Effective tax rate when self-employed in Portugal

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disconnected

New member
I have read a lot on this forum but have never seen this mentioned anywhere, so I thought I would share it as I think a lot of people would be interested in it. Purely sharing knowledge here.

I have recently moved to Portugal and there is a thing called the simplified regime for self-employment. Depending on your profession, if you register as 'outros prestadores de servicos', which would be applicable to many online small businesses, your tax is calculated on 35% of your income, the rest is assumed as expenses. You only have to justify 15% expenses. Effectively this ends up as 5-14% income tax. Besides that there is social security. Together it amounts to roughly 20% total tax rate. Of course, it's not zero, but it's not bad for doing things above board in an EU country. The revenue limit for the simplified regime is 200K. Above that you need organized accounting, and it suddenly won't be so interesting anymore.

First year there is no social security to be paid. You get 50% discount on income tax in the first year and 25% in the second year. See the table below.

Portugal simplified regime tax table.png
 

disconnected

New member
"imposto rendimento singular" or "O Imposto sobre o Rendimento das Pessoas Singulares (IRS)". Personal income tax in Portuguese.

What about taxes on investments? Since one would probably be able to save some money after having paid 19-20% taxes
If you move here from abroad you can get NHR as most are familiar with, so that makes passive foreign income tax free for 10 years. Other than that it depends on the type of investments I suppose?

Crypto is also tax-free for now...
 

void

Entrepreneur
Looking at the table it still seems pretty high. For example Czech republic offers self employed regime which has effective rate at about 10-11% of total income up to about 40k EUR (80k EUR from 2023) including income tax, social security and health insurance.
 

fshore

Entrepreneur
I have read a lot on this forum but have never seen this mentioned anywhere, so I thought I would share it as I think a lot of people would be interested in it. Purely sharing knowledge here.

I have recently moved to Portugal and there is a thing called the simplified regime for self-employment. Depending on your profession, if you register as 'outros prestadores de servicos', which would be applicable to many online small businesses, your tax is calculated on 35% of your income, the rest is assumed as expenses. You only have to justify 15% expenses. Effectively this ends up as 5-14% income tax. Besides that there is social security. Together it amounts to roughly 20% total tax rate. Of course, it's not zero, but it's not bad for doing things above board in an EU country. The revenue limit for the simplified regime is 200K. Above that you need organized accounting, and it suddenly won't be so interesting anymore.

First year there is no social security to be paid. You get 50% discount on income tax in the first year and 25% in the second year. See the table below.
What about if you're registered for VAT, don't you have to have proper accounting for VAT receipts? Will that affect this regime?
What is the thresholds for registering for VAT in Portugal (and is it the same for selling services and goods)?
 

disconnected

New member
Looking at the table it still seems pretty high. For example Czech republic offers self employed regime which has effective rate at about 10-11% of total income up to about 40k EUR (80k EUR from 2023) including income tax, social security and health insurance.
What if your cross that threshold? 40K is not very much... And it's also about where do you actually want to live, I know I would rather live in the Algarve then in Czech.

What about if you're registered for VAT, don't you have to have proper accounting for VAT receipts? Will that affect this regime?
What is the thresholds for registering for VAT in Portugal (and is it the same for selling services and goods)?
In my case I only do business with entities in the USA so I'm VAT exempt. If you have clients in Portugal or EU then there is VAT. The threshold is something like 10 or 12K.
 

fshore

Entrepreneur
In my case I only do business with entities in the USA so I'm VAT exempt. If you have clients in Portugal or EU then there is VAT. The threshold is something like 10 or 12K.
Good. Are you sure you don't have to register and make zero rated invoices? In many other countries you'd have to do that even when everything is zero rated.
 

void

Entrepreneur
What if your cross that threshold? 40K is not very much... And it's also about where do you actually want to live, I know I would rather live in the Algarve then in Czech.

above 40k (up to 80k) you have to register as VAT payer (nowadays the limit will be increased to 80k next year) which is a bit of an additional hassle
above 80k it's not that efficient anymore, you can't declare lump sum costs, you have to care about accounting etc.

you can live anywhere after setting up and once a year submit 3 forms digital way (tax office, social security and health insurance company) - no one cares where you are

yes, it's just another cheap and efficient small-ball solution for self employed individuals up to certain level of income
 

RealDude

Entrepreneur
Depending on your profession, if you register as 'outros prestadores de servicos', which would be applicable to many online small businesses, your tax is calculated on 35% of your income, the rest is assumed as expenses.
Can i apply with the following professions?
1. (Remote) IT consulting and development as Freelancer
2. (Worldwide) Software as a Service (SaaS) provider paid by customers on annual/monthly subscriptions
 

disconnected

New member
Good. Are you sure you don't have to register and make zero rated invoices? In many other countries you'd have to do that even when everything is zero rated.
Yes that's correct, you have to do that.

Can i apply with the following professions?
1. (Remote) IT consulting and development as Freelancer
2. (Worldwide) Software as a Service (SaaS) provider paid by customers on annual/monthly subscriptions
I think so. If you do some research, there is a list of professions and services with specific codes and tax coefficients. Or contact an accountant in PT. I can give you a few accountants which seem pretty good.
 

disconnected

New member
OP is working for the Portugal government. Take anything he says with a SHIT ton of salt.


It's 28%
Dude, relax. I'm just some guy who moved here last year and did a shit ton of research about the tax system. I learned about this tax scheme and thought it may be interesting for some freelancers who don't make more than 200K a year.

Thinking Portugal would send someone online to promote their country is massively overestimating their abilities... lol. Believe me I hold plenty of grudges against the system here, but one needs to make compromises sometimes. Tbh I'm still somewhat on the fence if I want to stay here permanently.

Btw, capital gains tax is 28% on 50% of the gains. Thus, 14% effectively. Another example of how the Portuguese like to overcomplicate everything!
 
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