When starting a business in Portugal, understanding the difference between a sole proprietorship (Empresário em Nome Individual) and working as a self-employed professional (Trabalhador Independente) is essential.
While both allow you to operate independently, they have distinct legal, tax, and operational frameworks, each with practical implications for your business structure, obligations, and growth potential.
This guide explains the differences, outlines the legal steps to set up each, details the tax framework, and highlights the benefits of operating as a sole proprietor in Portugal.
Sole Proprietorship vs. Self-Employed Professional: Key Definitions
Sole Proprietorship (Empresário em Nome Individual)
A sole proprietorship in Portugal is a natural person who conducts a commercial, industrial, or agricultural activity under their name.
This business structure is associated with running a physical establishment and may involve hiring employees. The owner is personally liable for all business debts, meaning their assets are at risk if obligations are not met.
Self-Employed Professional (Trabalhador Independente)
A self-employed professional is also a natural person but operates without an employment contract, typically in a liberal, scientific, artistic, or technical profession. Examples include lawyers, doctors, engineers, translators, and artists.
They provide services directly to clients, usually without employees or a formal business establishment, and are taxed under Category B income rules.
Main Differences
Sole Proprietorship:
- Focused on commercial, industrial, or agricultural activities
- Can have a business premises and employees
Self-Employed Professional:
- Focused on service provision without a business structure
- Usually works alone without hiring staff
Legal Steps to Set Up a Sole Proprietorship in Portugal
Sole Proprietorship
- Declaration of Business Start: Submit to the Portuguese Tax Authority (Autoridade Tributária e Aduaneira – AT) in person or online.
- Commercial Registration: Mandatory for commercial and industrial activities.
- Social Security Registration: Automatic after business start declaration.
- Sector-Specific Licences: Required depending on the activity type.
Self-Employed Professional
- Declaration of Activity Start: Also submitted to the AT.
- Social Security Registration: Automatic after business start declaration (in case of Portuguese nationals).
- Professional Association Registration: Mandatory for regulated professions (e.g., doctors, lawyers).
- Specific Licences: Only required if the profession demands them.
In both cases, communication with Social Security is handled via the Segurança Social Direta platform.
Tax Framework for a Sole Proprietorship in Portugal
Sole Proprietorship
- Income Tax (IRS): Progressive taxes under Category B via the simplified regime or organised accounting.
- VAT (IVA): Mandatory if annual turnover exceeds the legal threshold.
- Social Security: Contributions calculated based on relevant income, with specific rules for sole proprietors.
Self-Employed Professional
- Income Tax (IRS): Progressive taxes under Category B, with the same regime options.
- VAT (IVA): Applicable if annual turnover exceeds the threshold.
- Social Security: Contribution base is calculated from the average income of the previous three months:
- 70% of service income
- 20% of goods production and sales
- 20% for hospitality, catering, and similar services
- Under organised accounting, the contribution is based on taxable profit from the previous year.
Benefits of Operating as a Sole Proprietorship in Portugal
Sole Proprietorship
- Quick and Low-Cost Setup: Minimal bureaucracy and expenses
- Flexible Management: Easy to adapt to market changes
- Growth Potential: Ability to hire employees and expand
- Complete Control: Direct decision-making authority
Note: This structure carries unlimited liability; the owner is responsible for all business debts.
Self-Employed Professional
- Lower Administrative Burden: Especially under the simplified regime
- High Flexibility: Easy to start, pause, or cease activity
- Reduced Costs: Fewer accounting and licensing obligations
- Simplicity: Ideal for individual service providers
Final Considerations
Choosing between a sole proprietorship and working as a self-employed professional depends on the nature of your activity, your growth ambitions, and the level of structure you need.
Sole Proprietorship in Portugal is best suited for those running a commercial or industrial business with the potential to expand and hire staff.
Self-Employed Professional status is ideal for independent service providers who value simplicity and autonomy.
In both cases, it’s essential to comply with tax and social security obligations and seek professional accounting or legal support to ensure compliance with Portuguese law.
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