The mini tax bill is coming to Parliament: What changes in income tax declarations

The new tax bill set to be introduced to Parliament at the start of the week includes a package of interventions with new tax exemptions for businesses and households, elimination of the business levy, changes to income imputation for freelancers, a tax-free limit for tips, as well as discounts and bonuses on real estate, income, benefit, and insurance taxation. It also involves changes to the income tax filing process.

With these changes, a fixed timetable for filing tax returns will be implemented from 2025:

– For individuals and legal entities, submissions will begin on March 15 and close on July 15, putting an end to the tradition of last-minute extensions. To ensure this, fines of up to €2,500 will be imposed, payable out-of-pocket by the managers or other responsible persons of entities and organizations that delay or submit incorrect data necessary for tax return completion.

– A scaled discount of 2%-4% will be established for lump-sum payment of income tax, depending on the timing of the tax return submission: those filing first, from March 15 to April 30, and paying the full tax by July 31, will receive a 4% discount. If submitted from May 1 to June 15, the discount is reduced to 3%, and to 2% for “last-minute” taxpayers who file between June 16 and July 15.

Additionally, the list of interventions in this bill covers:

1. Freelancers:

– Elimination of the business levy for freelancers and employees with “freelance invoicing”: for individuals, the levy is removed two years earlier than originally planned. It remains in place only for companies, with an expected elimination date of 2027.

– A 50% reduction in the minimum imputed income for individuals—self-employed professionals and sole proprietorships—operating in areas with up to 1,500 residents. This discount covers 87% of municipal districts in the country. Currently, the 50% discount applies only to those headquartered in villages with populations of up to 500, or islands with up to 3,500 residents.

– A change in the criteria for the maximum employee salary that increases the imputed income of the employer. Currently, the salary of the highest-paid employee is used as a base in the initial calculation of imputation. Now, the imputation comparison will occur at the end, after accounting for other criteria (wages and turnover), benefiting thousands of professionals by preventing increases in their imputed income.

– An increase in the average turnover threshold of the NACE code, limiting the 5% increase imposed on minimum taxable income for those exceeding this threshold.

2. Property Owners:

– A three-year exemption from income tax on rental income for those who “open up” unused properties or convert short-term rentals to long-term. A primary condition is that the property must be vacant according to E2 data or have been in short-term rental for at least three years, be no larger than 120 square meters, and be owned by individuals, not businesses. The relief for an owner with a monthly rent of €1,000 would be €1,800 annually or €5,400 over three years, while with a monthly rent of €1,660, the annual benefit would be €4,600.

– Doubling the ENFIA (property tax) discount from 10% to 20% for owners of residences worth up to €500,000 who have insured their property against natural disasters (earthquake, fire, flood). For insured homes valued over €500,000, the ENFIA discount remains at 10%, while those not insured for natural disasters by June 1, 2025, will not be eligible for state compensation for damage from natural events.

– Extension of the VAT suspension on property transfers until the end of 2025. For a newly built home valued at €200,000, the purchase cost with a 24% VAT would be €248,000. With the suspension, only a 3% transfer tax applies, so the buyer would pay €206,000—€42,000 or 17% less.

3. Card-Based Tips:

For the first time, a tax-free allowance for tips up to €300 per month is established, given that Supreme Court rulings recognize them as income, meaning they are currently taxable without a specific exemption. Practically, this measure applies to tips paid via POS, as cash tips are not recorded unless declared by employees themselves. The provision will cover employees in businesses such as restaurants, hair salons, and beauty salons—not, for example, casinos or those receiving bonuses from their companies.

In addition, tips will be fully exempt from social security contributions. The €300 limit applies monthly and will take effect immediately for tips received from November 1, 2024, onward. However, there will be disincentives and a 22% penalty for employers who might attempt to artificially lower salaries by “labeling” them as tips.

4. Households:

– A 15% tax exemption on health insurance premiums for children’s policies. In cases of family or group policies, the tax is reduced proportionally based on the number of covered minor dependents.

– Separate taxation at a 22% rate for on-call hours worked by National Health System (NHS) doctors: according to Finance Ministry estimates, this will bring an average net benefit of €150 per month to beneficiaries, or more than €200 in many cases.

– Income tax exemption for financial assistance from employers to new parents, up to twelve months after the birth of a child, and up to €5,000 annually (increased by an additional €5,000 for each dependent child).

– Tax exemption on vouchers for nurseries provided by businesses to their employees.

5. Businesses:

Changes are foreseen in incentives for mergers and increased deductions from gross business revenue for scientific and technological research expenses, from the current 200% to:

– 250% for collaboration projects with startups and/or research centers,
– 300% for knowledge-intensive SMEs (R&D expenses >20%),
– 315% for knowledge-intensive SMEs that exceed the average of the corresponding expenses for the previous two years.

Furthermore, the incentive for commercial patent exploitation is expected to expand: currently, a three-year tax exemption applies to related profits. Under the new arrangement, a 10% reduction in income tax will be established for an additional seven years after the three-year exemption ends.

Expansion is also expected for tax incentives for angel investors: currently, a 50% deduction from the taxable income of investor-taxpayers is provided for capital invested in startups registered with the National Startup Registry, up to €300,000. With the new arrangement, the maximum limit will increase to €900,000.

Finally, provision is made for the transfer of tax losses of transforming businesses, while the 30% tax exemption on profits is extended, reducing the minimum capital threshold for the new company resulting from a collaboration/transformation to €100,000, down from the current €125,000.

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