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Sole traders – FAQ’s || Part 5

This is the fifth in a seven-part series on the self employed in Portugal

Question: What is the difference between Standard Accounts and the Simplified Regime?

euroFINESCO: Standard Accounts refers to the traditional system of accounting which 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 fixed percentage of invoiced income (total of green receipts or the equivalent).

Question: Can I choose which method I prefer?

EuroFINESCO: When you start a business, you will initially be placed in the Simplified Regime unless you specifically opted for Standard Accounting on the “Início de Actividade”.
Question: Do most self-employed go automatically into the Simplified Regime?
euroFINESCO: The Simplified Regime is designed for small businesses. Gross income must not exceed €200,000.

Question: What happens if my income exceeds these limits?

euroFINESCO: On a one-off basis, you may surpass these thresholds up to 25%. However, if repeated or more than 25%, you will fall into the Standard Accounting method. You are required to have a “Técnico Oficial de Contas” or TOC (Chartered Accountant) to do the monthly books. An “Alteração de Actividade” (Change in Business Activity Form) to this effect must be filed.

Question: I first opted for Organised Accounting but now realise that the Simplified Regime should be more advantageous. Can I switch?

euroFINESCO: Yes, while formerly there were limitations, sole traders are now free to switch without restriction.

Question: I only made €1,500 from a one-off business transaction. How should I report?

euroFINESCO: Such income may be treated as an “Isolated Act” and follows traditional accounting rules. No TOC (Qualified Accountant) is required.

Question: What should I do about Value Added Tax? When do I have to collect “IVA” from my customers?

euroFINESCO: IVA (VAT) requirements are the same under both methods. After exceeding income of €10,000, regular IVA collection and reporting become mandatory in the following tax year, either on a quarterly or monthly basis, depending on the amount of your income.

Question: When do I start making contributions to Social Security?

euroFINESCO: Beginning in the second year of business activity, you should register and make monthly payments to Social Security.
You may be exempt if:
a) you contribute to Social Security in another EU country
b) you receive a Social Security Pension
c) your taxable business income is below €2,500

New legislation, the Contributive Code for Social Security, came into effect in January 2012. Rather than choosing contribution levels as before, calculations for monthly payments are indexed to actual earnings in the previous year.

Next: Sole traders – Holiday lets as a business – part 6

By Dennis Swing Greene
|| [email protected]

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