Taxes. The one word that can make even the most seasoned freelancer break into a cold sweat. Whether you've been freelancing for a decade or you just sent your first invoice last month, understanding your tax obligations is non-negotiable — and getting it wrong can be costly.
The good news? It doesn't have to be complicated. In this guide, we'll walk you through everything you need to know about income tax, VAT, and social contributions as a freelancer in 2026 — in plain language, without the jargon.
Why freelancer taxes feel so overwhelming
When you're employed by a company, taxes are largely invisible. Your employer withholds income tax, pays social contributions on your behalf, and hands you a neat payslip at the end of the month. You barely have to think about it.
As a freelancer, all of that responsibility shifts to you. You're the employer and the employee. That means you need to track your income, calculate what you owe, set money aside throughout the year, file returns on time, and pay the right authorities — all while actually doing the work your clients are paying you for.
It's a lot. But once you understand the three pillars of freelancer taxation — income tax, VAT, and social contributions — the picture becomes much clearer.
Pillar 1: Income tax
Income tax is the most straightforward of the three. It's a tax on the money you earn, and virtually every country requires freelancers to pay it.
How it works
As a freelancer, you're taxed on your net profit — that's your total revenue minus your allowable business expenses. So if you earned €80,000 in 2025 and had €15,000 in legitimate business expenses, you'd be taxed on €65,000.
Most countries use a progressive tax system, meaning the more you earn, the higher the percentage you pay on the upper portion of your income. For example, you might pay 20% on earnings up to €40,000 and 40% on anything above that.
Key things to know in 2026
Several European countries have adjusted their tax brackets and thresholds for the 2026 tax year. If you haven't checked your local rates recently, now is the time. A few things to pay attention to:
- Updated tax brackets. Countries like Germany, the Netherlands, and France have made adjustments to their income tax brackets for 2026. Even small changes can impact how much you owe.
- Digital reporting requirements. More countries are moving toward mandatory digital tax reporting for self-employed individuals. Paper filing is increasingly being phased out.
- Quarterly estimated payments. In many jurisdictions, freelancers are required to make estimated tax payments throughout the year rather than paying everything in one lump sum. Missing these deadlines can result in penalties and interest.
Common mistakes
The biggest mistake freelancers make with income tax is failing to set money aside as they earn. When a client pays you €5,000 for a project, it's tempting to treat the full amount as spendable income. But depending on your tax bracket, 30–50% of that may be owed to the tax authority. If you don't withhold it yourself, you'll face a painful bill when filing season arrives.
Pillar 2: Value Added Tax (VAT)
VAT is where things tend to get confusing for freelancers, especially those working across borders. But the core concept is simple: VAT is a consumption tax added to the price of goods and services.
Do you need to charge VAT?
This depends on two things: where you're based and how much you earn. Most European countries have a VAT registration threshold — a revenue limit below which you don't need to register for or charge VAT. Once you cross that threshold, registration becomes mandatory.
For example, in 2026:
- Germany: The small business exemption (Kleinunternehmerregelung) applies if your revenue was below €22,000 in the previous year and is projected to stay below €50,000 in the current year.
- France: The threshold for service-based freelancers is €36,800 in annual revenue.
- Netherlands: The small business scheme (kleineondernemersregeling, or KOR) exempts freelancers earning under €20,000 annually.
- Ireland: The VAT registration threshold for services is €40,000.
Note that these thresholds can change, so always verify the current figures for your country.
How VAT works in practice
Once you're VAT-registered, you add VAT to your invoices (at your country's standard rate — typically between 19% and 25%), collect it from your clients, and then remit it to the tax authority, usually on a quarterly basis.
However, you can also reclaim VAT on your own business purchases. The amount you owe is the difference between the VAT you've charged (output VAT) and the VAT you've paid on expenses (input VAT).
Cross-border VAT: The reverse charge mechanism
If you're a freelancer in one EU country invoicing a business client in another EU country, the reverse charge mechanism typically applies. This means you don't charge VAT on the invoice — instead, your client accounts for the VAT in their own country. You'll need to include your client's VAT number on the invoice and report the transaction on your EC Sales List or equivalent filing.
For non-EU clients, VAT generally doesn't apply, but you'll still need to document these transactions correctly for your records.
Common mistakes
The most frequent VAT mistakes we see are late registrations (continuing to operate above the threshold without registering), failing to file quarterly returns on time, and incorrectly applying VAT on cross-border invoices. All of these can result in fines, back-payments, and interest charges.
Pillar 3: Social contributions
Social contributions are the tax category freelancers most often overlook — and they can be significant. These are payments that fund public systems like healthcare, pensions, disability insurance, and unemployment benefits.
How they differ from country to country
Unlike income tax and VAT, social contribution systems vary dramatically across Europe:
- Germany: Freelancers in certain regulated professions (artists, writers, journalists) may qualify for the Künstlersozialkasse (KSK), which covers half of their social insurance contributions. Others are responsible for the full amount, covering health insurance, pension, and long-term care insurance.
- France: Freelancers under the micro-entrepreneur regime pay a flat social contribution rate (around 21.1% for services in 2026) on their gross revenue — not their profit.
- Netherlands: Freelancers (zzp'ers) are responsible for their own health insurance and pension contributions. There is no mandatory pension contribution, but this also means no safety net unless you arrange it yourself.
- Spain: The autónomo system requires monthly social security contributions based on your real income, following the reformed system that took full effect in 2025.
Why this matters
Social contributions often represent a larger cost than freelancers expect. In some countries, they can add 15–25% on top of your income tax obligation. Ignoring them doesn't make them go away — it just means you'll owe more later, potentially with penalties.
Putting it all together: A practical example
Let's say you're a freelance graphic designer based in Germany, earning €70,000 in annual revenue with €10,000 in business expenses.
Here's a simplified breakdown of what you might owe:
Net profit: €60,000
Income tax: Approximately €14,000–€16,000 (depending on your personal circumstances, deductions, and the solidarity surcharge).
VAT: You're above the small business threshold, so you charge 19% VAT on your invoices. Assuming €70,000 in revenue, you'd collect roughly €13,300 in VAT from clients. After deducting input VAT on your business expenses, you'd remit the difference to the tax office quarterly.
Social contributions: If you're not in the KSK system, you're looking at roughly €8,000–€10,000 annually for health insurance and potentially additional pension contributions.
Total tax burden: Roughly 40–45% of your net profit, depending on your specific situation.
This is why so many freelancers feel blindsided at tax time. If you're not setting aside 40–50% of every payment you receive, you're likely going to come up short.
7 tips to stay on top of your freelancer taxes
- Withhold from every payment. Treat tax withholding as non-negotiable. Before you consider any payment as “your money,” set aside 40–50% for taxes and contributions.
- Keep clean records. Maintain organized records of all income and expenses throughout the year. Digital tools make this easier than ever — there's no excuse for a shoebox full of receipts in 2026.
- Know your deadlines. Mark every filing deadline in your calendar. Quarterly VAT returns, estimated income tax payments, annual returns — missing any of these can trigger penalties.
- Separate your business and personal finances. Use a dedicated business bank account. This makes tracking income and expenses dramatically easier and keeps you audit-ready.
- Understand your deductions. Home office costs, software subscriptions, professional development, travel, equipment — these are all potentially deductible. Every legitimate deduction reduces your taxable income.
- Don't ignore cross-border rules. If you have international clients, make sure you understand the VAT implications. Incorrectly charging (or not charging) VAT across borders is one of the most common and costly freelancer mistakes.
- Get help when you need it. Whether it's a tax advisor, an accountant, or an automated service, don't try to do everything yourself if you're not confident. The cost of professional help is almost always less than the cost of getting it wrong.
How PaidRightly takes the pain out of freelancer taxes
We built PaidRightly because we believe freelancers should spend their time doing great work — not wrestling with tax calculations, VAT filings, and withholding schedules.
Here's how it works: you add our bank details to your invoices. When your client pays, we automatically reconcile the payment, calculate your income tax, VAT, and social contributions in real time, withhold the right amounts, and pay you the net amount directly. When filing deadlines come around, we handle those too.
No spreadsheets. No late-night panic sessions before quarterly deadlines. No surprise tax bills in January.
Your taxes are calculated on every single payment, so you always know exactly where you stand. And with our real-time dashboard, you can see your earnings, withholdings, upcoming payouts, and filing status at any time.
It's like having a personal accountant who works 24/7 — for a fraction of the cost.
Final thoughts
Freelancer taxes don't have to be a source of stress. The system is complex, yes — but it follows rules, and once you understand those rules, you can plan for them. The key is to stay informed, stay organized, and never let tax obligations catch you off guard.
And if you'd rather not think about any of this at all? That's exactly what we're here for.