If you are self-employed, you are subject, fiscally, to issuing green receipts. Find out the implications for the IRS.
Issuing green receipts is an increasingly common practice in Portugal, either because you are self-employed or because you develop a parallel activity or hobby to have an extra income and help with the family budget. Discover in this article all the implications of IRS for those who pass green receipts.
How does the IRS work for those who issue green receipts?
Who issues green receipts?
Green receipts are a way of declaring services provided, which include the name of the person to whom services are provided, value, VAT and withholding tax (where applicable).
These receipts are due to self-employed workers with professional and business income and, for IRS purposes, fall under category B.
What income is taken into account by the IRS for those who issue green receipts?
Who issues green receipts are self-employed service providers such as, for example, lawyers, architects and doctors or any other person who carries out an activity through the provision of services.
According to Article 3 of the IRS Code (CIRS) green receipts are all those that:
- Earn income from any commercial, industrial, agricultural, forestry or livestock activity;
- Earn income, on their own account, from any service activity, including those of a scientific, artistic or technical nature, whatever their nature.
This cake also includes:
- Income from intellectual or industrial property or the provision of information regarding experience acquired in the industrial, commercial or scientific sector, when earned by its original holder;
- Income from property attributable to activities that generate business and professional income;
- Income from capital attributable to activities that generate business and professional income Amounts received, as compensation, related to the activity carried out, namely its reduction, suspension and termination, as well as the change of the place of the respective exercise;
- Subsidies and grants.
What are the withholding rates?
Green receipts are subject to withholding tax and there are different withholding rates depending on the activity of the service provider. These fees are mentioned in the article 101 of the CIRS and are distributed as follows:
- 25% for income from activities carried out by doctors, lawyers, architects, among others (professional activities provided for in the table referred to in article 151 of the CIRS);
- 20% for income from scientific, artistic or technical activities, previously defined, earned by non-habitual residents in Portuguese territory;
- 16.5% for income from intellectual or industrial property or the provision of information on experience in the commercial, industrial or scientific sectors;
- 11.5% for other independent workers and isolated acts.
Who is exempt from withholding tax?
Although this is the usual procedure, there are situations in which withholding tax is not mandatory. These exceptions are provided for in article 101.º-B of the CIRS.
It should be remembered that with the entry into force of the 2020 State Budget, the turnover limit for the application of the special exemption regime (which, in 2019, was 10 thousand euros) increased to 12,500 euros.
Submit the IRS return
In 2023, the deadline for submitting IRS returns for the 2022 tax year is unique and covers both dependent and independent workers. stems from April 1st to June 30th.
How to calculate the amount subject to tax?
The rules for determining the amount of taxable income vary according to the regime for which the self-employed worker has opted or is obliged to, taking into account gross annual income: simplified regime or organized accounting.
The simplified regime covers self-employed workers with income below 200 thousand euros/year and who have not opted for the organized accounting regime.
In the simplified regime, according to the article 31 of the CIRS, the amount subject to tax corresponds to 75% of annual gross income. But there are exceptions.
In the tax period at the beginning of the activity and in the following tax period, the amount of income that is subject to IRS is 37.5% and 56.25% respectively, provided that you do not have income from dependent work, pensions or if you has not ceased activity for less than five years.
There are also other activities, outside the scope of those indicated in article 151 of the CIRS, taxed at 35%, for which lighter taxation also applies for the first and second year of activity, 17.5% and 26 .25%, respectively.
If, instead of the simplified regime, you opt for organized accounting – a regime that is mandatory for self-employed workers with gross annual income above 200 thousand euros – know that the rules to which you are subject are a little more complex.
Proof of this is the obligation for the IRS declarations of taxpayers who are in this regime to be signed by a Certified Accountant (CC).
One of the advantages that this regime offers in relation to the simplified regime is the possibility of deducting most charges and expenses related to your activity.
In the organized accounting regime, the amount subject to tax will be determined through the net result of the activity, that is, after subtracting expenses and charges from turnover. It is then on this value (amount invoiced – expenses) that the tax will be levied.
What are the expenses to be deducted from the IRS for those who issue green receipts?
Expenses such as:
- Expenses with personnel and charges related to wages, salaries or wages communicated to the Tax Authority;
- Specific deduction (€4,104);
- Imports or intra-community acquisitions of goods and services.
Other expenses can also be deducted, but if these have been incurred for personal and professional use, they will only be considered at 25%, such as:
- 25% of the amount paid in real estate rents related to professional activity;
- 25% of expenses with the acquisition of goods and provision of services related to the professional activity, such as current consumption materials, rent, water, electricity, transport and communications, travel, travel, accommodation, insurance, litigation and contributions;
- 25% of 1.5% of the Taxable Equity Value (VPT) of properties allocated to business or professional activity. In the case of a local accommodation property, you can deduct 4% of the VPT.
Automatic IRS for self-employed workers
Don’t forget that since 2021, the Automatic IRS it also started to cover self-employed workers under the simplified regime who carry out service activities provided for in the table referred to in article 151 of the IRS Code.
However, it should be noted that the automatic declaration self-employed workers registered in the “Other service providers” category are excluded. The same happens if they accumulate independent activity with work for others or if they have organized accounting.