This is the second in a seven-part series on the self-employed in Portugal
If you are a salaried worker (Category A) but do a sole trader job (Category B) on a one-off basis, you do not have to open business activity with Finanças. Just issue a receipt as an Isolated Act. This mechanism can only be used if the service that you are carrying out is not an ongoing activity. Additionally, you may do only one Isolated Act per each tax year. If you are thinking about using this option, here are a few factors to take into consideration.
Issuing an Isolated Act
To issue an invoice for an Isolated Act, you will have to do so through the Finanças website, just as you would for Electronic Green Receipts. As usual, you need to use your password to gain access to your page. Once there, you will have access to the “issue receipts” area where some data should already be filled in. If you notice anything wrong, make the appropriate corrections. You will have to identify your customer through his/her fiscal number (NIF), identify the services provided and the amount received. Also you will have to identify the VAT due and any withholding tax. Do not forget to mention the reason for payment – Isolated Act – and print your receipt in duplicate. Remember, you should not withhold tax on income resulting from a commercial, industrial or agricultural activity.
When issuing the invoice for an Isolated Act, you will have to charge VAT on the amount agreed for the service. You should inform your client that you will declare the service as an Isolated Act. Find out if the service rendered is covered under Article 9 of the VAT Code, in which case it will be exempt from paying this tax.
VAT is payable by the last day of the month following the conclusion of the service, either at your local tax office or via a Multibanco machine when paying through the Finanças website.
VAT rate to be used
When providing services, you must retain VAT at the rate of 11.5% if the amount received through the Isolated Act exceeds €10,000. If you choose to retain VAT on your own initiative, you will be subject to estimated tax two years later.
Completing your IRS declaration
If you issued an Isolated Act last year, you will have to complete Annex B on your IRS declaration: Table 4A and Table 7, including the amount of any withholding tax. You must also tick field 2 on Box 1. The data entered must be confirmed by the entity to whom the service was provided by January 20 of the year following the payment of the income.
Starting in 2015, taxpayers who provide an Isolated Act will not be required to submit a tax return and are exempt from income tax if total annual income does not exceed €1,677.88. This corresponds to four times the Social Support Index (currently set at €419.22 per month). This measure is part of the IRS reform that seeks to promote the integration of young people into the labour market, who are often called upon to perform odd jobs.
By Dennis Swing Greene
Dennis Swing Greene is Chairman and International Tax Consultant for euroFINESCO s.a.