The simplified regime is very popular for one reason: it’s easy. But “easy” and “efficient” are not the same thing.
If your activity has grown, or your costs have changed, the simplified regime can become very expensive. This guide shows you how to check whether it is still working for you.
Understanding the simplified regime
Under the simplified regime, you are not taxed on your real profit.
You are taxed on a presumed profit calculated using a coefficient (a fixed percentage of your revenue). In plain terms:
The system assumes your business costs are “about 25%” — even if your real costs are higher.
That assumption can be fair at the start. It can become unfair later.
Do this simple self-check
Take the last 6 months and write down:
- Total revenue (your invoices)
- Total business costs that are actually business related (with the supplier’s invoices/receipts)
Now calculate:
Your real cost percentage = Real costs / Revenue
Then compare that number to the simplified regime’s assumed costs for your activity. For most service businesses, the regime assumes costs equal to 25% of revenue, while for short-term rental activity the assumed costs are 65% of revenue.
If your real costs are higher than what simplified assumes, organized accounting often becomes more efficient.
When simplified often stops being optimal
You should review your regime if any of these are true:
1) Your costs are no longer light
Common cost increases:
- You rent an office or workspace
- You subcontract work
- You hired someone
- You have significant software/tools/licenses
- You travel often for work
- You bought equipment (and keep investing)
If your real costs are now meaningful, simplified can tax you on profit you did not actually keep.
2) Your revenue has increased
When income rises, small percentage differences become large tax differences.
Example logic:
- At €20k revenue, you may be willing to accept inefficiency.
- At €80k revenue, the same inefficiency can cost thousands.
Growth is exactly when you should stop assuming last year’s setup is still correct.
3) Your activity is not just about you anymore
Simplified tends to fit low-cost, solo, service-based work.
It tends to fit less well when:
- you are building a small operation
- you depend on suppliers/subcontractors
- you have recurring operational costs
- you want clearer financial reporting
4) You feel “tax surprised” every year
A common signal is when the numbers start to feel disconnected. This happens when:
- your operating costs have increased
- your margins are not particularly high
- yet your taxable income remains relatively large
That’s often a sign you are taxed on a presumed profit that no longer matches the reality of your business.
A simple example
Assume your activity is taxed under simplified as if 75% of revenue is taxable (typical for many services).
Scenario A — Simplified still works
- Revenue: €50,000
- Real costs: €8,000 (16%)
- Simplified assumes costs: €12,500 (25%)
Here, simplified is efficient.
Scenario B — Simplified becomes expensive
- Revenue: €50,000
- Real costs: €18,000 (36%)
- Simplified assumes costs: €12,500 (25%)
In this case, simplified taxes you as if you kept more profit than you actually did.
That difference is taxed at your IRS rates — and the impact grows quickly.
Accounting fees rarely cancel the benefit of organized accounting
A common hesitation when considering organized accounting is the cost of hiring an accountant, which is required under this regime.
However, this is often the wrong comparison. The real question is:
Do the tax savings exceed the cost of hiring an accountant?
If your real business expenses are meaningfully higher than the assumptions used in the simplified regime, organized accounting allows those costs to be fully recognised.
In practice, the difference in taxable income can often be larger than the difference in accounting fees.
Which is why the decision should always be reviewed numerically.
If Simplified Is No Longer Efficient
The usual paths are:
Option 1) Move to organized accounting
Best when you have:
- consistent real costs
- subcontractors or staff
- meaningful running costs
- a need for better reporting
Option 2) Consider incorporation
Not always the best move — but worth reviewing when:
- profits are high
- you want to reinvest
- you need liability structure
- you want more planning flexibility
Again, this should be a numerical review.
Final Thoughts
The simplified regime is a good default — until your business stops being “simple”.
A practical review once a year can prevent you from being taxed on profit you didn’t actually keep.
Efficiency is about paying the right tax based on how your business actually works.
