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
|Tax-free Threshold in Portugal||None|
|Income Tax Rates||
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
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).
Popular questions contractors asked about Contracting in Portugal
Are companies hiring contractors in Portugal if they are working remotely?
Of course, and if you have the right skills for a remote role a company won’t mind if you are living in Portugal. The Digital Nomad Visa is designed for this, so that non-EU citizens can work remotely while living in Portugal.
Where do I find out about registering as self-employed in Portugal?
Here is what is required for freelancers working independently:
- Work visa for non-EU citizens (or a Digital Nomad Visa)
- Evidence of regular entry into Portuguese territory
- Proof of means of subsistence
- Proof of accommodation
- Criminal record from your country of origin
- Extract from the criminal record from the country of residence for more than one year (if not Portugal) or permission for SEF to check your Portuguese criminal record
- Evidence of registration with the tax authority with a tax ID number and declaration of your business activity
What is Portugal’s non-habitual residency regime (NHR)?
EU citizens working in Portugal have access to a flat 20% income tax under the NHR, which may result in higher retained earnings.
How do I become a contractor in Portugal?
If you are an EU citizen, it’s rather simple as you don’t need a work permit or sponsor. You simply register as self-employed and obtain a residence permit. Non-EU citizens can either use the Digital Nomad Visa in Portugal (remote work primarily), or seek a work permit sponsor with their client or an umbrella company.
The umbrella company is a complete contractor solution for working independently, handling all of your client payments, tax withholding and visa sponsorship.
How to get a job contract in Portugal?
You can find most job opportunities online through various international boards as we describe in this article. You can also use a recruitment agency or even target specific companies that are in your field. Keep in mind that you can also work in Portugal remotely for clients anywhere in the world.
What is the difference between an employee and an independent contractor in Portugal?
As in most countries, the difference revolves around control of the workers’ time and methods. Contractors must exhibit autonomy and conduct themselves as an independent business to avoid misclassification. This is why many contractors use umbrella companies as they are technically employees of the umbrella company with their services leased out to the client.
What are the different types of employment contracts in Portugal?
There are both fixed term and open ended contracts used in Portugal. As an independent contractor you can have any contract terms that you wish as long as the client agrees. But you won’t have any employee-related severance, so an early termination clause would be helpful.
Is EUR 2000 per month a good salary to live decently in Portugal?
It is probably enough to live on, depending on the area and type of accommodation. However, that amount is too low to qualify for the Digital Nomad Visa, so that should tell you that it may be a bit of a stretch.
Where can I find a Portugal self-employed tax calculator?
If you contact us we can give you an estimate of your tax liability and retained earnings based on your expected compensation. There are different tax rates depending on your tax residency, citizenship, type of visa and source of income.
What specific services do umbrella companies in Portugal offer to contractors and freelancers to simplify their employment arrangements and administrative tasks?
Umbrella companies in Portugal offer services to streamline the hiring, onboarding and payment of international contractors. This includes contract management, payroll processing, visa sponsorship and tax compliance.
What are some of the key benefits that contractors and freelancers can expect when working with umbrella companies in Portugal, in terms of access to social security, healthcare, or retirement plans?
The umbrella company will assess which social contributions are required and which are optional. Because the umbrella company is technically the employer in Portugal, most of the benefits would be dictated by employment law.
EU citizens may be covered by their home country social programs and would be exempt from contributions. Others may have to contribute, or at a minimum purchase private health insurance. Because of economies of scale, the umbrella company benefits like private health insurance can be better and cheaper than if a contractor was to source it themselves.
How do umbrella companies in Portugal ensure compliance with local labour laws, tax regulations, and other legal requirements for contractors and freelancers?
When a contractor uses an umbrella company, the compliance burden shifts to the umbrella company and away from the contractor. The contractor can rest assured that they will be in compliance with local laws by virtue of the fact that the umbrella company has compliance experts on staff, experienced in contractor management.
Can you explain the compliance measures implemented by umbrella companies in Portugal to ensure adherence to employment regulations and mitigate risks for contractors and freelancers?
Those compliance measures would include meeting immigration requirements for work visas, accurate tax calculator and withholding, assessment of social contributions and any registration requirements. There is literally no risk regarding employment compliance for contractors when using an umbrella company. The umbrella company is the entity with legal liability for compliance. They won’t engage anyone that isn’t properly classified as a contractor.
What type of support and assistance do umbrella companies in Portugal provide to contractors and freelancers, particularly in terms of addressing employment-related queries, contract negotiations, or dispute resolution?
An umbrella company is a true third party intermediary to the contract with your client. They can assist with drafting solid contracts, negotiating terms of payment and performance as well as facilitating any disputes. Imagine doing all of that on your own.
For example, what would you do if a client refused payment citing poor performance? You would have few remedies, and the umbrella company fills that gap for you.
How do foreign businesses pay remote workers in Portugal?
It depends on how the contract is set up and where payment is being made. If a contractor uses an umbrella company, the client remits full payment to the company. Then, taxes are withheld and a payslip issued.
If a freelance remote worker in Portugal (using a Digital Nomad Visa for example) invoices their client, they can either be paid into a Portuguese account or an account in their home country. In that case, the freelancer would be solely responsible for their own tax withholding and payments. The foreign business has no responsibility for the remote worker’s compliance, and simply pays for performance.
What it’s like to live and work in Portugal
Are there expat communities in Portugal?
One such community exists in Madeira off the coast of Africa, in the town of Ponta de Sol. It is a dedicated digital nomad community in a beautiful natural setting with year round sunshine. You will find expats from all over the world making a home there
You will also find expat communities in the major cities, but less formalised. There may be online groups as well that organise meetups.
Which city is better for a young expat worker: Lisbon or Porto?
Lisbon is better known for its nightlife and young expat community, so that would probably be the best choice. Porto is more contemporary.
Where do expats hang out in Lisbon?
There are three areas that come to mind:
Bairro Alto: This vibrant neighbourhood is known for its nightlife, with many bars and restaurants where locals and expats alike gather to socialise and enjoy the evening.
Cais do Sodré: Another lively area with bars, music venues, and a mix of locals and tourists, making it a popular spot for expats.
Chiado: A trendy district with a mix of shops, cafes, and cultural attractions, which draws in both locals and expats for leisurely afternoons and evenings.
Are accommodation rental prices rising in Portugal?
Because Portugal has many expat residency programs for investors, retirees and digital nomads, the demand for accommodation has increased. There are reports of increased prices because of this, but Portugal remains a moderate cost destination in Europe.
Here are some sample prices:
- Studio/1-bedroom apartment (city centre): €800 – €1,500+ per month
- Studio/1-bedroom apartment (outside city centre): €600 – €1,200+ per month
- Studio/1-bedroom apartment (city centre): €600 – €1,200+ per month
- Studio/1-bedroom apartment (outside city centre): €400 – €900+ per month
Do I need to speak Portuguese to live and work there?
If you intend to work for Portuguese clients, knowing the language would probably be a must. IT and other technical roles might get along without it, but it is the official language of the country. People do speak English, so it may not be as crucial for everyday life.
If you are working remotely in Portugal then the language won’t matter as much. If you speak Spanish, you will find Portuguese relatively easy to learn.
How is internet connectivity in Portugal? Do you have to be in a major city? What about coworking spaces?
Portugal is considered a leader in advanced telecommunication in Europe, so connectivity is generally excellent. Internet connections may be faster in cities, but coverage is also good in rural areas. The cities will also offer co-working spaces with reliable internet for those who don’t have strong wifi at home, or just prefer a more collective work environment.
For example, there is Cowork Lisboa in the Santos neighbourhood, or OUTSITE Lisbon in Chiado. Both combine professional workspaces and social networking opportunities for expats. If you are in Chiado, you can go straight to one of the many cafes or bars after work, just a short walk away.
If I speak Spanish will I be able to learn Portuguese easily?
Spanish and Portuguese are both Romance languages, which means they share a common origin and many similarities in terms of vocabulary, grammar, and sentence structure. Because you will be speaking it daily in Portugal, the transition will be smoother than for someone who does not speak Spanish.
What is the best city for a young IT expat to live in Portugal?
Despite the larger size and prominence of Lisbon and Porto, a good choice would be Braga. Braga is a smaller city but has a strong focus on technology and innovation. It’s home to a growing number of tech companies and startups.
Braga offers a high quality of life, lower living costs compared to Lisbon and Porto, and a youthful atmosphere due to its large student population.
Hot Tip: In Braga, Praça da República (Republic Square) is a great place to socialise with other expats and locals. This is one of Braga’s main squares and a central gathering point. It’s surrounded by cafes, restaurants, and shops, making it a lively spot for people to meet, relax, and enjoy the atmosphere.
Does Portugal have its own cuisine? What should I try?
Yes it does! Here are some dishes that you will want to sample:
Bacalhau à Brás: A classic Portuguese dish made with salted codfish, eggs, and thinly sliced fried potatoes, all mixed together in a flavorful combination.
Francesinha: A hearty sandwich originating from Porto, it typically consists of layers of cured meats, sausage, and steak, covered with melted cheese and a spicy tomato-based sauce.
Amêijoas à Bulhão Pato: Clams cooked in a garlic and cilantro sauce, usually served as a starter or a snack.
I have heard that the influx of expats to Portugal for work and retirement has increased housing prices. Are locals resentful of foreigners for this reason?
It is true that accommodation prices have risen in recent years, in part due to Portugal’s many friendly visa programs. The same thing has happened in Mexico City, and it reflects demand from foreigners who are high-earners or have assets to spend.
But these price increases also benefit the Portuguese who can reap higher rent on investment properties, or sell properties at higher prices. It does affect lower to middle class locals negatively, but almost all Portuguese benefit from the economic inflow to the country and its businesses. This should not affect the Portuguese welcoming attitude towards expats.
I have heard of a digital nomad village in Portugal full of remote workers. Where is it located?
There is a digital nomad village in Portugal called “Digital Nomad Village Madeira.” It is located on the island of Madeira, which is an autonomous region of Portugal located off the coast of Africa. The village is an initiative by the local government to attract remote workers, freelancers, and digital nomads to live and work on the island.