Sole Trader setup and freelancer taxation in Portugal

Sole Trader setup and freelancer taxation in Portugal

Setting up as Sole Trader (Empresário em Nome Individual)

If you want to be a freelancer in Portugal, make sure you follow all the rules and register with the right agencies.

  • First, check that you are allowed to live and work in Portugal. If you are not a citizen of the EU, check out official guide to Portugal visas.
  • Then, you must get an NIF, which is a free tax number, and open a bank account. You can do this from a distance, but you will have to pay for a representative with power of attorney. When you get your NIF, ask for your password so you can log in to the Portal das Financas, which is the website for the tax office.
  • You can get your social security number (NISS) by making an appointment by calling 300 502 502 or by going to the nearest social security office. To get one, you need to show your NIF, your ID, and your residency card. You might not get your social security number for a few months.
  • Then you can sign up as a freelancer online or at a local tax office. If you want to do this online through the Portal das Financas, search for "beginning of activity," "Services > Activity > Beginning of Activity," and then "deliver the certificate." This will include the service you offer, which for most freelancers falls under Article 151 of the CIRS, the date you started your work, how much you think you'll make from January to December (to get out of paying VAT), and your IBAN.
  • Then you'll have to decide whether you want your accounting to be simple or organized.
  • The simplified plan is the one that the tax office gives you by default, and you don't need an accountant for it. This routine is only for people who make less than €200,000 a year. This plan lets you pay taxes on 75% of your total income, and the other 25% is taken care of by expenses.
  • You have to have an accountant if you want to follow the organized system. In this system, all of your expenses are taken into account, not just 25%, and your accountant takes care of your taxes and social security. This routine is kind of like being a real business, with extra costs like accounting and the need for complicated tax files.
  • You can now bill and send invoices to your clients through recibos verdes, which we will talk about later. This will tell the tax office how much money you make.

Alternatively, you can use Abillio - invoicing and tax compliance service for cross-border freelancing. In Abillio's case, you don't need to establish a legal entity, open bank account or apply for VAT - with Abillio's company-as-a-service solution you can start your freelancing business right away. Register your free account here >>

Tax Rates in Portugal for Sole Traders

In Portugal, income tax rates are progressive and vary depending on the annual taxable income.

  • less than €7,112- 14,5% tax rate
  • €7,113– €10,732- 23% tax rate
  • €10,733– €20,322- 28,5% tax rate
  • €20,323– €25,075- 35% tax rate
  • €25,076- €39,967- 37% tax rate
  • €39,968- €80,882- 45% tax rate
  • more than €80,883 - 48% tax rate

Value Added Tax (VAT) in Portugal

If you want to know if VAT will apply to your business, the answer depends on whether or not you think your services will bring in more than €10,000 per year and if you want to work with international customers. In Portugal, businesses that sell more than €10,000 worth of goods and services each year, or sell services to other countries must apply for VAT status and file VAT reports.

Alternatively, you can use Abillio - invoicing and tax compliance service for cross-border freelancing. In Abillio's case, you don't need to establish a legal entity or apply for VAT, with Abillio's company-as-a-service solution you can start your freelancing business right away. Register your free account here >>

Social Security Contribution as a Freelancer in Portugal 

You'll also have to pay into social security, which will give you a pension when you retire. The Portuguese Social Security system also protects people's basic rights and makes sure everyone has the same opportunities. It does this by giving people things like unemployment benefits, paternity leave, and other financial help. However, if you work as a freelancer in Portugal for the first 12 months, you don't have to pay social security. You can get your social security number (NISS) by making an appointment by calling 300 502 502 or by going to the nearest social security office. To get one, you need to show your NIF, your ID, and your residency card. You might not get your social security number for a few months. Under the simplified regime, which is the most common, freelancers pay 21.4% of 75% of their income to social security. You have to pay this between the 10th and 20th of the next month. In Portugal, social security is a system that makes sure people have basic rights. Contributing to social security is required, and it gives you benefits like a jobless benefit, a pension when you retire, help if you get sick, money for parents, and more.


Freelancers Under Non-Habitual Resident (NHR) Tax Regime

Freelancers who meet the requirements can take advantage of the Non-Habitual Resident (NHR) tax regime. The NHR tax regime was implemented in 2009 and is available to all new tax residents in Portugal who were not tax residents in Portugal for the 5 years before. Some NHRs pay taxes on their income at a flat rate of 20% and don't have to pay taxes on their global income.

Under the NHR tax system, people who work in Portugal (whether they are self-employed or have a regular job) only pay a flat rate of 20% on their personal income tax (IRS). For a job to be considered "high value," it needs to involve scientific, artistic, or technical work. Considering that the general tax rate for people who make more than €25,076 is 37% and for those who make more than €39,968 it is 45%, this is a huge tax break.

You won't have to pay taxes on dividends, interest, royalties, capital gains, income from renting out property outside of Portugal or from working in another country. If your country has a Double Taxation Agreement (DTA) with the country, these benefits will be paid in the source country. These benefits only last for 10 years.

Note: This information is from official sources and should not be considered as a substitute for legal advice. Always check official websites or consult a lawyer or tax consultant before taking action.

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