaged in employment
status work, and covers topics such as how to conduct fact-finding, the
importance of contracts, the application of the “in business on their
own account” test, and also the factors mentioned in (1) above that
indicate either employment or self-employment. Although the Manual is
addressed to tax officials, it is very helpful for taxpayers and tax
advisers as it gives a good indication of the reasoning of HMRC. There
has, however, been criticism of the Manual on the grounds that it is
selective in content. The Manual contains discussion of relevant case
law, but the observation has been made that some important cases
favourable to the taxpayer have been omitted from the Manual.

If it is found that someone has been wrongly classified as
self-employed, when in actual fact, he was an employee, HMRC will issue,
using a   HYPERLINK
"http://www.hmrc.gov.uk/manuals/esmmanual/esm0110.htm"  standard form of
a written opinion , determinations in respect of the income tax and
social security contributions that should have been deducted at source,
as well as for the employers’ social security contributions that
should have been paid.

11.	  HYPERLINK  \l "Q11"  question 11 

Such certainty can be obtained in respect of both taxation and social
security issues. HMRC are empowered to make a decision as to the status
of an individual for taxation and NIC purposes. In fact, when HMRC give
a status opinion, it must cover both the tax and NIC aspects of the
case. Such a decision may be challenged before the General or Special
Commissioners. In deciding whether an individual is employed or
self-employed for NIC purposes, the same considerations apply as in
deciding the question for tax purposes (see (1) above). For example, the
lists of occupations used by HMRC to indicate self-employment status for
tax purposes (see (1) above) are also used to indicate the same for NIC
purposes. Affected individuals may appeal against these lists.

Under the Social Security (Categorisation of Earners) Regulations 1978,
SI 1978/1689, individuals performing particular services are categorised
as employees for NIC purposes, irrespective of whether they have
contracts of employment, or are chargeable to employment income tax.
These include: office cleaners, certain kinds of agency workers,
ministers of religion, and certain actors, musicians and other
performers. The regulations also provide that, in certain cases,
examiners, moderators and invigilators be treated as self-employed.

It is therefore possible for an individual to be classified differently
for tax and NIC purposes.

12.	  HYPERLINK  \l "Q12"  question 12 

As to how certainty is provided, and the possibility for a taxpayer to
obtain a declaration, see (10) above.

It is worth mentioning, at this point, the Employment Status Indicator.
The Employment Status Indicator (ESI) is an online tool provided by HMRC
to help taxpayers determine their status. It can be found at   HYPERLINK
"http://www.hmrc.gov.uk/calcs/esi.htm" 
http://www.hmrc.gov.uk/calcs/esi.htm . The ESI is intended to relieve
the administrative pressure on HMRC to provide formal rulings. The idea
is that it should provide adequate guidance in straightforward cases.
The ESI may be used by workers wishing to determine their status, as
well as by persons wishing to hire them. It may be used in relation both
to current and future engagements. In determining whether an individual
is employed or self-employed, the ESI asks questions about the nature of
the business, the trade of the worker, as well as some of the questions
referred to in (1) above. When all the questions have been answered, the
ESI gives a conclusion on the status of the worker, together with
reasons for that conclusion. The ESI does not provide a conclusive,
legally binding decision, but rather an indication of employment status.
It was HMRC’s intention to provide, at some point in the future, the
ability for the ESI to give legally binding conclusions. However, for
that to be possible, the tool would need to capture the personal details
of the affected taxpayer, and it does not yet have that functionality.
Some tax experts have suggested caution in using the ESI, because the
results effectively accord with HMRC’s view, which is, of course, open
to challenge. In addition, there has been criticism that HMRC give undue
weight to certain factors, and this may not lead to an accurate result.
As HMRC’s classification can be challenged by a taxpayer, this must
mean that the tool should not be the last word in classification issues.
The ESI is also not appropriate for certain cases, such as agency
workers (uitzendbureau). Notwithstanding the ESI, HMRC specialist staff
(i.e. employment compliance staff) continue to provide advice on a
case-by-case basis.

13.	  HYPERLINK  \l "Q13"  question 13 

For the legal status of HMRC’s opinions, see (10) above. For the legal
status of results given by the Employment Status Indicator, see (12)
above.

July 2008                              Tax treatment of self-employed
without personnel - Country Surveys



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