Expat Blogger Samantha Milner shares some tips on self-employment in Portugal, having set up an internet business from the Algarve.
It was back in 2010 when we finally had everything set up for self-employment in Portugal. For someone who has no experience with the Portuguese tax system, it felt like one long nightmare.
Completing tax returns
I always completed my tax returns myself when I lived in England and never had a problem. My parents were self-employed for many years. I had watched over their shoulder on many occasions. When I was in the same boat back home, it was a piece of cake.
I thought that the tax system would be the same here. With the amount of expats moving abroad, I thought that they would be adjusted well.
The first thing we did when we planned to transfer our business over was visit an accountant. We soon realized we were going to struggle based on what many of our businesses were doing at that particular time.
Green receipts system
For example, when it was recommended we use the green receipts system, we thought it would easy to follow. All you had to do was log all your outgoings and incomings in one receipt book. Then, hand it to your accountant at the end of the task year and then they would do the rest.
However, if you intend on having a lot of business transactions, you’re talking about a serious amount of form-filling. I have hundreds of different websites that form part of one business so this is a long job.
Another negative part of the green receipts system is that you can only claim 30% of your turnover as expenses. I haven’t found anyone in the Algarve apart from those with rental properties who fall into this segment.
Different tax systems
The majority of those who declare themselves self-employed in Portugal will be doing so for the very first time. If, say, like many expats moving to Portugal you open a bar or restaurant in your first year, then chances are every cent and euro you make will be going straight into your business so that you can make it a success. In this case you will have a profit level that is very low but with very high expenses.
I expanded my business by 60% last year, which meant I had high expenses. I’ll now have to pay tax on my losses, which feels very unfair. But as I signed up to the system, there is little I can do to change it.
I will be consulting my accountant to move onto a different tax system, but I still love the green receipts system. If you are a mobile hairdresser or a plumber that doesn’t have large outgoings I highly recommend it.
Another expense that you will have to pay is your social security contributions, which are EUR 150 a month and are due each month regardless of whether your business has made a profit. So if you have a restaurant that closes in winter, you will still have to cover this cost.
I am sure you can see now why businesses fail to take off in Portugal due to the expenses involved. I recommend that if you are planning on setting up a business you have a standby savings account to cover this so that you can make it through your first year.
On a positive note though, you can claim more in expenses in Portugal. You can claim for everything from your kids’ schoolbooks to the cost of your trip to the doctor’s. When you think of this type of expense I bet you could save €2,000 worth of taxable income a year if not more.
If your business will be turning over more than €10,000 per year, you will also need to register for IVA even if your customers are not Portuguese based. I have a majority American customer network but I still have to deal with IVA.
Your accountant can set this up. Just make sure they do it at the beginning of the year.
Dealing in different currencies
A benefit of dealing with customers in another country is the different currencies. You can choose what day of the month to declare your income so you can do it when it is at the lowest against your own currency so that you are not losing out if the exchange rate goes up or down.
You can end up spending a small fortune through your accountants due to not knowing the language so that I suggest you employ a local person who speaks the language and can translate documents for a small fee.
A local will charge you €20 to read a document whereas an accountant will charge you around €200.
One final point to keep in mind is that the tax system runs from January to December in Portugal.