Social-security contributions, explanations and calculation
On 1 January 2015, the method for calculating the social-security contributions of the self-employed was reformed for ALL the self-employed! Starters and established self-employed.
Henceforth, the self-employed will pay yearly contributions based on income for this same year.
This is done in two stages.
The starter pays his/her contributions based on a statutory minimum income or based on higher income that he/she declares himself/herself.
The established self-employed person (after the first three years) will automatically receive a provisional contribution based on his/her (indexed) income from three years ago.
He/she may decide:
- to accept this proposal,
- to pay more, if he/she considers that his/her income for this year will be greater than it was three years ago,
- request to pay less, if he/she estimates that his/her income has dropped. For this, he/she must present his/her fund with a dossier that proves, based on objective elements, that his/her income for this year is less than it was three years ago. The fund will consider the dossier. There is no free choice of reduced income because he/she can only contribute based on minimums which are defined for his/her category (full-time self-employed, part-time,…).
Example: A full-time self-employed person will have no choice but to contribute on income of €12,870.43 or €25,740.86 (2014 figures). It is that or nothing…
Two years later, the fund receives notification of income from the tax administration. It will then make the definitive calculations and will claim or reimburse the difference.
A self-employed person who has contributed the amount that his/her fund initially requested will not pay any penalties relating to the adjustment, if he/she has to top up the contribution. Neither will he/she receive any interest on amounts over-paid that the fund will reimburse.
However, watch out for the situation where a self-employed person has requested and obtained a reduction if it proves, two years later, that he/she nevertheless earned more. He/she will pay penalties of 3% per quarter from the year following the provisional contributions +7% at each overrun of a 31 December.
An example will illustrate the latter case:
A self-employed person receives an invitation to pay a provisional contribution of €2200 per quarter, based on his/her indexed income 3 years ago.
He/she requests a reduction on the double floor (€1,400) and he/she pays it on time.
Two years later, it turns out that he/she has income greater than the double floor and he/she should have paid €1,800 per quarter.
After a detailed calculation, he/she owes €1,600.
Given that he/she wrongly requested the reduction of the double floor, he/she will pay penalties of €448.
Rate of social-security contributions.
From 2018, the rate of social-security contributions stands at 20.50% on net professional income (after deducting professional expenses).
Good advice for the self-employed: “Determine your income with your accountant around the months of November – December and make a free payment if necessary.” (Even if you have obtained a reduction)