Are you self-employed in Portugal? Find out how the tax system works with our expert guide to taxes for freelancers and self-employed in Portugal.
The Portuguese tax system can be confusing to navigate for foreign workers, especially if you’re setting up a self-employed business or conduct freelance work.
This guide to self-employed tax in Portugal includes advice on the following:
- Self-employed tax system in Portugal
- Calculating self-employed income tax in Portugal
- Registering for self-employed tax
- Self-employed tax deductions and credits in Portugal
- Corporate tax in Portugal
- Self-employed tax rates in Portugal
- VAT in Portugal for self-employed people
- Social security for self-employed workers in Portugal
- How to find an accountant or financial adviser in Portugal
Self-employed tax system in Portugal
Portugal has more than 800,000 self-employed workers, representing around a sixth of the overall working population.
Sole traders, freelancers, and people who run unincorporated businesses in Portugal have their income treated as personal earnings and pay income tax rather than corporate tax.
Sole traders can set up a single-member limited company (Sociedade Unipessoal por Quotas) or an individual limited liability establishment (Estabelicimento Individual de Responsabilidade Limitada). However, in the second scenario, any business assets separate from personal earnings are subject to corporate tax.
Partnerships, where two or more people share all business profits and have liability for business debts, are taxed in the same way as sole traders. Consequently, each partner will pay tax on their share of the profits through the Portuguese personal income tax system.
Tax on limited companies
Limited companies in Portugal must pay corporate tax on their profits.
If two or more people set up a business and incorporate it as a limited company, profits generated by the company that is not declared on personal income tax returns are subject to corporate tax.
The main limited company structures in Portugal are Private Limited Companies (Sociedade por Quotas), Public Limited Companies (Sociedade Anomina), and Limited Liability Partnerships (Sociedade em Comandita).
Calculating self-employed income tax in Portugal
Self-employed workers in Portugal can declare their income tax liability by filing their full accounts on an annual basis (also known as the direct method). Alternatively, they can do so by using Portugal’s simplified tax regime.
In addition to this, some expats in Portugal can benefit from the special Non Habitual Residency (NHR) tax regime.
Before deciding which method to use, you should take professional advice from an English-speaking accountant, as the right choice will vary from business to business.
Direct accounting involves filing annual accounts as well as paying income tax at the standard rates on your profits.
If you use this method, you’ll need to employ an accountant who will calculate your gross annual profit after your allowable business expenses have been deducted, however.
The simplified regime involves paying income tax at the standard rates on 75% of your overall income and providing expense receipts to offset the remaining 25%.
Because all sole traders can make use of a tax-free deduction of €4,104, those with lower incomes may find the simplified regime a beneficial option.
A series of calculations and coefficients underpin the simplified regime. You can also find out more about how the numbers work in the PWC’s full guide.
New businesses start off using the simplified regime, but it’s possible to switch to another method at a later date. You can request to change systems until the end of March each year, but you’ll need to stick to the new system for three years after making the change.
Businesses with an annual turnover of more than €200,000 aren’t eligible for the simplified regime, and must instead file their annual accounts using the direct method.
Non Habitual Residency (NHR) regime
Some expats living and working in Portugal can apply for the special NHR tax regime.
Under the NHR regime, expats pay income tax on all Portuguese earnings at a flat rate of 20%. Most significantly, the NHR scheme allows workers to benefit from a tax exemption on all income received from abroad.
However, expats can only gain NHR status if they’re deemed to be conducting activities that arise from ‘high-value’ activities of a scientific, artistic, or technical nature.
Registering for self-employed tax in Portugal
If you’re planning on setting up a self-employed business in Portugal, it’s important to check you meet the legal requirements as well as register with any necessary trade bodies.
Unlike in some countries, self-employed workers can’t simply start a business without gaining accredited status in their industry.
To set up shop in some industries, you’ll need professional qualifications. However, this means that you may be required to undertake a Portuguese exam.
Self-employed tax deductions and credits in Portugal
When it comes to calculating your taxable income, you can deduct any business expenses that you’ve incurred as part of running your enterprise. For example, this can include the likes of rent costs for your office, material and product costs, and utility bills.
There are some limits, however. For example, expenses for travel and entertaining clients can only be deducted if they’re less than 10% of overall income. In fact, if you work from home, you can claim expenses up to a limit of 25%.
Corporate tax in Portugal
Corporate tax rarely applies to self-employed workers and freelancers in Portugal.
However, businesses pay corporate tax in Portugal at a flat rate of 21% of their taxable profits. The rate has gradually come down in the last decade, leaving it slightly below the EU average of 21.51%.
Businesses in Portugal may also need to pay surcharges on top of their corporate tax bill, depending on where they’re located and their overall profits.
Small- and medium-sized businesses pay a reduced Portuguese corporate tax rate of 17% on their first €15,000 of taxable profit.
Self-employed tax rates in Portugal
Income tax rates in Portugal are progressive. Consequently, you pay more tax the more you earn. However, non-residents are taxed at a flat rate of 25% on their taxable remuneration.
Portugal’s income tax rates for 2020 are as follows:
|Annual taxable income||Portugal income tax rate|
|up to €7,112||14.5%|
VAT in Portugal for self-employed people
VAT in Portugal (Imposto Sobre o Valor Agregado, or IVA for short) is payable by all businesses with a turnover of more than €10,000 on taxable goods and services.
There are three rates of VAT in Portugal:
- General rate: 23% on taxable goods and services
- Intermediate rate: 13% on food and drink
- Reduced rate: 6% on essential necessities including certain foods (e.g., meat, fruit, vegetables, cereals), books, newspapers, medicines, transport and hotel accommodation
Madeira (22%/12%/5%) and the Azores (18%/9%/4%) apply slightly different rates, however.
If your business is liable for VAT in Portugal, you will also need to apply for a VAT number, or NIF (Numero de Identificacao Fiscal).
VAT is payable to the Portuguese Tax Authority seven days after the reporting deadline periods, either quarterly or monthly.
Social security for self-employed workers in Portugal
If you are self-employed, you are responsible for making your own social security contributions. While employed workers’ contributions are topped up by payments from their employers, those who are self-employed have to pay the full contribution themselves.
All self-employed workers in Portugal earning over €2,573.40 must pay their contributions through the Portuguese Social Security (Seguranca Social). The general rate of contributions for self-employed workers in Portugal is 29.6%. Payments need to be made monthly between the first and 20th of the month.
In return for social security contributions as a self-employed worker, you are entitled to unemployment benefit, an allowance for sickness, parenting benefits, family allowance, invalidity benefit, pension, as well as survivor’s pension.
After 12 months, however, you’ll start paying based on the previous year’s taxable income.
How to find an accountant or financial adviser in Portugal
You can get advice on tax and social security issues from an English-speaking chartered accountant through the international directory through the Institute of Chartered Accountants in England and Wales (ICEAW).
American expats with tax filing obligations back home can also seek support and advice from Taxes for Expats.
- Website for the Portuguese Tax Authority
- Link to Portuguese Social Security website with information about self-employed contributions
- Find an English-speaking accountant
- British-Portuguese Chamber of Commerce
- Portugal Ventures (offering help to start-ups and entrepreneurs)
- Portugal Global (offers support to business and self-employed)