Doctors, lawyers, architects

How professional income is taxed

Professional income differs from commercial income in two ways: it is determined on a cash basis, and the payer usually withholds tax. Both change the record-keeping and the cash planning.

Basics

What the cash basis means

In professional income, income arises when collected and expenses count when paid — unlike the accrual basis of commercial income. A receipt whose fee has not been collected does not enter that period's income.

Ledger

Professional earnings ledger

Kept through the Ledger-Declaration System or electronically. Collections and payments are recorded in date order.

Document

Professional receipt

Issued on collection. Where the e-receipt regime applies, it must be issued electronically.

Withholding

Deduction by the payer

Where the payer is a withholding agent, income tax is deducted from the gross amount and reported on a withholding return.

Calculation

Withheld tax is not lost

Step	What happens
Receipt	Issued on the gross fee, with VAT added
Deduction	The payer withholds income tax from the gross
Collection	What reaches you is the net after withholding
Annual return	Income is declared and tax withheld during the year is offset
Excess	Any excess after offsetting is refunded or carried to other liabilities

Expenses

What is deductible

General costs of carrying on the profession: rent, service charges, electricity, communications, internet.
Professional publications, courses, seminars and chamber dues.
Professional indemnity insurance premiums.
Depreciation of fixtures used in the practice.
Special rules apply where the office and residence are the same, such as deducting half of the costs.
The statutory restriction on passenger car expenses applies separately.

Value added tax

VAT and withholding

Professional activity is generally subject to VAT, shown separately on the receipt. For certain service types the recipient must apply VAT withholding; the rate and scope depend on the service and are set out in the VAT General Application Communiqué. Confirm the current rate for your own service type.

Frequently asked

Can I issue the receipt before collecting?

A professional receipt is issued on collection. Issuing one for an uncollected fee brings the income forward and creates unnecessary tax.

I work from home — can I deduct the costs?

Where part of the residence is used as an office, a proportion of the costs is deductible. If rent is paid, a withholding obligation may also arise. This arrangement should be set up correctly from the start.

Is my social security premium an expense or a deduction?

Social security premiums paid are deducted from the income declared in the year of payment. Unpaid premiums are not deductible, so payment planning before year end matters.

Would a company be better?

As income rises, the gap between the progressive income tax tariff and the flat corporate rate widens — but distributing profit brings further tax. The decision turns on income level and whether you leave money in the business.

This page is general information based on the legislation in force at the time of writing. Amounts change annually. Talk to us before applying it to your own situation.

Other guides

Foreign income

Let us talk about your own position

The guides give the general framework. Let us work out which rule applies to your specific facts.

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