The Parliament recently approved a new law (1) amending the calculation method of social security contributions for the self-employed. The new legislation will enter into force on 1 January 2015.
1. The current system
Self-employed workers pay their social security contributions to the social insurance fund on a quarterly basis. These contributions are calculated on the net professional income earned in the third calendar year preceding that during which the contributions are paid (N(reference year)-3). The net professional income equals the gross income after deducting professional expenses and losses. New self-employed workers, which lack a reference year, pay contributions on a provisional basis. The social security contribution amount is thus not related to the actual income from the year in which the contributions must be paid.
2. The new system as from 1 January 2015
The law’s purpose is to immediately align social security contributions to changes in professional income of self-employed workers. The contributions will thus be based on the net income earned during the same year (N).
As social security contributions are calculated on the net professional income, which is only known after the tax declaration has been submitted to the tax authorities (N+1), social contributions remain provisionally paid. Provisional contributions are calculated based on the 3rd preceding year’s indexed income. Regularisations will follow in year N+1.
However, the new law allows self-employed workers to adjust the amount of social security contributions during the contribution year, taking their actual income on payment date into account.
Self-employed persons could pay higher or lower social security contribution amounts depending on whether they earn more or less than in year N-3. Formal approval by their social insurance fund is required if they are to pay less.
As soon as the net professional income is known, the exact amount of social security contributions will be calculated and adjusted where required.
3. Conclusion
The new law allows self-employed workers to base their social security contribution amounts on their actual final situation on payment date, consequently allowing them to reduce their provisional social contributions if their income has dramatically decreased.
