1. IRS (Imposto sobre Rendimento de Pessoas Singulares) = Income taxes for private persons
In 2020, 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
Annual taxable income = It is the taxable income that determines the IRS rate to be applied, corresponding to the gross annual income subtracted from the so-called specific deductions.
Each income category has its own specific deductions.
Type of income:
Category A Employment income
Category B Business and professional income (Trabalhadores independentes/ Self-employed)
Category E Investment income
Category F Rental income
Category G Capital gains
Category H Pensions
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2. Category B
The IRS rules for a Sole Proprietorship (= ENI, Empresário em Nome Individual) are the same as for Freelance workers (Digital Nomads, etc). Income is taxed by category B because it is work done for one's own benefit and not for the benefit of others. Both are self-employed, and both give recibos verdes/green receipts, as they are not employed, but self-employed.
An Individual Entrepreneur (ENI) is someone who sets up a company of which he is the sole owner. As a rule, these companies are more geared towards small businesses, having a low investment and low risk. This is a simple legal form suitable for starting a small business, since the entrepreneur does not need capital to start the activity.
When carrying out an economic activity in one's own name, the income of an Individual Entrepreneur (ENI) is considered to be professional or business income. The way in which they are declared for IRS calculation depends on the scheme adopted by the entrepreneur: simplified scheme or organised accounting.
If the ENI chooses organised accounting, he can deduct a large part of the professional expenses and accurately ascertain the net income. Organized accounting is the most efficient tax system for more complex activities and for when the expenses with the activity are more than 25% of the income.
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3. Category B: Value Added Tax (VAT)
If you are wondering if VAT will be applicable to your business, the answer depends on whether you anticipate your income more than €10,000 per year for your services or not. In Portugal, VAT must be paid by businesses with an annual turnover exceeding €10,000 on taxable goods and services.
If you earn more than €10,000 in a year:
- you need to declare it to the state until January of the following year.
- you will have to charge VAT from your clients on top of your usual fee.
- you will then declare the value of the received VAT from your clients to the state quarterly.
VAT Rates 2020: There are three different rates of Value Added Tax (VAT) in mainland Portugal, Azores and Madeira:
- The general rate of 23% on taxable goods and services
(23% in mainland Portugal, 22% in Madeira and 18% in the Azores).
- The intermediate rate of 13% on food and drinks
(13% in mainland Portugal, 12% in Madeira and 9% in the Azores).
- The reduced rate of 6% applicable to the supply of foodstuffs, water supplies, pharmaceutical and agricultural products, passenger transport, etc.
(6% in mainland Portugal, 5% in Madeira and 4% in the Azores)
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4. Category B: Retenção na Fonte / Withholding Tax
The withholding tax corresponds to a certain part of the income that must be paid to the Portuguese State. Self-employed persons are therefore obliged to withhold part of their income for that purpose. In other words, withholding tax is nothing more than a form of advance payment of the personal income tax throughout the year.
The self-employed are subject to a maximum withholding tax of 25% per year. Some people are also exempt from withholding tax (where the holder expects to earn less than 10,000 euros per year).
https://www.doutorfinancas.pt/carreira- … os-verdes/
What are the rates of deduction at source?
25%: applied to the income of professionals such as doctors, lawyers and architects. The list of professional activities to which this percentage applies can be found in Article 151 of the CIRS.
20%: applied to independent professionals who are not habitual residents (NHR) in Portugal and who carry out scientific, artistic or technical activities.
16.5%: rate defined for income from intellectual, industrial or information-providing property;
11.5%: applied to the income of self-employed workers whose activity is not provided for in Article 151 of the CIRS and isolated acts. This is the most common rate to apply.
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5. Category B: Social Security for Self-Employed
Security Contribution Simulator:
https://www.doutorfinancas.pt/calculado … ntes-2019/
What do you need for inputs simulation:
- Whether you are a Freelance worker or ENI;
- Whether the scheme is simplified or organised accounting;
- Whether you have exemptions (if so, which ones); (pensioner, disability, if you also work as an employee for others / IRS Category A)
- Your quarterly income
What you will obtain:
- Rendimento Relevante Trimestral / Quaterly Relevant Income
- Base de Incidência Mensal / Monthly Incidence Basis
- Taxa / Rate
- Contribuição mensal para a Segurança Social / Monthly Social Security contribution
Eg. Freelance Self-employer with organised accounting and without exemption:
- Quarterly service income = EUR 5,000.00
- Relevant Income = EUR 3,500.00 = 70% of quarterly income
- Monthly Incidence Basis = EUR 1,166.67 = relevant income / 3 months
- Rate = 21.40%
- Social Security Contribution = EUR 249.67 = monthly assessment basis x rate
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More info:
ENI:
https://www.letsdeel.com/blog/how-to-se … n-portugal
Freelance Worker:
https://lusowork.com/en/recibos-verdes-freelance/
IRS Income categories:
https://www.e-konomista.pt/tipos-de-rendimentos/
Social Security for Self-employed:
http://www.seg-social.pt/trabalhadores-independenteshttps://www.tranquilidade.pt/blog/traba … nca-social
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