Author: Charitarth Sindhu, Fractional Business & AI Workflow Consultant
The EU’s DAC7 directive came into force on January 1, 2023. Since then, it has quietly turned freelancer payment management upside down for businesses operating across Europe.
We asked four industry leaders how DAC7 has changed the way they handle freelancer payments, onboarding, and reporting. Their answers paint a clear picture: this is not just a tax rule. It is a fundamental shift in how businesses document, verify, and report on every euro paid to a contractor through a digital platform.
What is DAC7 and why should you care?
DAC7 (Council Directive 2021/514) requires digital platforms that connect freelancers with clients to collect detailed personal and financial data from every seller on their platform and report it annually to national tax authorities. Those authorities then share the data across all 27 EU member states automatically.
The directive does not create new taxes. It creates transparency. And that transparency comes with a long list of operational requirements that most businesses were not set up to handle.
Platforms must now collect tax identification numbers, legal names, verified addresses, VAT numbers where applicable, bank account details, and quarterly payment breakdowns by EU member state for every freelancer they pay. The first reporting deadline was January 31, 2024, and all 27 member states have now transposed the directive into national law.
There is no minimum threshold for personal services. Every freelancer payment through a qualifying platform is potentially reportable, regardless of the amount.
Onboarding is now a compliance gate
Before DAC7, onboarding a freelancer was straightforward. Collect a name, an email, maybe a bank account, and start working. That process is gone.
“Because of these requirements, the process by which we can onboard new contractors has changed dramatically; we have had to create more formal processes for collecting KYC information, standardize our method of collecting data from contractors, and verify the tax details of contractors prior to initiating payment.”
— Nick Mikhalenkov, SEO Manager, Nine Peaks Media
Platforms must now validate tax IDs against national databases, cross-check VAT numbers through the EU’s VIES system, and verify addresses with official documents before activating accounts or processing first payments. If a freelancer fails to provide the required information after two reminders and a 60-day grace period, the platform must either close their account or withhold all payments until they comply.
“These regulations have established the need for companies to design and implement structured contractor onboarding and centralize contractor data due to the unsustainability of ‘informal’ or ‘inconsistent’ record keeping. In this regard, DAC7 has increased compliance and accountability associated with compliance rather than complicating day-to-day payment processes.”
— Mike Khorev, SEO Consultant, Mike Khorev
Mike makes an important distinction here. DAC7 has not made paying freelancers harder. It has made documenting those payments harder. The money still flows the same way. The paperwork around it has multiplied.
Finance teams are tracking payments differently now
One of the biggest operational shifts is how finance teams report on contractor payments internally. Before DAC7, most companies tracked simple annual totals per freelancer. That is no longer enough. Platforms must now report gross payments broken down per quarter, segmented by the EU member state the contractor operates in, with fees and commissions identified separately.
“In addition to the changes in the way we onboard new freelancers, we have had to also modify the way that finance teams internally report on contractor payments; now they must track gross payments made to each contractor based upon the member state they were delivered in, rather than simply reporting total annual payments made to each contractor. We have also increased the communication between the legal, finance and operations teams within our organization so that all three teams can work collaboratively to ensure that all reporting requirements are met and reported in a timely fashion. This has further impacted our selection of payment processors to enable them to capture DAC7 compliant data for contractors to enable submission of the mandated reports. In addition, we will need to revise our contractor agreements to include a provision indicating that should any income be reported to tax authorities it is only for the purpose of compliance with DAC7 reporting obligations. The changes that DAC7 has imposed are not necessarily about how we pay our contractors, rather they are focused primarily on how we document, verify and report on our contractor payments.”
— Nick Mikhalenkov, SEO Manager, Nine Peaks Media
This cross-departmental reality is something every respondent highlighted. DAC7 compliance is not a job for one team. It pulls in legal, finance, operations, IT, and compliance working together on shared deadlines and shared data.
The data governance problem nobody expected
DAC7 has exposed a truth many companies would rather not face: their contractor data is a mess. Tax IDs that were never collected. Addresses captured at registration and never updated. Legal names that do not match what is on file with tax authorities.
“Companies with clean, centralized data systems will find it manageable to maintain compliance after the introduction of DAC7. However, if a company’s information is fragmented, DAC7 compliance will highlight gaps relative to data quality very quickly.”
— Mike Khorev, SEO Consultant, Mike Khorev
Companies that invested early in centralized data architecture report manageable ongoing compliance costs. Those trying to retrofit fragmented systems across HR databases, finance platforms, CRM tools, and spreadsheets face a much steeper climb.
From financial function to regulatory compliance function
Glenn Orloff from Metropolitan Shuttle summed up the broader transformation in blunt terms.
“This will require businesses to implement more robust and efficient onboarding processes; more rigorous identity verification; and improved collaboration between the finance and compliance departments. Additionally, businesses will now need to establish tracking mechanisms for tracking payments made to freelancers in multiple jurisdictions, generating audit-compliant records of freelancer payment activities, and generating structured reports regarding freelancer payments. This development has resulted in the transition from a financial function for managing payments to freelancers to a function that links regulatory compliance with the governance of data.”
— Glenn Orloff, CEO, Metropolitan Shuttle
That last point deserves attention. Freelancer payments used to sit squarely in the finance department. Now they sit at the intersection of finance, compliance, and data governance. Businesses that still treat contractor payments as a simple accounts payable task are going to run into problems.
What it looks like from the platform side
Hasan Can Soygök runs Remotify, an Estonia-based platform that processes cross-border freelancer payments in over 120 currencies across 150 countries. As a platform operator, Remotify sits directly in DAC7’s crosshairs and reports to the Estonian Tax and Customs Board.
“As a platform operator processing cross-border freelancer payments from Estonia, DAC7 didn’t just change our reporting workflows; it fundamentally reshaped how we built our product. We went from being a payment facilitation tool to a compliance-first infrastructure. Every freelancer who registers on Remotify now goes through a structured KYC and tax data collection process before a single payment is processed. We collect TINs, verified addresses, VAT numbers where applicable, and financial account identifiers at onboarding, not after the fact. The biggest operational shift was moving from annual payment summaries to quarterly transaction breakdowns segmented by EU member state. With over 10,000 freelancers registered across dozens of countries, building that level of granularity into our reporting pipeline to the Estonian Tax and Customs Board required us to rethink our entire data architecture. We also had to retroactively verify seller data for freelancers who joined before the directive took effect, which exposed significant gaps in records that were previously considered complete. What catches most businesses off guard is the transparency requirement. We are now obligated to share a copy of every DAC7 report with the freelancers whose data is included before submission to tax authorities. That forced us to build new notification systems and be upfront with our users about exactly what gets reported and where it goes. Freelancers initially pushed back on providing sensitive information like birth dates and bank details during onboarding, which created friction. But once they understood that DAC7 compliance is what keeps a platform legitimate and their income properly documented, most came around. The platforms that will struggle are those still treating compliance as an afterthought rather than a core feature of the product itself.”
— Hasan Can Soygök, Founder, Remotify
The penalties are real and they vary wildly
One thing worth knowing: DAC7 penalties differ dramatically by country. The Netherlands can fine platforms up to €900,000. Germany caps fines at €50,000 for registration failures. Ireland charges €19,045 initially plus €2,535 per day for outstanding returns. Poland ranges from €100,000 to €5,000,000.
Non-EU platforms that persistently fail to comply after two warnings face permanent revocation of their EU registration, which effectively blocks them from operating anywhere in the EU.
What businesses should take away from this
DAC7 is not going away, and it is not getting simpler. DAC8, covering crypto-asset reporting, is already taking shape. The OECD model rules that DAC7 aligns with are gaining adoption globally.
The pattern is clear: front-loaded verification at onboarding, quarterly reporting granularity, automated XML submissions, and cross-departmental governance. Businesses that build these systems now will be ready for what comes next. Those that keep patching things together with spreadsheets and manual processes will keep paying the price, both in fines and in operational headaches.
“Businesses that utilize digital platforms will be required to collect, validate and report seller information (including tax identification numbers and total payments) to EU tax authorities in accordance with DAC7. Therefore, businesses must verify that all freelancer data is complete, accurate and adequately recorded prior to making any payments to the freelancer.”
— Glenn Orloff, CEO, Metropolitan Shuttle
The message from everyone we spoke to is the same: DAC7 is not about how you pay freelancers. It is about how you document, verify, and report on those payments. Get that right, and the directive is manageable. Ignore it, and the penalties will find you.