Tax incentives for sole traders

If you are a sole trader paying income tax on a direct assessment basis and your annual turnover is less than ten million euros, when you file your income tax return for 2023 you will be able to apply the incentives provided for in Corporation Tax (IS) for small companies.

Freedom of depreciation

Freedom of depreciation allows you to depreciate more than you could apply according to the maximum coefficients in the depreciation tables. To benefit from this incentive, there must be an increase in the number of employees. For example, if you acquired any new assets last year, you can apply freedom of depreciation up to €120,000 for each employee with whom you increase your average workforce between 2023 and 2024 (compared to your workforce in 2022).

Accelerated depreciation

You may also depreciate your new assets according to the percentage resulting from multiplying the maximum coefficient in the tables by 2. If you are taxed under the simplified direct assessment method (because your turnover does not exceed €600,000), the maximum coefficients on which you will have to calculate the accelerated depreciation are those provided for in the simplified depreciation table applicable to this regime, and not those in the table applicable to corporation tax.

Impairment

On the other hand, even if there have been no defaults in 2023, 1% of your customer balance as at 31 December may be deducted as impairment (the same as for public limited companies and limited companies that are SMEs). If 2022 already accounted for this impairment, in the 2023 income tax return, 1% of the variation in this balance may be accounted for (it will be an expense if the balance has increased, and income if it has decreased).

Differences between incentives for SMEs

However, there are differences between some incentives for SMEs that can be applied depending on whether you are a sole trader or an S.A. or S.L.

If you have acquired any new assets in 2023, you can apply a deduction to your income tax liability of up to 5% of this investment. This deduction does not apply to public limited companies (S.A.) and limited companies (S.L.).
Levelling reserve. By applying the levelling reserve, you can reduce your tax base by up to 10%. This incentive only applies to small public limited companies (S.A.) or limited companies (S.L.). As a sole trader, you cannot apply the levelling reserve.