How can an Umbrella Company Help with Contracting in Portugal?
Most freelance workers aren’t superheroes who successfully tackle these issues all on their own. There are companies who specialise in helping workers make the most out of their contracts.
They’re called Umbrella Companies (or, contractor management companies).
Basically, an Umbrella Company acts as your full-time employer, even though you maintain your independence as a contractor. They collect and filter payments from your clients, filtering out the necessary social security and fees. You send them your timesheets, and they send you payments.
Because they act as your “employer,’ they can sponsor you and provide a single work permit for multiple contracts in Portugal. Even better, most are experts in Portugal and expat tax law, meaning they’ll also help you optimise your earnings in Portugal.
Although the Umbrella Company is technically your “employer,” you’re essentially freeing yourself to work even more independently. You still dictate your contracts, your hours, your schedule. The Umbrella Company simply filters out the time-consuming admin and immigration issues, allowing you to focus on your new contract.
Can I Organise My Taxes and Work Permit Myself?
Generally, you need to have an employer sponsor in order to secure the appropriate work permit and work visa for Portugal.
If you’re working independently, it can be difficult to find clients willing to sponsor you. Moreover, even if your client can do this, you’ll need a new sponsor each time you decide to take on a new contract. Of course, every new sponsor will mean more paperwork.
Also, are you familiar with the intricacies of the tax system in Portugal, as well as your own country’s laws on overseas earnings? If so, good on you!
However, if you’re like the rest of us, figuring out (much less reducing) your tax liability in Portugal and your home country can seem like full-time work in itself.
A Contractor’s Guide to Taxes in Portugal
One of the most consistently challenging aspects of contracting in Portugal is complying with the country’s tax system. As well as paying tax in Portugal, you might also still be eligible to pay some tax in your home country, and understanding the legislation behind this can be a challenge.
How do I calculate my taxable income in Portugal
If you’re working in Portugal under a permanent contract, many employers will handle your tax under the PAYE (pay-as-you-earn) system. This means that they calculate and process your taxes in Portugal for you and then send you a net wage. Your income tax, public health insurance, social security and other deductions will all be covered by this payment. This is the easiest way to handle your income tax in Portugal, but contractors may not be offered this service because of their short stay with each employer.
Anybody who can’t pay their tax in Portugal through PAYE is left with the prospect of doing everything themselves.
Do you know much about Portuguese Tax Law? Does Portugal have a tax treaty with your home country? You will need to find out or find someone who can help! Income tax in Portugal can range from 14.5 to 48 percent, and you need to be sure you are placed in the correct tax brackets.
Tax Filing as a Contractor in Portugal
| When Do You Need to Lodge Your Tax Return? | 1 April |
| Tax Filing Deadline | 31 May |
| Can you file it online? | Yes, https://www.portaldasfinancas.gov.pt/at/html/index.html |
How to File Taxes in Portugal as a Contractor
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 tax payer in Portugal by filling in a registration form(link is external) (ficha de inscrição) and submitting it at your local tax office(link is external). The form to be filed is “N.º Identif.Fiscal-Pessoa Singular Ficha de Inscrição”. After submitting the form, you will be issued with your Portuguese income tax number.
Step 2: To file online, first register for an account on the government website(link is external). You will need your income tax number for this step. After registration, an access password will be sent your email address.
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 a number of special forms for declaring different types of income. These forms include:
- Category A: employment income (wages & salaries, remuneration, commissions and fringe benefits)
- Category B: self-employment income from a profession or business in Portugal
- Category E: investment income
- Category F: rental income
- Category G: capital gains from selling property, assets or shares
- Category H: pensions in Portugal, including Plano Poupança Reforma (private pension plans).
Step 4: Enter details relating to deductions. All employees may deduct an amount of EUR 4,104. Other information:
- 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 5: Submit the tax return. The Portuguese tax authority will issue a respective tax assessment and any balance of tax due will be paid. Overpayments of tax is usually refunded directly into the bank account specified on your return within 3 months of filing.
Tax Figures in Portugal
| Currency | Euro (EUR) | ||||||||||||||||||
| Tax-free Threshold in Portugal | None | ||||||||||||||||||
| Income Tax Rates |
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| Notes | The above progressive rates apply to resident taxpayers filing singly. For married taxpayers, the progressive tax rate is determined by dividing the taxable income by two. Non-residents are taxed at a flat rate of 25% on their taxable income. Non-habitual residents, those who have the right to reside in Portugal (an EU/EEA/Swiss or a holder of a residence permit) and has not been a tax resident of Portugal during the last 5 years, is subject to a flat tax rate of 20%. This status is granted for 10 years. Additional solidarity taxes apply in accordance with the following table:
An extraordinary surcharge also applies to taxable income in accordance with the following table:
Personal deduction and allowances: Employees may deduct an amount of EUR 4,104. Compulsory social security contributions in excess of EUR 4,104 are deductible without limitation. |
Tax Residency in Portugal
When do you become a tax resident in Portugal
You become a tax resident in Portugal when:
- You stay in Portugal for more than 183 days in any 12 month period.
- You have a dwelling in Portugal, during the abovementioned period, which may imply your intention to use it as your habitual residence.
Individuals that meet these conditions become a Portuguese tax resident from the first day of permanence in Portugal. As such, it is possible to split the year for tax purposes.
Does the 183 day rule apply in Portugal
Yes
Am I taxed on my global income in Portugal
Yes, if you are a resident.
Non-residents are subject to tax on income arising in Portugal.
Can you set up your own Limited Company in Portugal?
| How long does it take to set up | 5 days |
| How much does it cost | EUR 360 |
| Is it easy? | Starting a Business Rank: 48 (Source: World Bank) |
Tax Calculator in Portugal
If you are a contractor and want a calculation on your tax and net retention in Portugal, we can supply it to you free of charge.
Using an Umbrella Company for Income Tax in Portugal
Contractors in Portugal are faced with masses of paperwork and numerous wasted hours filing a tax return unless they find an alternative option. A Portuguese umbrella company can act as your employer during your stay in the country whilst still allowing you the freedom of a contractor. The only difference is that you submit your timesheets to them; they’ll calculate and pay your taxes as you earn, and then you receive a net wage (as well as documentation for your records).
The companies are experts in Portuguese taxation, and they’ll ensure that you keep the largest proportion of your earnings whilst complying with local laws. They can deal with any issues with the Portuguese tax office or tax department directly including processing your tax refund if you are eligible.
How We Can Help You with Tax in Portugal
We work with numerous umbrella companies in Portugal, many of whom are experts in tax and immigration laws. If you have any questions about tax in Portugal, we’ll get the answers from them directly so you can rest assured you’ll be getting accurate information. We have comprehensive knowledge of the different services they provide, and can help you find the right company to handle your income tax. We help oil and gas workers, software developers, IT project managers, testers, business analysts and telecommunications contractors get tax efficient payments and sponsorship for their Portuguese work permit.
Our advice is 100 percent free, and comes with no obligations. You will be paying taxes in Portugal but without the overhead of directly dealing with the Portuguese tax authorities. Get in touch with us today for some reliable advice on tax in Portugal!
A Contractor’s Guide to Work Permits in Portugal
Immigration is one of the primary concerns for any contractor hoping to start working in Portugal. Permanent employees will find it easy to get their Portuguese work permit because they’ll receive “sponsorship” for their entire stay from their prospective employer.
The Portuguese work permit, known more commonly as the Autorização de Trabalho, is dependent on this sponsorship because it confirms that you’ll be earning money during your stay in the country. Contracting in Portugal is more difficult because the work permit is tied to one employer, so you have to change it to suit each new contract. Thankfully, umbrella companies provide a convenient and effective solution to this issue.
How Does an Umbrella Company Work?
Most people want to do their work, earn their money and enjoy their spare time without taking on loads of admin in a new country. That is why an umbrella company can help.
When you’re working through an Umbrella Company, you’ll essentially be outsourcing the admin and tax issues to specialists.
While the umbrella company will charge a fee, you’ll likely end up saving more money in the long run: you’ll be able to focus on your work, expertly reduce your tax liability, and comply with all laws and regulations in Portugal (which means avoiding fees, fines, or even worse penalties).
How Can We Help You?
There’s a huge variety of Umbrella Companies with different specialities and advantages in Portugal. How do you find the right one for your circumstances?
We work closely with Umbrella Companies all throughout Portugal and match contractors with the right company for them. If you’ve already secured a contract in Portugal, we can help you find your best match (for free). Or, we can simply give you feedback on your situation (for free).
