Direct Estimation or Modules: Which Personal Income Tax Regime Fits Your Business

If you’re self-employed and wondering whether direct estimation or modules (objective estimation) is the better fit for your personal income tax, the answer comes down to three things: your activity, your turnover, and how much you actually spend. It’s not a cosmetic choice — it changes how your net income is calculated and, with it, what you pay every quarter. Let’s break it down.

What’s the difference between direct estimation and modules

Under direct estimation (normal or simplified), you’re taxed on actual profit: income minus deductible expenses backed by invoices. It’s the default regime for most self-employed workers and the only option available for professional activities (consultants, lawyers, designers, self-employed healthcare providers, and the like) and for nearly all services. Within direct estimation, the simplified method applies as long as your turnover in the previous year didn’t exceed €600,000; above that threshold — or if you voluntarily opt out — you move to the normal method, with accounting aligned to the Commercial Code.

Modules, by contrast, don’t look at your actual profit but at a set of objective indicators of your business — floor space, staff employed, contracted electrical power, number of tables, vehicles, and so on — which the Tax Agency converts into an estimated net return using tables published each year. Only activities expressly listed in the ministerial order governing the regime qualify: retail trade, hospitality (bars, cafés, certain categories of restaurants), freight and passenger transport, some construction and repair activities, hairdressers, driving schools, and little else. Professional activities are always excluded.

Module thresholds and when you’re forced out

To apply modules, several volume limits must all be met at once: total operations can’t exceed €250,000 a year; if you invoice other businesses or professionals who are required to withhold tax, that portion can’t exceed €125,000; and your purchases of goods and services (excluding fixed assets) also can’t exceed €250,000 a year. These thresholds have been extended by law each December for several years running, so it’s worth confirming the current year’s figure before deciding, since a last-minute legislative change can shift them. In addition, certain construction and industrial activities subject to 1% withholding have been excluded from the regime for years now, and must be taxed under direct estimation regardless of whether they meet the other requirements.

A round-number example: a bakery with €180,000 in annual sales, almost all to individuals, and €90,000 in purchases, meets all three limits and can stay on modules. If that same bakery starts supplying hotels and bills €140,000 to businesses subject to withholding, it exceeds the €125,000 limit for that category and is excluded starting the following year, moving compulsorily to direct estimation.

How to know which regime suits you and when to switch

The real comparison is arithmetic: if your profit margin is high (you spend little relative to what you bill), modules usually work out cheaper, since the estimated return doesn’t reflect that wide margin. If, on the other hand, you have high expenses, investments, employees, or a tight margin, direct estimation almost always results in lower tax, since it deducts what you actually spend. It’s worth running both calculations using the previous year’s figures before deciding, rather than just going by your business category code.

The switch between regimes is made through the census declaration (Form 036/037), which must be filed in December to take effect the following year; opting out commits you to direct estimation for a minimum of three years, renewed automatically unless you opt out again. If you exceed the billing or purchase limits during the year, exclusion from modules is automatic from the following year, with no extra paperwork required — though it’s worth flagging so instalment payments and invoicing can be adjusted accordingly.

At Zythos Business, we help self-employed workers and small businesses run exactly this calculation before December arrives: we compare your actual situation under both regimes, check whether your activity still fits within the current thresholds, and prepare the switch in good time if it makes sense — so the decision is made with real numbers on the table, not out of habit from the year before.