Organised or Simplified Accounting: Which One to Choose?

Rauva's Tip: To determine the best-fit regime for your business, consider hiring a certified accountant. This ensures compliance with all legal requirements set by the Tax Authority.

In this article, we will explain what organised and simplified accounting entail, highlight the main differences between them, and help you decide which tax regime suits your needs. Read on to learn more!

What is the Simplified Accounting Regime?

> "At the start of an activity, all taxpayers fall under the simplified regime, provided their estimated annual gross income in category B does not exceed €200.000, and they do not opt for organised accounting.

> The simplified regime also applies to taxpayers whose annual gross income in category B for the previous taxation period did not exceed €200.000 and who did not choose organised accounting, i.e., income determination based on accounting."

What Is Organised Accounting?

Organised accounting is a more complex tax regime that demands detailed and rigorous accounting practices. It is primarily intended for freelancers and sole proprietors with annual revenues exceeding €200.000, and for freelancers and sole proprietors engaged in commercial or industrial activities.

Rauva's Tip: Consider opening a separate business account to distinguish personal and business finances.

Under organised accounting, you can deduct expenses such as travel (own vehicle, fuel, meals, accommodations), bank loans, certified accountants, and depreciation and amortization of computer equipment, among others.

Key Differences Between Organised and Simplified Accounting

The primary distinctions between organised and simplified accounting involve profit calculation methods and accounting complexity. In the simplified regime, profit is determined in a straightforward manner based on a predefined percentage, while organised accounting considers revenue and expenses.

Another significant difference is that the simplified regime has an annual revenue limit of €200,000, and businesses cannot engage in commercial or industrial activities. In contrast, organised accounting has no revenue limit, and freelancers/sole proprietors can operate in any economic sector.

It's important to note that organised accounting mandates the use of a certified accountant.

Does Organised or Simplified Accounting Make Sense for You?

As a rule of thumb, larger businesses tend to benefit from organised accounting. Freelancers and sole proprietors with annual revenues up to €200,000 and lower profit margins may find the simplified regime advantageous as it simplifies accounting and reduces the tax burden.

For freelancers and sole proprietors with annual revenues exceeding €200,000 and higher profit margins, organised accounting is mandatory. This regime allows for more detailed and rigorous accounting, facilitating efficient financial control and strategic management.

Can You Change Tax Regimes at Any Time?

In this case, you will remain in your chosen regime until you decide to make a change. For example, if you initially opt for the simplified regime, you can switch to organised accounting in any subsequent year. This flexibility allows you to assess the advantages and disadvantages of organised accounting as your business evolves.

Please note that if you wish to transition to organised accounting, you must submit a change of activity declaration by the end of March, which will take effect from January of the following year. However, this transition is automatic if your gross income exceeds €200,000 for two consecutive years or surpasses €250,000 in a single year.

Conversely, if you are already under the organised accounting regime and want to switch to the simplified regime, no action is required. The Tax Authority will automatically make this change if the gross annual income from category B of IRS falls below €200,000.

In summary, selecting the right tax regime is crucial for your business's success. Therefore, carefully consider your business's characteristics to determine whether organised or simplified accounting is the best fit.

Remember you can change your tax regime at any time, but certain legal conditions must be met. To make this decision, seek assistance from a certified accountant who can conduct a thorough analysis of your business and recommend the most suitable tax regime for your situation.