As the gig economy continues to expand, more and more professionals are considering self-employment in Portugal. The country offers a favourable business environment, attractive tax incentives, and a high quality of life. In this comprehensive guide, we will explore the various aspects of being self-employed in Portugal, including taxation, registration, deductions, and social security contributions.
1. Introduction to Self-Employment in Portugal
The growth of the freelance market has made Portugal an attractive destination for self-employed professionals. The country has become famous for digital nomads and entrepreneurs with its flexible labour laws, mild climate, and vibrant culture. As a self-employed individual, you can choose your projects and clients, but you are also responsible for managing your taxes and social security contributions.
2. Taxation for Self-Employed Individuals in Portugal
When you are self-employed in Portugal, you are subject to the same tax laws as any other freelance professional. The tax system is based on a self-assessment regime, meaning you are responsible for calculating and paying your taxes. The tax year in Portugal runs from January to December.
2.1 Personal Income Tax (PIT)
Self-employed individuals in Portugal are subject to Personal Income Tax (PIT), a progressive tax based on their income. The tax rates range from 14.5% to 48%, depending on your income level. Under the Non-Habitual Tax Resident (NHR) scheme, foreign-sourced income may be exempt from PIT, provided specific criteria are met. Also, Portuguese-sourced income may be subject to a flat tax of 20% if the activity is deemed high-value.
2.2 Value-Added Tax (VAT)
If you provide services or sell goods, you may need to charge Value-Added Tax (VAT) on your invoices to clients in Portugal and other countries. The standard VAT rate in Portugal is 23%. However, if you are self-employed in Madeira, the VAT rate is 22%. VAT exemptions are available under the reverse-charge mechanism for invoicing EU and non-EU clients, provided certain conditions are met.
2.3 Social Security Contributions
Self-employed individuals in Portugal must pay social security contributions 12 months after registering as a freelancer. The monthly contribution basis corresponds to 1/3 of the relevant remuneration determined in each reporting period and produces effects in that month and the following two months.
To determine the relevant remuneration of the self-employed, the income received in the three months before the reporting month is considered. The appropriate payment corresponds to 70% of the income concerning the services rendered. The contribution base considered for each month has a maximum limit of 12 times the Portuguese Social Index (IAS) value, up to a maximum of €14,808.93 per year.
3. Registering as a Self-Employed Professional in Portugal
To register as a self-employed professional for tax purposes in Portugal, you need to obtain a tax identification number (NIF) and register with the tax authorities. You can do this in person at a tax office (serviço de finanças) or through a service provider such as Madeira Corporate Services. Once registered, you must keep records of all your income and expenses and file a tax return (Declaração de IRS) each year.
All income generated as a freelancer must be invoiced through an Autoridade Tributária e Aduaneira-approved invoicing software.
4. Deductions and Allowances for Self-Employed Individuals in Portugal
Freelancers in Portugal can claim various deductions and allowances to reduce their taxable income. These include:
4.1 Business Expenses
Freelancers can deduct business expenses, such as office rent, equipment, and supplies, from their taxable income. All expenses must be related to the business activity that the freelancer carries out.
4.2 Personal Deductions
Freelancers can also claim personal deductions, such as contributions to a pension plan, health insurance premiums, and education expenses.
5. Simplified Regime vs Organized Accounting
Freelancers with an income of up to €200,000 per year can opt for the simplified regime, which allows them to deduct a flat rate of 25% of their income from their taxable income. Those exceeding €200,000 in income must have organized accounting and, therefore, must hire a board-certified accountant to assist in determining their profits and losses.
6. Non-Habitual Tax Resident (NHR) Scheme
The Non-Habitual Tax Resident (NHR) scheme is an attractive option for freelancers looking to relocate to Portugal for an extended period (more than 183 days). Under the NHR scheme, foreign-sourced income may be exempt from personal income tax in Portugal, provided specific requirements are met under the scheme’s rules. Also, Portuguese-sourced income may be subject to a flat tax of 20% if the activity is deemed high-value.
7. VAT Obligations for Freelancers
VAT in Portugal is payable by all businesses with a turnover over €13,500 on taxable services. VAT is payable to the Portuguese Tax Authority seven days after the reporting deadline periods, quarterly or monthly.
It is important to note that invoices related to your freelancing activity must be issued through a Portuguese Ministry of Finance-approved invoicing software.
8. Tax Deadlines and Payment Options
Freelancers in Portugal must file their tax return by the 30th of June each year. If you are registered for VAT, you must also submit quarterly VAT returns.
Several tax settlement options are available, including bank transfer, direct debit, and payment at a tax office.
9. Penalties for Non-Compliance
Non-compliance with tax regulations can result in penalties and fines. The tax authorities can impose fines for late or incorrect filing of tax returns, failure to register for tax purposes, and failure to pay taxes on time.
10. Tips for Managing Your Taxes
To manage your tax affairs as a self-employed individual in Portugal, it is crucial to:
- Hire an accountant
- Keep accurate records of all your income and expenses
- File your tax returns on time
- Seek professional advice if you are unsure about any aspect of the tax system
- Budget for your tax payments and set aside money each month to cover your tax obligations
- Consider the Non-Habitual Tax Resident (NHR) scheme if you plan to relocate to Portugal for an extended period
11. Conclusion
Becoming self-employed in Portugal can be a rewarding and fulfilling experience, offering flexibility and independence. By understanding the tax system, registering for tax purposes, claiming deductions and allowances, meeting tax deadlines, and seeking professional help when necessary, you can ensure compliance with regulations and focus on your work. With careful planning and management, you can successfully navigate the world of self-employment in Portugal and enjoy all its benefits.
Miguel Pinto-Correia holds a Master Degree in International Economics and European Studies from ISEG – Lisbon School of Economics & Management and a Bachelor Degree in Economics from Nova School of Business and Economics. He is a permanent member of the Order of the Economists (Ordem dos Economistas)… Read more
