Rent of a workspace – taxes on the income of a self-employed person

If you are self-employed and you conduct the profession, trade or business at home, you cannot pay rent to yourself for the workspace. Instead, you can claim tax-deductions, either for the actual costs or according to the standard home-office deduction based on a formula. 

Deducting the actual expenses

In certain situations, you can deduct the workspace expenses according to the actual amounts you had to pay. This requires that the expenses can be substantiated by documentation such as receipts.

Whether the Tax Administration can accept your claim and grant the deduction depends on an examination of the entire perspective. The following factors are important:

• The surface area of your home, in total
• The part being used for business/profession
• How many people are living in your home
• The volume or dimensions of the activity (including yearly sales figures/turnover)
• The sector or line of the business/profession, including considerations on whether a separate room is necessary.

Note: your and your family's living expenses are not deductible among the actual expenses. Nondeductible living expenses include the repayments of your home loan, its interest, and the other credit-carrying cost on the home loan. Nondeductible living expenses also include expenses such as waste disposal and real estate management expenses, chimney sweeping expenses, insurance premiums, any payments you need to make for water, and for storm water drainage, etc. In general, no deductions are accepted if you spend money on renovations and repairs of your home workspace.

It is characteristic for “living expenses” that the need for an individual taxpayer to pay them will normally arise regardless of the taxpayer’s business activity.

Example: the formula-based deduction for a workspace Your apartment is 30 square metres in size. You run a self-employed business enterprise in software development and code design. Its turnover (= sales) reaches €5,000 per year, and you also have a job and you are paid wages.

In a situation like this, your apartment is primarily a home. Your business is small-scale, and you do not necessarily need a workspace for the work, and even if you did, the space could not be kept apart from the rest of the apartment because the apartment is small. As a result, you cannot claim the cost of your space based on actual expenses. However, you can deduct a standard, formula-based deduction for it.

Example: Deduction based on actual expenses.
You pursue the profession of a cosmetologist giving treatments to your clients in your apartment. The apartment is 150 square metres in size, and your family consists of four people.  You use 30 square metres for your daily cosmetologist trade. You are a tenant in the apartment. You pay €1,500 in monthly rent for it. The turnover (= sales) reaches €30,000 per year. 

The rules on your deduction rights require that one should examine the self-employed activity’s nature and its relationship with the surface area of your home. After examining these aspects, the conclusion might be that your business is not small and to reserve a separate workspace only for the cosmetology is correct. You leave enough space for all residents to live comfortably outside of the workspace. As a result, the deduction would be given you based on actual expenses. You can deduct the rent matching the square metres of the workspace – that part of the rent is a business expense. This is 20 percent, calculated as 30m² out of 150m² = 20%. The expense amount to claim equals €300.00 per month (€1500 × 20%).

The standard home office deduction

The Tax Administration issues an official decision every year confirming the deduction amount

If you have bought a property or shares that entitle you to have an office or other workspace, you can deduct the costs of these business premises in your company's tax reporting. For example, you can claim the electricity and waste costs and the real estate tax. If you use the property for both business and nonbusiness purposes, you can only deduct the portion of the expenses that represents business use.

If used for business purposes primarily, the property is (or its shares are) part of the operating assets of your business. If you took out a loan to buy it, the loan would be treated as a business debt. Both the debt and the owned property will be included in your company's net worth calculation. 

Can I deduct the monthly charges for maintenance services?

Whether tax-deduction will be given for the charges you pay to your housing company depends on how the fee has been treated in the accounts of the housing or real estate company whose shares are involved.

You can only deduct them for your business premises as an expense if the accounting of the housing or real estate company writes it up to income.

If instead, the accounting treats the charge you paid as a balance-sheet item, booked against a reserve account, you cannot deduct it as an expense in your own business. In the latter case, the total charges you had paid month-on-month will be added to the acquisition cost of your housing-company (real estate company) shares. You can deduct the acquisition cost and these accumulated charges included in it from the gain on the sale of the shares in the future, when you sell the shares of the business premises.

The deduction rule follows the same principles as are applied to rental operations, when a landlord deducts housing-company charges from taxable rental income or from the gains the landlord will receive when selling the rental property some time in the future. For more information on the principles of deducting expenses for rented-out apartments, etc. see the guidance “Taxation of rental income” — Vuokratulojen verotus.

If you have rented a workroom for business purposes outside of your home, the rent you pay is a business expense fully. You can declare and claim it when you complete the Business tax return.