Accounting regimes in Portugal: how do taxes work for freelancers in Portugal?
The number of freelancers in Portugal has grown exponentially in recent years, given the increase in digital nomads who, for the most part, even if they have an employment contract, also work independently on the side.
The income taxes in Portugal are: the Personal Income Tax (IRS) - imposed on individuals - and the Corporate Income Tax (IRC) - imposed on legal entities - the latter being the best known.
But how do these taxes work? How do the accounting systems for these taxes work for tax purposes?
First of all, it is necessary to differentiate between ordinary taxpayers and taxpayers who fall under the former NHR regime - now the Tax Incentive Regime for Scientific Research and Innovation.
RNH - current Tax Incentive Scheme for Scientific Research and Innovation
The Tax Incentive Regime for Scientific Research and Innovation - formerly Non-Habitual Resident (RNH) - brings the benefit of a fixed rate of 20% of income earned in Portugal for those who meet the requirements and activities listed by law.
In other words, all those who fall under this tax regime will only have to pay tax on income earned in Portugal at a flat rate of 20%, regardless of the amount.
Ordinary taxpayers, on the other hand, will be taxed according to the progressive IRS and IRC tables.
It is important to note that the NHR regime will be abolished in 2024, and the new Tax Incentive Regime for Scientific Research and Innovation will prevail, which is more restrictive than the previous regime. I talked more about it in this article.
IRS and IRC
Freelancers who decide to take up permanent or temporary residence in Portugal will have to worry about paying at least one of these two taxes: IRS and IRC.
Anyone staying in Portugal for more than 183 days will have to declare and pay "Imposto sobre os Rendimentos das Pessoas Singulares" - IRS (Personal Income Tax).
The declaration and payment of "Imposto sobre os Rendimentos das Pessoas Coletivas" - IRC (Corporate Income Tax), will only be the responsibility of those who intend to open a company in Portugal.
Beneficiaries of the NHR will only pay personal income tax on the income they earn in Portugal at the flat rate of 20%, while other taxpayers will follow the progressive personal income tax table in force.
However, the payment of IRC will necessarily follow the progressive IRC table in force, even if the partner falls under the RNH.
Regardless of whether they have a registered company or not, freelancers will have to register as self-employed with the Tax Authority and Social Security.
For this reason, before going to Portugal to live there permanently or temporarily, it is essential to carry out tax planning in order to avoid unpleasantness and undue tax payments.
If you are interested in hiring professional legal services to carry out tax planning, we are a law firm specializing in the subject. Just get in touch via WhatsApp or email: thyanipuppio@gmail.com
Accounting regimes in Portugal
Accounting regimes are used to determine the income obtained in relation to economic activity for tax purposes.
In Portugal there are two accounting regimes:
a) Simplified Regime;
b) Organized Accounting.
Simplified Regime
This is the regime applied automatically from the moment the freelancer starts their activity before the Tax and Social Security Authority, unless they opt for Organized Accounting from the outset.
This system can only be used by those who have a turnover of less than 200,000 euros and a table of coefficients is applied according to the activity carried out, assuming expenses.
For example: several independent professions, such as architects, engineers, artists, among others, apply a coefficient of 0.75.
The coefficient of 0.75 means that: 75% of gross income will be taxed, while the other 25% will be considered expenses inherent to the activity.
Under this regime, taxpayers are partially obliged to prove the expenses inherent to the activity, as some expenses are conditional on proof being submitted to the Tax Authority, such as:
a) proven expenditure on compulsory contributions to social protection schemes;
b) expenditure on people and charges, such as wages and salaries;
In addition, those opting for this regime are not obliged to hire a certified accountant.
Organized Accounting
This is the regime applied automatically to those with a turnover of more than 200,000 euros.
Here there are no coefficients for determining income, but rather a detailed accounting record, carried out by a certified accountant, so that deductions can be made for expenses incurred in the activity.
You see, those who opt for Organized Accounting are obliged to hire a certified accountant to carry out the accounting reports.
Under this system it is possible to deduct most of the expenses related to activities such as:
a) hiring accounting services;
b) equipment maintenance;
c) computer equipment.
Before opting for any of these accounting regimes, it is essential to consult a tax lawyer to assess the specific case.
If you want to hire professional legal services related to tax consultations or to carry out tax planning for Portugal, we are a law firm specializing in the subject. Just get in touch via WhatsApp or email: thyanipuppio@gmail.com
A warning about Dual Tax Residency
When it comes to taxation, it is important to mention and briefly discuss Dual Tax Residency.
If you have double tax residency, you are still obliged to declare income tax universally in your country, i.e. no matter where your income comes from, it must be declared as a whole.
Those who have been in Portugal for more than 183 days are considered Tax Residents in Portugal and are also obliged to declare their taxes to the Portuguese tax authorities universally - except for those who benefit from the NHR.
The mistake many people make is to declare income earned in their country of origin only in their country of origin, and to declare income earned in Portugal only in Portugal.
Why would this be a mistake?
Because it's not just a mistake: it's a crime of tax evasion.
As well as being a crime, the amounts evaded can be charged and increased by fines, interest and monetary correction.
In order to avoid tax evasion, double tax residency, double taxation or even the undue payment of taxes, it is essential to carry out tax planning.
If you are interested in hiring professional legal services related to tax planning, we are a law firm specializing in the subject. Just get in touch via WhatsApp or email: thyanipuppio@gmail.com
