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DAC7 is an active EU directive requiring digital platforms in the gig and creator economy to collect, verify, and annually report seller data to tax authorities by 31 January each year. It affects both the platforms that host creators and the freelancers and creators who use those platforms. Here is what each side needs to know.
The creator economy exploded during the pandemic, which compelled the EU council to adopt a new directive to foster tax transparency - DAC7.
This directive, however, will impact platforms in the creator economy, as well as creators or freelancers that use the platforms for transactions.
By the time you're done with this article, you will know if and how your business is affected by DAC7.
That means digital platforms within the EU or platform users in the EU will have to give tax authorities information for accurate taxation. Not only does it target tax evasion, but by formalizing income reporting across the creator economy, it creates a more level playing field for honest entrepreneurs and legitimate platforms.
What DAC7 Means For Digital Platforms
If you run a digital platform in the gig and creator economy that facilitates personal services, you must comply with the DAC7 directive or risk sanctions. That entails learning and understanding the directives and their responsibilities.
For example, you need to know what needs to be collected, when, and how it should be collected for the smooth operation of your platform.
Undoubtedly, DAC7 will incur additional administrative processes for marketplace platforms - which is a significant downside. That is because platforms would have to verify data, request additional documents, update previously received data, and report to the appropriate authorities.
For example, a freelance marketplace that previously only required a name and bank account at signup will now need to collect and verify each seller's TIN or VAT number, store that data securely, and include it in an annual report to the relevant tax authority. Platforms that do not yet have this infrastructure will need to build or buy it.
What DAC7 Means For Freelancers/Creators
For platforms to adhere to the new directive, platform users must share relevant information with the platform. That way, tax authorities will have better insight into their earnings and accurately tax them.
The new directive also provides measures against users who might refuse to share relevant information with your platform. In that case, the platform can terminate their account after two reminders.
Note that the core purpose of DAC7 is to foster tax transparency by ensuring that taxable and hard-to-track events are taxed, thereby discouraging tax evaders and double taxation. That is good news for the public purse and honest entrepreneurs.
In practical terms, this means that if you are a freelancer earning through an EU-facing platform, you should expect your platform to ask you for your Tax Identification Number (TIN) or VAT number. Providing this information is not optional - under DAC7, platforms can terminate accounts that refuse to cooperate after two formal requests.
A Tool For An Ever Growing Economy
The creator economy is growing at an astonishing rate, providing an avenue for the EU to revive the economy after the downturn caused by the pandemic. Furthermore, with the DAC7 directive, tax fraud will be prevented, as well as evasion and avoidance.
To adapt, platforms will need a powerful and flexible VAT compliance technology to handle the additional administrative demands. On the flip side, platforms in the creator economy can use Gigapay to automate the DAC7 process - from seller onboarding and TIN verification to annual reporting. See how it works.
Every January, the reporting needs to be sent. If you are a platform operator, the earlier you begin collecting and verifying seller data, the smoother your January reporting will be. If you are a creator or freelancer, the practical step is to confirm your TIN is up to date with any platform you actively sell through. So the earlier you start getting ready, the easier it will be to adapt and operate.
FAQ
Q: Does DAC7 affect freelancers and content creators directly?
A: DAC7 affects creators and freelancers indirectly: they are not required to report anything themselves, but the platforms they use to sell services or content are required to collect and report the creators' personal and financial data to tax authorities. Creators must cooperate by providing accurate information - including their TIN - to the platforms they work with, or risk having their accounts suspended.
Q: What creator platform types must comply with DAC7?
A: DAC7 applies to any digital platform that facilitates personal services (e.g. freelance marketplaces), sales of goods, rental of immovable property, or rental of transport - and whose sellers or users are based in the EU. This includes influencer platforms, task-based work platforms, used-goods marketplaces, and accommodation rental platforms.
Q: Will DAC7 lead to creators being taxed more?
A: DAC7 does not introduce new taxes. It improves tax transparency by ensuring that income creators earn through digital platforms is visible to tax authorities. Creators who are already declaring their income correctly will not be affected. The directive primarily targets undeclared income and tax evasion, leveling the playing field for compliant entrepreneurs.
Q: What happens to a creator's account if they refuse to share data with a platform?
A: Under DAC7, if a creator or seller refuses to provide required information after two formal reminders from the platform, the platform must terminate their account. The creator may also be blocked from re-registering on the platform for a defined period.
Q: When does a platform need to report creator data under DAC7?
A: Platforms must submit their DAC7 reports annually, before 31 January each year, covering all seller and creator activity from the previous calendar year. This is a recurring annual obligation.
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