FAQs: Freelancers and the Simplified Regime – Sole trader start-up || Part 1

Many foreign residents plan to open a small business when they move to Portugal. Regardless of your interest or motivation, it is essential to understand the basic requirements in Portugal before launching and conducting your new business activity. The following FAQs will help you get off to a good start while better serving your clients throughout the EU and beyond.

What is the difference between Standard Accounting and the Simplified Regime?
“Standard Accounting” refers to the traditional system of accounting that calculates taxable profits from the net difference between income and expenses. This method requires professional accounting services (TOC). Under the “Simplified Regime”, taxable income is calculated as a percentage of invoiced income (from the total of “electronic green receipts”) and is usually self-administered.

Do most self-employed go automatically into the Simplified Regime?
Yes, but not all. The Simplified Regime is designed for smaller businesses. To qualify, your gross invoiced income must not exceed €200,000.

What happens if my income exceeds this limit?
On a one-time basis, you may surpass this threshold by 25%. If repeated, the AT will switch you automatically to Standard Accounting (Contabilidade organizada). Subsequently, a Chartered Accountant must do regular reporting.

Initially, I opted for Standard Accounting but now realise that the Simplified Regime should be more advantageous. Can I switch?
Yes, taxpayers may switch in the following fiscal year if they so wish.

I only had €1,500 of income from a sideline business. How should I report?
When freelance income constitutes less than one half of an individual’s declarable income, it may be treated as an “Isolated Act” and follow standard accounting rules. No “TOC” is required.

How do I calculate my taxable income?
The calculation for determining taxable income is as in the table below.

This income is added to other sources (aggregation) to determine your final rate of taxation.

Is it true that there is a minimum tax?
No. While one used to exist, the minimum tax was abolished in 2010.

By Dennis Swing Greene
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Dennis Swing Greene is Chairman and International Tax Consultant for euroFINESCO s.a.