Sole Trader Start-up || Part nº 2
When do I have to charge IVA to my clients?
IVA (Valued Added Tax) requirements are the same under both methods. Once income exceeds €12,500, regular IVA collection and reporting is mandatory, either on a quarterly or monthly basis, depending on turnover.
Do I have to make contributions to Social Security?
Beginning in the first year of business activity, you are entitled to a 50% discount. In year two, the adjustment reduces to 25% and disappears altogether in the third year and beyond, based on monthly payments to Social Security at the rate of 21% of your taxable income.
If your business activity is Local Lodging (Alojamento Local), you are exempt from Social Security contributions on this income.
If you already contribute to Social Security in another country or receive Social Security benefits, you can request exemption from paying again in Portugal. Alternatively, you may be eligible for reduced contributions.
Início de Actividade (Business Registration)
Formal registration of your business activity with Finanças is the first step to detail all required information about yourself and your planned endeavour.
Recibos Verdes Electrónicos (Electronic Green Receipts)
Freelancers may no longer buy books of green receipts and must file invoices electronically via internet. Be careful to use the correct procedures within the duly designated time periods as there are fines if deadlines are not met.
Freelancers must register with Social Security (National Insurance) and make monthly payments in the beginning of the second year of business activity. Services as well as sales and production currently contribute 21%. If you receive Social Security benefits or are already contributing to Social Security in another country, you may be eligible for exemption from contributions in Portugal.
National Health Coverage
As a freelancer, you will be eligible to apply for your Cartão de Utente (National Health Card). You, your spouse, and dependent children will be covered. With this registration, you will gain access to local Health Centres and Regional Hospitals. The card also entitles you to reductions on medication and prescriptions at local pharmacies.
Unless your income or activity exempts you from collecting IVA (freelance income under €12,500 pa), quarterly submissions need to be filed. Unfortunately, only Portuguese-language applications are available. If you invoice primarily outside of Portugal to other countries in the EU and beyond, this reporting could entitle you to a refund for IVA paid on business expenses Portugal.
By Dennis Swing Greene
Dennis Swing Greene is Chairman and International Tax Consultant for euroFINESCO s.a.