Income Tax and VAT in Portugal
Thread poster: Christopher Fitzsimons

Christopher Fitzsimons
Switzerland
Local time: 16:19
Portuguese to English
+ ...
Aug 13, 2009

Hi everyone, I just have a query regarding setting up as a freelancer in Portugal. I translate into English(I'm Irish/British)from Iberian languages and French and have recently relocated to Portugal from the UK for various personal and professional reasons. I have a degree in Portuguese and have spent a lot of time here before but have not worked in Portugal previously. I have been here for one month and have managed to set up a bank account and now have a numero de contribuinte(national insurance number). My query isn't really regarding setting up/finding work/getting established in general but is more specific to the Portuguese Tax system. I have visited the Financas & Portal do Cidadao websites to learn about the tax system but wanted to get the opinion/experience/advice of freelance translators living and working in Portugal regarding tax issues.

What I am especially confused about is: 1. whether I need to charge VAT to my clients. The majority of my clients are here in Portugal or in the UK and a few are in the other Western European countries where my source languages are spoken(France, Spain). So they are all EU clients and most are Eurozone also. I have read conflicting messages about the system. On a previous Proz.com forum post I read that: "By Portuguese Tax Law you have to charge VAT (19%) in all jobs you perform for clients located in Portugal. If you work in Portugal and your client is also located in Portugal you have to charge 19% VAT... If you work for clients either in Europe or outside Europe you don't charge VAT. "

Is this true and if so is there any kind of VAT threshold? I.e. Do I only charge my Portuguese clients VAT depending on how much I am personally earning? I have read that until I earn 10000 Euros in the tax year I don't charge VAT and above this amount I do.

2. Income tax-recibos verdes... The more I read about this issue the more it seems to confuse me! Firstly; I assume I need to go to financas, sit down, register as a freelance worker. Then they give me a booklet of recibos verdes and I fill them in for each payment I receive and keep them along with my own records of invoices/bank statements and this is how I work out how much social security and income tax to pay? Is that correct. If so, next question! WHEN do I pay tax? As far as I can make out the tax year begins/ends on December 31st and I have read that I must, as a self employed professional pay tax three times a year. Please clarify this for me if you know the system better than I do! Finally point regarding income tax- is there a threshold below which you do not pay tax as in the UK? From all that I have read so far online I must pay tax, starting at the rate of 10% on ALL income from 0 Euros upwards? Correct?

That is basically it really. I would just like some advice to clear up all of my confusion regarding the situation. I will of course speak to the tax office directly but I wanted to go there with some knowledge of how other freelancers working here pay taxes/charge vat etc in order to better understand the system. Thanks so much in advance for all your help.


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Lawyer-Linguist  Identity Verified
Portugal
Local time: 15:19
Dutch to English
+ ...
Freelancing in Portugal Aug 14, 2009

Hi Christopher,

I am about to start chasing deadlines here, so I'll be brief just to get the ball rolling. Hope you are settling in ok and enjoying the sun!

1. Your 'numero de contribuinte' is your taxpayer ID, not your national insurance (social security) number. When you register at social security, you'll get a different number for that.

2. VAT: If your income equals or exceeds EUR 10,000 in any tax year (the tax year here runs from 1 January to 31 December), you have until 31 January of the following year to register for VAT.

VAT returns have to be submitted, and VAT payments must be made, by the 15th (or next working day) of the second month following the end of the VAT period. VAT periods end on 31 March, 30 June, 30 September and 31 December. Therefore, your returns have to be in by 15 May, 15 August, 15 November and 15 February.

In simple terms, you have to charge 20% VAT (not 19%) on your services to all individuals and companies (including agencies) in Portugal. You have to charge 20% VAT on any services to individuals within the EU, but you do not charge VAT to companies within the EU, provided they have a VAT number.

No VAT is charged to clients (individuals or companies) outside the EU.

3. Social security: You are exempt from paying this for the first 12 months. After that, you have to start paying. You can choose which scale to start paying on, but the current minimum is EUR 159.72 per month. Register so long anyhow, as you'll need a social security number to have access to health services.

4. Income tax: Yes, you need to register at Finanças, in the category for translators. You are allowed a second category, so unless you have something specific in mind, choose 'explicador' (tutor) so that you can legally offer English tutoring, etc if you want to make a bit of extra money.

Once you are on the system, Finanças will send you three assessments per year for provisional tax, these are normally payable on or around 21 July, 21 September and 21 December (the dates differ a bit each year). This will be based in the beginning on what you tell them your expected income will be. After that, it will be adjusted to your actual assessments for each year.

I haven't really looked as it has never affected me, but I think there is a minimum threshold of around EUR 5,000 (but you'll have to ask them, I saw it on a poster at Finanças once, but wasn't paying much attention). Anyhow, to survive, you'll need to go well past that threshold so it won't affect you either at the end of the day -- you'll pay tax on your total income but as you'll be registered on what is known as the 'simplified regime' (because your income will be less than EUR 150,000 per year), you will receive a good rebate each year anyhow (you receive a flat rebate on that system, rather than claiming for individual professional expenses).

Finanças won't give you an official receipts book, you have to go into their treasury section and pay for it But the cost is minimal.

But yes, that is what you'll use as one of your main sources of info for filling in your tax returns. Without it, you won't get paid by a Portuguese agency as they need your 'recibo verde' to claim the expense their end. Some want it before making payment, others straight afterwards (yes, I know it's a 'receipt', but that's how things work here).

Hope this was some help, if you have other questions, you can perhaps go see a local accountant (contabilista) -- most don't charge for an initial consultation, but even if they do, it's good to start off on the correct footing. Finanças will refer you to one anyhow, if you go in there and start asking too many questions -- at least that is the attitude in my town.

Best of luck
Debs





[Edited at 2009-08-14 08:08 GMT]


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CristinaPereira  Identity Verified
Local time: 15:19
Member (2005)
English to Portuguese
+ ...
About VAT (IVA) Aug 14, 2009

Hi Christopher,

I agree with most said by Debs. I just think (but I'm not sure) that you have to start charging VAT the minute you reach 10,000 euros and not the following year.

Maybe this helps:

http://www.destak.pt/artigos.php?art=32367

Regards,

Cristina


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Lawyer-Linguist  Identity Verified
Portugal
Local time: 15:19
Dutch to English
+ ...
VAT Aug 14, 2009

CristinaPereira wrote:

Hi Christopher,

I agree with most said by Debs. I just think (but I'm not sure) that you have to start charging VAT the minute you reach 10,000 euros and not the following year.

Maybe this helps:

http://www.destak.pt/artigos.php?art=32367

Regards,

Cristina


Hi Cristina,

You may very well be right. It would indeed make more sense as the State would benefit.

It's years since I went onto the VAT system. I know I definitely did it in January of the following year without any comebacks. I probably asked someone, but honestly can't remember now whether leaving it to the January was intentional because of advice I'd received or just how it all panned out.

However, I've just checked the book that I have (IRS para Independentes Regime Simplificado). That says that once you've been to Finanças or changed your VAT status online:

'Essa alteração entra em vigor em Janeiro do ano seguinte àquele em que os €10,000 foram ultrapassados'.

From that I can only deduce that as long as you make the change by then -- i.e. in order for it to come into force in January -- you'd be ok, but of course, it's always best to check with Finanças or an accountant.

Have a nice weekend
Debs


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Christopher Fitzsimons
Switzerland
Local time: 16:19
Portuguese to English
+ ...
TOPIC STARTER
Thank-you! Aug 15, 2009

Hi Debs and Cristina.Thanks so much for your answers; they were really informative and I really appreciate you having taken the time to help me out. One more issue I just wanted to ask about is regarding couples and income tax. I live and work with my fiancee who is also a translator and although we are not married I wondered whether this could make any sort of difference when it comes to income tax brackets? I've read a little about this topic and again, have come away with conflicting ideas?
Thanks so much for all of your advice.
Best Wishes,

Chris


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Lawyer-Linguist  Identity Verified
Portugal
Local time: 15:19
Dutch to English
+ ...
Cohabitation Aug 15, 2009

Hi,

Not sure whether I understand the question properly Christopher: are you concerned that because you live (and work) together you may be taxed jointly (and effectively placed in a higher tax bracket)?

Regards
Debs

[Edited at 2009-08-15 10:28 GMT]


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CristinaPereira  Identity Verified
Local time: 15:19
Member (2005)
English to Portuguese
+ ...
My two cents Aug 15, 2009

Debs: as I said before, I'm not sure, but a colleague once mentioned to me it was like that (a company she worked for even advised her at some point of the year that 10,000 euros were reached and that she'd have to take measures).

Christopher: as far as I know, as long as you are not married, you have to submit separate income tax statements. Or maybe you have to get information about the "união de facto" regime, which I think can now provide some benefits for those who apply.

You really have to go to "Finanças"! I hope you meet there someone nice (it does happen, sometimes).

Have a nice weekend,

Cristina


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Christopher Fitzsimons
Switzerland
Local time: 16:19
Portuguese to English
+ ...
TOPIC STARTER
Thanks! Aug 16, 2009

Hi again. Thanks Cristina- I agree; I will go speak to Finanças and hopefully come across someone helpful! Yes Debs, that's what I was concerned about. I'd read that there may be benefits to be derived from being taxed jointly but I wasn't sure whether or not this would apply to us. I will perhaps investigate the "união de facto" that Cristina mentioned. Thank-you both again!

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Lawyer-Linguist  Identity Verified
Portugal
Local time: 15:19
Dutch to English
+ ...
Cohabitation again ... Aug 17, 2009

Hi Christopher,

I remember reading somewhere that in order to qualify for any cohabitation benefits, you'd both have to have had the same domicile for tax purposes (obviously in Portugal) for at least two years (i.e. to be treated like a married couple). I know last year Finanças caught out a few thousand couples claiming benefits that they shouldn't have because they didn't fulfil this or other requirements.

Check with Finanças but as Cristina has mentioned you will almost certainly have to file separate tax returns at this stage of the game.

All the best
Debs

[Edited at 2009-08-17 15:19 GMT]


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Christopher Fitzsimons
Switzerland
Local time: 16:19
Portuguese to English
+ ...
TOPIC STARTER
Cohabitation again ... Aug 19, 2009

Lawyer-Linguist wrote:

Hi Christopher,

I remember reading somewhere that in order to qualify for any cohabitation benefits, you'd both have to have had the same domicile for tax purposes (obviously in Portugal) for at least two years (i.e. to be treated like a married couple). I know last year Finanças caught out a few thousand couples claiming benefits that they shouldn't have because they didn't fulfil this or other requirements.

Check with Finanças but as Cristina has mentioned you will almost certainly have to file separate tax returns at this stage of the game.

All the best
Debs

[Edited at 2009-08-17 15:19 GMT]


Hi again Debs, I've just seen your post now. Yes, that's what I had thought and as we haven't been living here for that long that wouldn't apply to us. I will check it out when I go to Finanças anyway. Thanks!


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Ana Rita Simões  Identity Verified
Portugal
Local time: 15:19
Member (2009)
English to Portuguese
+ ...
oh, Portuguese tax system.... Aug 21, 2009

First of all, welcome Christopher I hope everything is going ok and that you will enjoy your stay here in Portugal.

CristinaPereira wrote:
I just think (but I'm not sure) that you have to start charging VAT the minute you reach 10,000 euros and not the following year.


I don't know if it changed this year, but at least last year you didn't have to start charging VAT right away, only the following year - that's what happened to me. I opened my activity as a freelance translator in April and my limit was 7,000 and something (the limit of 10,000 is only for people who open activity in January - from then on, they make the count according to the months left till the end of the year). I reached that limit in November, but only started charging VAT in February this year - if you pass your limit, you have to go to Finanças in January to change your status and you start charging VAT in February because January is still "for free".

And don't worry - it's perfectly natural that Portuguese tax system seems confusing - I'm still trying to figure out a lot of things myself


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Christopher Fitzsimons
Switzerland
Local time: 16:19
Portuguese to English
+ ...
TOPIC STARTER
Social Security Aug 25, 2009

Ana Rita Simões wrote:
I opened my activity as a freelance translator in April and my limit was 7,000 and something (the limit of 10,000 is only for people who open activity in January - from then on, they make the count according to the months left till the end of the year).And don't worry - it's perfectly natural that Portuguese tax system seems confusing - I'm still trying to figure out a lot of things myself


Thanks very much for this Ana; that sounds like what I keep reading. It's reassuring to know that the system confuses you too!

I just have one more question regarding social security. I understand that I don't pay this year(is that for the first 12 months of working freelance in Portugal? i.e July 2009-July2010 for me-or is it the tax year?) and that next year I must choose a scale according to my income this year. However I have read that if I am only working for say 15 days in PAID work per month i.e. actually working on a paid translation job as opposed to marketing, admin, invoicing etc etc then I can choose to pay social security in this way? I suppose what it really amounts to is registering as being self-employed but on a part-time basis which is essentially what I am doing if I look at it in the above terms, and therefore paying half of the social security contributions . Any ideas/advice on this?
Thanks very much everybody.


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Christopher Fitzsimons
Switzerland
Local time: 16:19
Portuguese to English
+ ...
TOPIC STARTER
All registered Oct 30, 2009

Just a little update; I've been to finanças now and registered and believe it or not the person I spoke to was actually relatively helpful!
So I have my recibos verdes now. I also enquired about VAT and was informed that once I exceed 10000 Euros in the tax year I need to inform finanças of this at the end of that tax year(december) and then begin to charge VAT the following year, i.e January. This is what I gathered although I will probably pay them another visit before the end of the year to clarify this as what Ana said also seems to make sense... We'll see! At least everything is becoming (slightly) clearer now!

Just one final query- do I actually need to send my recibos to my clients if they are outside of Portugal? Will they need/want them? I understand that I need to fill in a recibo verde for each job I invoice and that I am supposed to then send the copy to the client. But as the majority of agencies I work for are in Belgium/France, this seems to make little sense... If I do need to send them the receipts, must I do this at the end of every month? Also, I intend to submit my tax returns online-do I then need to post the recibos verdes to finanças? Such a strange system...

Oh and I've decided that I'll deal with Social Security contributions when the time comes; I've registered and will just enjoy my first year of exemption(!) and then sort out my scale etc when the time comes.

Thanks so much for all your help again!


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Christopher Fitzsimons
Switzerland
Local time: 16:19
Portuguese to English
+ ...
TOPIC STARTER
Livro de registo de receitas? Oct 30, 2009

I also just noticed the following while rereading the article that Cristina mentioned: "É também obrigatória a aquisição de um livro de registo de receitas (modelo 8)."
This wasn't mentioned to me in finanças and I don't have one... Should I return and request one? I'm assuming that it is for keeping records of invoices etc?
Thanks again.


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