Among the many European countries where international contractors can look for clients, Portugal has a high appeal due to its low cost of living, rich cultural heritage, and tax-friendly policies to attract foreigners. If you are planning on contracting in Portugal as a contractor, this guide will get you started.
As you search for Portuguese clients, it will be worthwhile to consider all of the steps to work and be in compliance, including immigration rules, tax residency, and the best business structure for contracting.
Do I need a visa to be a contractor in Portugal?
EU nationals do not need a work visa in Portugal, although after 90 days you will need to apply for a residence card. The residence card is valid for up to one year of work, and if your work period extends beyond that, it can be renewed for an additional five years.
Non-EU nationals will face more of a challenge contracting in Portugal, but there are solutions. Self-employed workers can obtain a short-term visa for contracts of less than six months, with approval from the labour authority. Longer-term contractors will have to apply for a Schengen visa, which is a residency permit as well. Citizens of some countries will have to apply for this before arriving, if their home country does not have a tax treaty with Portugal.
How do I get paid while contracting in Portugal?
Sometimes selecting the right payment method can mean retaining more of your earnings and simplifying your contracts. You will have a few choices in Portugal depending on your nationality and length of stay.
Work as a self-employed freelancer
For EU nationals working on short contracts, the freelancer route may be easiest, as you can enter Portugal at any time and start working. You still have to register, but there are no immigration steps unless you want to stay long term.
In addition, you would contract directly with one or more clients, arrange a payment method, and fulfil the terms of your contract. You would be responsible for filing and paying your own Portuguese taxes and social contributions, in addition to any taxes at home.
Set up your own limited company
Contractors who want to set up in Portugal long term may consider a limited company business structure. You would have to learn how to meet Portuguese rules for a limited company and may need professional assistance at some point.
Your limited company would contract directly with the clients, which does convey more business stability. Keep in mind, your limited company could be liable for corporate tax, as well as your own individual income tax.
Work with an umbrella company in Portugal
Finally, there is an option to work with an umbrella company. This may be the only feasible method for some non-EU freelancers that don’t want to navigate the work visa steps on their own. The umbrella company would assist with your client contracts, payments, and tax withholding so that you can concentrate on your work.
It’s a real advantage to have a third party involved if it is your first time contracting in Portugal, or if you are not well-versed in tax preparation or ensuring that you get paid on time for your projects.
How do taxes work for contractors in Portugal?
As in many countries, taxes for contractors may have variations that can increase the total retained income. The final result will depend on residency and election of any special tax rates.
What are the tax rates?
Tax rates for resident self-employed contractors are progressive from 14.5% to 48%, on 100% of the remuneration. Non-resident expats are taxed a flat 25%.
What is the tax residency rule in Portugal?
You will become a tax resident in Portugal if you spend more than 183 days in the country in the calendar year, or in a rolling 12-month period. Even for stays of less than that, if you have what would be considered a residence or abode you will also be considered a tax resident.
EU nationals who become tax residents in Portugal can elect to use the non-habitual residency regime tax rate which is a flat 20% on all income, and certain eligible professions would have foreign-sourced income exempt from taxes altogether. (Normally, tax residents are taxed on worldwide income.)
How do I file taxes in Portugal?
Tax returns may be filed manually by collecting a tax return form for your tax office or electronically. The process of filing taxes in Portugal involves:
Step 1: Register as a taxpayer in Portugal by filling in a registration form(ficha de inscrição) and submitting it to your local tax office. The form to be filed is “N.º Identif.Fiscal-Pessoa Singular Ficha de Inscrição”. After submitting the form, you will be issued your Portuguese income tax number.
Step 2: To file online, first register for an account on the government website. You will need your income tax number for this step. An access password is sent to your email address after registration.
Step 3: Log in using your income tax number and password.
Step 4: File Modelo IRS1 which is the standard form. This is supplemented by several special forms for declaring different types of income. These forms include:
- Employment income (wages & salaries, remuneration, commissions, and fringe benefits)
- Self-employment income from a profession or business in Portugal
- Investment income
- Rental income
- Capital gains from selling property, assets, or shares
- Pensions in Portugal, including Plano Poupança Reforma (private pension plans).
Step 5: Last but not the least, enter details relating to deductions. All employees may deduct an amount of EUR 4,104.
Compulsory social security contributions in excess of EUR 4,104 may be deducted without any limitation.
Union contributions and indemnities to employers (the part that does not constitute a direct contribution for health, education, elderly support, home, or insurance) may also be deducted, subject to particular limitations.
Step 6: Submit the tax return. The Portuguese tax authority will also issue a respective tax assessment and any balance of tax due will be paid. Overpayments of tax are usually refunded directly into the bank account specified on your return within 3 months of filing.
What are the social security contributions in Portugal?
Social security contributions for self-employed contractors include what would be both the employer and employee share, totaling 29.6% of income. The system in Portugal does have many benefits including unemployment, sickness allowances, and pension.
How do I stay compliant while contracting in Portugal?
The main compliance concerns for international contractors in Portugal
- Making correct tax payments
- Meeting immigration requirements, and
- Paying social contributions.
Each of these can apply to expat contractors in Portugal, and depend on a number of criteria that may be difficult to learn if you are new to the country.
The easiest way to remain compliant given all the variables is to use an umbrella company as your local partner in Portugal. They are already well-versed in the rules for self-employed contractors and can help you get started with the contract, and then facilitate all the compliance-related steps on your behalf.
Furthermore, using an umbrella company is the best way to avoid any misclassification issues or violating any self-employment rules. Aside from compliance, here are the other benefits of using an umbrella company:
- Firstly, handle all client payments, tax withholding, and any social contributions
- Secondly, issue you a payslip each month, to a Portuguese or foreign account
- Sponsor work permits for non-EU citizens
- Also, help set up the contract with the client
- Moderate any disputes with your client
- Last but not the least, advice on access to totalization and double taxation treaties
Contractor Taxation has experienced umbrella companies in Portugal who are ready to help you right away, even before your leave home. Please contact us for more information on how an umbrella company can be your essential partner in international contracting.