The DAC 7 directive, a significant legislative measure introduced by the European Union, is set to impact the gig economy and digital services landscape profoundly. This directive aims to enhance tax transparency and prevent tax evasion by introducing stringent reporting requirements for digital platforms. In this article, we will explore what DAC 7 means for freelancers, content creators, and other specialists, and how they can navigate these new regulations.
What is DAC 7?
The DAC 7 directive, short for the Seventh Directive on Administrative Cooperation, mandates that digital platforms report detailed information about their users’ transactions to tax authorities.
Key Features
- Part of the EU’s broader strategy to ensure fair taxation in the digital economy.
- Aims to close gaps in tax compliance.
- Comprehensive reporting obligations for digital platforms.
- Covers a wide range of data points and activities.
Who is Affected by DAC 7?
Digital Platforms
Under DAC 7, digital platforms facilitating activities such as the sale of goods, provision of services, rental of immovable property, and more are required to report user information.
Professionals
This directive affects a broad spectrum of professionals, including:
- Freelancers
- Content creators
- Influencers
- Online tutors
- Gig workers
Key Provisions of DAC 7 for Freelancers and Content Creators
Reporting Requirements
Digital platforms must now collect and report specific information to tax authorities, including:
- Identification information of the user.
- Details of earnings and payments.
- Account details and transaction history.
Compliance Obligations
Freelancers and content creators must ensure that the information reported by these platforms is accurate. This may involve:
- Regularly updating personal and business details on platforms.
- Keeping detailed records of all transactions and earnings.
- Being prepared for potential audits or inquiries from tax authorities.
Relevant Activities in DAC 7
Sale of Goods
Platforms like eBay, Amazon, and StockX that facilitate the sale of goods must report transactions and earnings of sellers.
Example: An individual selling vintage items on eBay needs to be aware that their transactions will be reported if they surpass the reporting thresholds.
Provision of Services
Platforms like Upwork, Fiverr, and other freelance marketplaces must report the earnings of service providers.
Example: A graphic designer offering services on Fiverr; their income and transaction details will be reported to tax authorities.
Rental of Immovable Property
Platforms like Airbnb must report income generated from property rentals.
Example: An Airbnb host renting out their property will have their rental income reported, regardless of the amount.
Rental of Movable Property
Platforms facilitating the rental of vehicles, equipment, or other movable property must report user transactions.
Example: Someone renting out cameras on a platform like Fat Llama will have their earnings reported.
Personal Services
This includes services such as tutoring, consulting, and other personal services offered through platforms like Udemy or Coursera.
Example: An online tutor on these platforms will have their course payments reported if they exceed the thresholds.
Benefits of Self-Employment
Tax Deductions
As a self-employed individual, you can deduct business-related expenses from your income, potentially lowering your taxable income. This can include costs like:
- Internet
- Office supplies
- Software subscriptions
- Separate Financial Management
Keeping your freelance income separate from your salaried income can simplify tax reporting and financial management.
Professional Credibility
Operating as a self-employed professional can enhance your credibility with clients and open up more opportunities for higher-paying projects.
Individual Tax Identification Number (TIN)
Choosing the Right TIN
When registering on platforms like Fiverr, they typically require you to provide a tax identification number appropriate to your legal status and location. Here’s how to proceed:
- Individual Freelancer: If you operate as an individual freelancer without a formal business entity, provide your personal TIN (e.g., SSN, NINO, or equivalent).
- Registered Business Entity: If you operate under a registered business entity (e.g., LLC, corporation), provide the corresponding business TIN (e.g., EIN, company registration number).
Tax Reporting and Privacy
- Tax Reporting Requirements: Income earned from platforms like OnlyFans is taxable income and should be reported to your country’s tax authorities according to your local tax laws. Digital platforms may report earnings to tax authorities under regulations like DAC 7, depending on thresholds and reporting requirements. However, this reporting typically goes to tax authorities, not directly to your employer or potential future employers.
- Confidentiality with Employers: Your full-time employer generally does not receive direct notifications about your additional income from OnlyFans unless you voluntarily disclose it. Employers typically do not conduct ongoing tax audits on individual employees unless there are specific legal or contractual reasons to do so related to employment or benefits.
Steps to Prepare for DAC 7
Maintain Accurate Records
Ensure detailed and organized financial records. This includes:
- Invoices
- Payment receipts
- Transaction logs
For example, an online tutor on platforms like Udemy or Coursera should keep records of all course payments received and any associated expenses, such as software subscriptions or marketing costs.
Engage with Digital Platforms
Regularly check that platforms are compliant with DAC 7 and that the data they report is accurate. Communicate any discrepancies immediately.
For instance, an influencer working with multiple brands on Instagram and YouTube should verify that these platforms correctly report their earnings from sponsored posts and ad revenue.
Install the Lovatio App
With the help of the Lovatio mobile application, specialists can simplify the process of creating their own income tax reports. By scanning their DAC 7 notification, Lovatio will generate a report, requiring users only to check and correct the data. Additionally, Lovatio allows users to keep all their receipts, enabling them to count on potential refunds later. This can significantly reduce the administrative burden and help ensure compliance with DAC 7.
For example, an Airbnb host could use Lovatio to track all rental income and expenses, ensuring that their tax reports are accurate and comprehensive.