Business Activity Codes and Which Ones Are Allowed for Flat-Rate Tax

A business activity code looks like a formality you fill in when registering your business and then forget about, but for flat-rate entrepreneurs it determines two crucial things: whether you are even allowed to be a flat-rate entrepreneur and how much tax you will pay. The wrong choice can mean a rejected application or unexpectedly having to keep double-entry bookkeeping. In this article we explain which activities are eligible for flat-rate tax, which are not, and how all of this affects your tax.

What is a business activity code and why it matters

A business activity code is a number that describes what you do, according to the official classification of business activities. You choose it when registering with the APR, and as an entrepreneur you register one predominant (main) activity. For flat-rate entrepreneurs this code plays a dual role: first, it determines whether flat-rate taxation is even allowed for you, and second, it places you in a group that affects the calculation of tax and contributions.

That is why choosing the code is not a cosmetic decision. If you choose a business activity that is excluded from flat-rate taxation by law, the Tax Administration can reject your application for flat-rate taxation, so you will have to keep books and pay tax on your actual income.

Which activities CANNOT use flat-rate tax

Art. 40 of the Law on Personal Income Tax (ZPDG) explicitly lists the fields that cannot be granted the right to flat-rate taxation. These are:

• advertising and market research;
• wholesale and retail trade;
• hotels and restaurants (hospitality);
• financial intermediation;
• real estate activities.

In practice: if you plan to open an advertising agency or do market research, flat-rate tax is not an option for you. The same applies to classic trade (buying goods for resale), restaurants with a kitchen, real estate brokerage and financial services.

Exception: kiosk, trailer and mobile facilities

The law provides for one important exception. An entrepreneur who carries out a trade or hospitality activity in a kiosk, trailer or similar prefabricated or mobile facility may, upon request, be allowed to pay tax on a flat-rate determined income.

This means that selling pancakes, popcorn, ice cream or printed press from a mobile facility can qualify for flat-rate tax, even though the field itself (trade, hospitality) is in principle excluded. This is a narrow exception tied to the way the activity is carried out, not to the activity as a whole.

Which codes freelancers most often use

The majority of domestic and foreign freelancers who work as flat-rate entrepreneurs are engaged in service and creative activities, which are generally allowed. Typical codes used in practice:

• 6201 – computer programming (programmers, developers);
• 7022 – business and management consultancy activities;
• 7410 – specialized design activities;
• 9003 – artistic creation;
• 8559 / 8555 – education and teaching.

Pay special attention if you do digital marketing or SEO. The advertising agency code falls under the field of advertising, which is excluded from flat-rate tax, while consulting services (e.g. 7022) can be taxed at a flat rate. The line can be thin, so before registering, consult an accountant to choose a code that realistically describes your work while at the same time being allowed.

How the code affects the amount of tax

For flat-rate entrepreneurs, tax and contributions are not calculated on the basis of actual turnover, but on the basis of a flat-rate determined tax base. The business activity code places you in a certain group, and that group (along with parameters such as the municipality, the entrepreneur’s age and the like) determines how much the Tax Administration’s assessment will ultimately amount to. That is why two people with the same income but different codes may have different monthly obligations.

It is also important to know that flat-rate entrepreneurs have a turnover limit of 6,000,000 dinars per year. If that amount is exceeded, the right to flat-rate tax is lost and you switch to keeping books and being taxed on your actual income. Separately from that, there is also a threshold for entering the PDV system of 8,000,000 dinars, which is observed over the last 12 months, not by calendar year.

Key takeaways

• Advertising, market research, trade, hospitality, finance and real estate cannot use flat-rate tax (Art. 40 of the Law).
• Exception: trade and hospitality in a kiosk, trailer or mobile facility can use flat-rate tax upon request.
• IT, consulting, design, art and teaching are typically allowed activities for freelancers.
• The code determines the group that affects the calculation of flat-rate tax and contributions.
• The turnover limit for flat-rate tax is 6,000,000 dinars per year; the PDV threshold is 8,000,000 dinars over the last 12 months.

If you are not sure which code best describes your work and whether it is allowed for flat-rate tax, get in touch and we will help you choose it correctly.

Sources

• Paragraf – Transition from flat-rate taxation to taxation on actual income (Art. 40 of the Law)
• Paušalko – Business activity codes: who can and cannot be a flat-rate entrepreneur