Freelancing in Portugal: Tax Filing Rules for Digital Nomads

Those who choose to work as a freelancer in Portugal may enjoy certain benefits, including simplified tax regimes and other attractive incentives. It is important to note, however, that this path may also present certain administrative challenges.

This guide is designed to offer guidance on the essentials, with a focus on staying compliant.

Do You Pay Tax in Portugal as a Freelancer?

Self-employed individuals working in Portugal may be required to pay tax there. The main factor determining tax residency is spending more than 183 days in a calendar year in Portugal. After that time, Portuguese income tax would apply to worldwide income

For digital nomads on the Portuguese digital nomad visa, tax obligations are usually linked to the length of the stay and the source of income.

How to Pay Tax in Portugal as a Freelancer

Freelancers must register with the Portuguese tax authority, the Autoridade Tributária e Aduaneira (AT), to declare and pay taxes. Here’s how to do it, step by step. 

• Obtain a NIF (Tax Identification Number): A NIF is mandatory for any financial transaction in Portugal, from opening a bank account to filing taxes. You can apply for a NIF at any tax office or via a representative. Alternatively, you can access the Portal das Finanças online platform to initiate the process, especially if you already have a representative or valid documentation.
• Register as a Freelancer: Declare your activity by completing the 'Início de Atividade' form under the  "Category B" income bracket on  Portal das Finanças. This step is essential to operate legally and issue valid invoices. Ensure you provide accurate information about your type of work and expected income.
• Invoice Clients Correctly: Portuguese law requires freelancers to issue official receipts, known as “recibos verdes”, for all work performed. One can use the Portal das Finanças to generate and issue these receipts, including NIF and VAT (IVA) details, if applicable. 
• Understand VAT (IVA) Obligations: Freelancers earning less than €13,500 annually may qualify for a VAT exemption under the Regime de Isenção do IVA. You can request this exemption when registering on the Portal das Finanças. If the threshold of €13,500 is exceeded, 23% VAT has to be charged on goods and services (or a reduced rate for specific industries).

Key Deadlines

Staying on top of deadlines is crucial to avoid fines. Here are the main dates to mark on your calendar:

• Monthly Social Security Contributions: Due by the 20th of each month for the previous month’s earnings.
• Quarterly VAT Submissions (if applicable): AT returns are due on January 20, April 20, July 20, and October 20.
• IRS (Income Tax) Filing: Annual income tax declarations must be submitted between April 1 and June 30 for the previous tax year.

Freelancers must ensure they file accurately and on time to avoid late fees.

Tax Rates and Deductions

Portuguese income tax rates are progressive, ranging from 14.5% to 48% (2024) depending on your income level. However, the simplified tax regime can offer some relief to freelancers:

• Simplified Regime: If your annual income doesn’t exceed €200,000, only 75% of your declared income is subject to taxation (the remaining 25% is presumed expenses and isn’t taxed).
• Deductions and Tax Breaks: Business expenses such as office supplies, coworking fees, and professional training may be deductible. If you’re eligible for the “new” Non-Habitual Resident scheme (NHR), you may benefit from a flat 20% tax rate on Portuguese-sourced income for up to 10 years.

Social Security Contributions

As a freelancer, you are required to contribute to Portugal's social security system (Segurança Social). The rate at which these contributions are calculated is 21.4% of your taxable income. By contributing, you will have access to benefits such as healthcare, unemployment support, and retirement pensions.

If your annual income is below €1,755, you may qualify for reduced contributions. It is advisable to enroll in the Social Security system proactively to ensure continuous and comprehensive coverage.

Tax Breaks for Digital Nomads

Portugal's government introduced measures to attract digital nomads, following similar initiatives taken by other European countries, like Italy, that offer tax breaks for expats.

• Portugal Tax-Free Period: Under the NHR regime, foreign income (such as dividends, royalties, or salaries from remote work) may be exempt from Portuguese taxes if it is taxed in the source country.
• Double Taxation Agreements: Portugal has agreements with more than 70 countries to avoid double taxation. It is advisable to check whether this includes your home country. 

Working Remotely in Portugal: Other Practicalities

For digital nomads working remotely in Portugal, the following actions are recommended:

• Open a Local Bank Account: While international banking services are becoming increasingly popular and convenient, having a local account can simplify tax payments and social security contributions.
• Consider Tax and Accountancy Services:  It takes expertise to stay compliant with all legal requirements and maximize deductions.
• Stay Informed about Legal Changes: Tax laws change frequently, so it is important to stay up to date and refer to reputable sources in case of doubt.

Freelancer Tax Filing Rules: Common Mistakes to Avoid

• Failing to Register Properly: Operating without registering as a freelancer may potentially result in financial penalties and legal issues.
• Underestimating Tax Rates: It is advisable to put a part of your income aside to cover tax obligations, particularly if your income level is variable. 
• Missing Deadlines: Please note that penalties may be imposed in case of late tax filings. Therefore, it's essential to set reminders in your calendar.
• Forgetting about Social Security Contributions: Some freelancers overlook these mandatory payments, which can lead to unexpected enforcement actions.

Conclusion

As is the case in many parts of the world, freelancing in Portugal comes with opportunities and responsibilities; among these is the importance of proper registration, understanding tax rates and social security contributions, and staying informed and compliant. 

At Tytle, we provide tailor-made services including:

• Accounting/bookkeeping
• Accurate tax filing
• Estate Planning
• Cross-border advice
• Immigration services
• And much more!

For more expert tax filing advice, feel free to explore “Tax Deadlines and Other Important Dates in Portugal: A Guide for Expats” and, “Tax Deadlines and Other Important Dates in Spain: A Guide for Expats”.