Forbes ranked Lisbon as the 4th best global city for starting your business. This is a result of many factors which includes an easy way of accounting. Here’s a very quick round-up of a few things you need to know about accounting as a freelancer in Portugal.
Simplified Or Organized Accounting
For freelancers there are two types of accounting available in Portugal – simplified or organized. It is very important to note, that it is only possible to choose the accounting regime if you operate under these two entities:
- Self-Employed Workers (Trabalhadores Independentes)
- Individual Contractors (Empresários Em Nome Individual)
Any other type of company is required to use the organized accounting regime. The larger the business and the higher the revenue generated, the more likely the organized accounting regime will suit more. On the other hand for an activity with less money flow and which generates less revenue the simplified scheme will be the most appropriate solution. When your gross annual income exceeds 200,000 euros, organized accounting becomes compulsory for both self-employed and sole proprietorships. If you start your business with the simplified plan then your turnover should not exceed the limit of € 200,000 over two consecutive years, or exceed this amount by more than 25% over one year. If this happens, the system must be changed, otherwise you will be subject to fines.
The Difference Between The Two Types
- For the calculation of the tax, only a percentage of the income is taken into account;
- It is not possible to deduct work expenses;
- There are fewer tax obligations and expenses associated with this plan.
- For the calculation of the income tax, only the annual gross income is taken into account;
- You can deduct business expenses;
- It is necessary to hire an official accountant (TOC);
- Every year, it is necessary to prepare, present and classify the accounts of the exercise.
In Portugal, it is now a requirement that all invoices are produced by an authorized accounting software product that is linked digitally to the tax authority. This not only saves you time and money, but also provides constant visibility on your business shows you where you are with your clients and offers you the ability to instantly analyse your company’s financial performance.
An accountant will be invaluable and there are now plenty of English speaking accountants with experience of the start-up sector. They will provide a no-nonsense approach and help you with all your financial concerns. The monthly costs are usually in the region of €100 — €200.
To know more about taxes and accounting in Portugal we invite you to an event on the 4th of June at BWorking Coworking Spaces.