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Working on your own, or on green receipts, has advantages and disadvantages. If, on the one hand, there is more flexibility and freedom to choose the time and place of work, on the other hand, there is a set of associated expenses that must be well budgeted.
While for self-employed workers a portion of these expenses is paid by the employer, for self-employed workers the bill can be heavier.
The accounts in question depend not only on income, but also on the activity itself. This is because the tax framework is not the same for all self-employed workers and, even with the IRS, for example, it is different if the income is obtained through the sale of products or services.
Therefore, there are no correct and equal calculations for everyone because, as we will see, there are many variables that go into these calculations. For this purpose, we have prepared a self employed guidewhich can help you better understand the obligations associated with being self-employed.
Guide for the self-employed: taxes to be paid (IRS and VAT)
IRS and VAT are the two taxes that self-employed people have to worry about, but it all depends on the income they receive. This is because there are minimum limits up to which they are exempt from withholding income tax and exempt from VAT.
In addition, rates also vary depending on the activity carried out.
Category B income, that is, income obtained through self-employment, must be declared and, as in the case of employees, must be withheld at source. That is, a part of what is earned does not enter the worker’s pocket.
For those who work for others, this amount remains in the possession of the company, which then pays to the Tax Authorities. In the case of green receipts, this value is delivered by the customer to the State.
The withholding rates applicable to self-employed workers are, according to the Article 101 of the CIRS:
- 25% for earnings listed in the table of professional activities in the article 151 of the CIRSfor example engineers, nurses, accountants;
- 11.5% for self-employed workers who are not covered by the table of professional activities in article 151 of the CIRS and isolated acts;
- 16.5% for income from intellectual property (writers, for example), industrial property or the provision of information on experience in the commercial, industrial or scientific sectors;
- 20% for income earned in value-added activities, of a scientific, artistic or technical nature, defined in an ordinance of the member of the Government responsible for Finance, by non-habitual residents in Portuguese territory.
This means that, if the value of the receipt to be issued is 1000 euros, and the income is subject to a 25% withholding, you must withhold 250 euros. That is, you receive €750 and the remaining €250 must be delivered to the State by the company to which you issued the receipt.
Exemption from withholding tax
Even so, withholding tax is not mandatory for everyone. That is, if in the previous year your earnings were below a certain amount, you may not withhold. In this case, and when issuing the receipt, you must check the Withholding Exemption option / art. 101.º-B, no. 1, al. a) and b), of the CIRS.
The turnover limit that gives the right to exemption from withholding tax is, since 2021, 12,500 euros.
Payment on account
If you do not withhold at source, you will still have to pay the IRS, through so-called payments on account, made three times a year (in July, September and December).
Finance, taking into account the income you declared – in 2021 they will take into account the income from 2020 – make a calculation and, assuming that this year you will maintain the income, charge you the respective IRS.
The adjustments are made when submitting the next statement: if you paid too much you will receive the refund, if you paid too little you will have to deliver the amount of IRS that was missing to the Tax Authorities.
As in the previous cases, the amount of the payment on account will depend on income, but this is another factor to take into account when calculating how much it costs to be self-employed.
In 2022, the payment of VAT was mandatory for those who exceeded 12,500 euros in turnover. In 2023, this limit increases to 13,500 euros, being applicable to the turnover of the previous year. This means that if, in 2022, your gross income did not reach 13,500 euros (even if you are included in the VAT regime), then you can benefit from the exemption of this tax.
When the limit is exceeded, self-employed workers remain exempt from VAT charges only until January of the following year since, from that date onwards, they have to submit a declaration of activity change to the Tax and Customs Authority.
Then, from February, the obligation to collect VAT from the entities to which they provide services is foreseen. This amount must then be handed over to the State, however, VAT on expenses related to the activity may be deducted.
The periodic VAT declaration is monthly or quarterly, depending on the self-employed worker’s billing.
Self-employed workers who have organized accounting and who carry out import, export operations or related activities are also obliged to pay VAT.
They are also obliged to pay VAT if the sales or provision of services are in the area of waste, waste and recyclable scrap.
Organized accounting or simplified regime?
Self-employed workers with net annual income of up to €200,000 are automatically placed in the simplified regime, but can opt for organized accounting.
In the simplified regime, it will not be necessary to hire a certified accountant, thus avoiding yet another expense. However, this regime also does not allow the deduction of expenses with the activity. For tax purposes, only part of the income obtained is considered, which varies according to the activity.
The organized accounting scheme is also accessible to anyone earning less than 200,000 euros a year. And, in this case, it already allows the deduction of expenses with the activity, but it also requires that the annual gross income be considered.
Contributions to Social Security
This is a mandatory expense, except for those who opened activity less than 12 months ago. In that case, and even to be able to benefit from social protection if necessary, you can make a voluntary contribution in the amount of 20 euros.
In the case of self-employed workers not covered by the organized accounting regime, the contribution amount is calculated quarterly, based on the values contained in the quarterly declaration.
This income is divided by three and is applied a rate of 21.4%. This is the contribution amount payable. The value determined in each reporting period takes effect in the same month and in the following two months.
The amount payable does not take into account the total declared income; is calculated on the basis of the so-called relevant income. That is, 70% of income from providing services or 20% of income associated with the production and sale of goods.
For example: Value of the quarterly declaration = 3000€. Dividing by three, we get an average monthly income of €1000, with 70% equivalent to €700. The rate of 21.4% applies to these €700, which represents a monthly contribution of €149.8.
However, and to pay more or less, the self-employed worker may, when submitting the quarterly declaration, change the relevant income, increasing or decreasing it in 5% intervals. These changes can be made up to a limit of 25%, without prejudice to the established limits: a minimum of €20.00 and a maximum of 12xIAS (i.e. €5,765.16 in 2023).
For those who are covered by the organized accounting regime, the relevant income is calculated based on the taxable profit of the previous year. This value is divided by 12, with the lower limit being 1.5 times the value of the IAS (€720.65 in 2023), on which the respective contribution rate of 21.4% will apply.
Self-employed tax calendar
Self-employed workers must always have at hand the dates of the declarative and contributory obligations, so that no obligation with the State fails due to forgetfulness.
Dates of the quarterly statement to Social Security
As a rule, the payment of contributions is monthly and must be made between the 10th and the 20th of the month following the month to which they relate. The quarterly statement must be submitted:
- By January 31st, self-employed workers must declare their income for the last quarter of the previous year (October, November and December). You must also, on this date, confirm or declare the amounts of income for the previous calendar year;
- By April 30, you must submit income earned in January, February and March;
- Until July 31, income earned in April, May and June;
- And until October 31, the income you earned in July, August and September.
Delivery dates of the periodic VAT return
There is also news for 2023 in this regard. The deadlines for submitting the periodic VAT return have been extended. According to article 41 of the VAT Code, the periodic declaration must be submitted on the Finance Portal:
- Until the 20th of the 2nd month following the month to which the operations relate (periodic monthly VAT return). It should be remembered that the delivery of the periodic monthly VAT return is mandatory for those who had a turnover equal to or greater than 650 thousand euros in the previous calendar year;
- Until the 20th day of the 2nd month following the quarter of the calendar year to which the operations relate (periodic quarterly VAT return), and payment must be made by the 25th. That is:
- 1st quarter: delivery by May 20th and payment by the 25th;
- 2nd quarter: delivery by September 20th and payment by the 25th;
- 3rd quarter: delivery by November 20th and payment by the 25th;
- 4th quarter: delivery by February 20th and payment by the 25th.
note: If the delivery or payment day of each month coincides with a weekend or public holiday, the deadline shall be understood to end on the first following business day.
Is there any mandatory insurance for self-employed workers?
In the calculations to understand how much it costs to be a self-employed person, there is one more part to add: compulsory insurance. It is an insurance against accidents at work, similar to what is done for employees.
The main difference is that, in this case, it has to be paid by itself. The value of the insurance depends on the activity, income and coverage contracted, so it is convenient to pay attention to all these details.
As it is mandatory, fines between 50 and 500 euros for those who don’t have it.
Article originally published in July 2019. Last updated in January 2023.