SINCE 2001, all forms of self-employment are taxed under Category B (commercial, industrial and agricultural business activities). For tax purposes, reporting will follow the rules of either the Simplified Regime or Standard Accounting, depending on which option was chosen at the time of registering the activity of the business. If no option was specified, then the Simplified Regime applies.
Unless Standard Accounting is specifically requested, those in this category remain in the Simplified Regime for the determination of taxable income, if gross turnover does not exceed the following amounts:
• sales volume 149,639.37 euros
• services and others 99,759.58 euros
Until other activity specific means are established, the calculation for determining taxable income is as follows:
• sales of merchandise and products X 20 per cent
• billings for services and others X 65 per cent
Income under the Simplified Regime, with a minimum taxable level equal to 3,125.00 euros in 2005, will be included with other sources from other categories for determining overall taxation.
This regime must be continued for a minimum of three fiscal years and is only available to residents.
Filing your income tax return
Having declared your business activity, it will be time to settle up with the taxman after completing your first year. The fiscal year in Portugal corresponds to the calendar year.Business activity falls into Category B and is reported on Anexo B in the second filing period, between March 16 and April 30.
On Anexo B of the IRS Individual Income Tax Return, you report your fiscal number, business activity code, and the total amount of invoiced income. Finanças (the tax office) will add the net to other sources of income, such as pensions, interest, and so on. Tax is calculated on your total income at marginal rates (12 per cent – 42 per cent).
Although expenses do not normally enter into these calculations, you may need to keep records of your expenses for reporting IVA (Value Added Tax). Record keeping and recording requirements for IVA are detailed in Part five.
as a business
If you are engaged in tourist related services, these receive special treatment under the Simplified Regime. If you let out furnished accommodation to tourists on a short-term basis, this type of activity is treated in a similar way to sales. In other words, you are only taxable on 20 per cent of your invoiced income.
Rental income and non-residents
Since non-residents are not eligible for the Simplified Regime, how do they best declare their rental income? The simplest way is under Category G, Rental Income, in the IRS Individual Income Tax return. As of 2005, non-residents benefit from a special tax rate of 15 per cent for this type of income. Whatever tax is paid in Portugal should be eligible for a foreign tax credit in the home jurisdiction.
• Dennis Swing Greene is Senior Partner and International Fiscal Consultant for EuroFinesco S.A., with offices in the Algarve and in Lisbon.Appointments may be scheduled in Guia (Albufeira) at 289 561 333 or in Lisbon (Chiado) at 213 424 210.