When you start working or running a business in Portugal, whether as a freelancer, self-employed individual, or small business owner, it is mandatory to register your activity with the Portuguese Tax Office (Autoridade Tributária e Aduaneira, or AT). This process establishes you as a taxpayer in Portugal and ensures that you comply with the country’s tax regulations.
In this article, we will explain the steps for opening an activity with the tax office, the key considerations you need to keep in mind, and potential challenges to be aware of during the process.
Step-by-Step Process for Opening an Activity with the Tax Office in Portugal
- Obtain a Portuguese NIF (Tax Identification Number) Before you can open an activity, you must have a Portuguese Tax Identification Number (NIF). This is a personal tax number that is required for all dealings with the Portuguese tax authorities. You can obtain an NIF at the Portuguese tax office or at a consulate if you’re living abroad. To do so, you will need to present:
- Your passport or identity card (if you are an EU citizen).
- Proof of address in Portugal (e.g., rental contract, utility bill).
- A document showing the reason for obtaining the NIF (e.g., employment, self-employment).
- Choose Your Tax Regime When opening an activity, you will need to decide under which tax regime you will operate. The two primary tax regimes in Portugal for self-employed individuals are:
- Simplified Tax Regime (Regime Simplificado): This regime is for individuals who have relatively low turnover. The tax is calculated based on a percentage of your income, which is deemed to be your taxable profit. This regime is simpler and has less administrative burden.
- Organized Accounting Regime (Regime de Contabilidade Organizada): This regime is for individuals with higher turnover and businesses that need more detailed financial records. It requires you to keep organized accounting and submit more detailed tax declarations.
You will need to choose the most appropriate regime based on your expected income and business activities. For individuals with income below €200,000, the Simplified Regime is typically the most common option.
- Register the Activity Online or in Person After obtaining your NIF and choosing your tax regime, you can register your activity with the tax authorities. This can be done online through the Portal das Finanças (the Portuguese tax portal) or by visiting the local tax office in person. To register, you will need to provide information about:
- The type of activity you will be conducting (e.g., freelance, business, service provider, etc.).
- The expected revenue from your activity.
- Your contact information.
- Your chosen tax regime (Simplified or Organized Accounting).
If registering online, you will need to create a user account on the Portal das Finanças. Once registered, you can complete your registration form by selecting the correct CAE code (Código de Atividade Económica) which corresponds to your business activity. The CAE code is a classification system for the type of activity you will be performing (e.g., IT services, education, consulting).
- Receive Confirmation and Activity Number After completing the registration, you will receive confirmation of your registration and an Activity Number (Número de Atividade) from the tax office. This number will be used for tax-related matters and invoicing. If you’re using the Simplified Regime, your tax reporting will be easier and you’ll only need to submit an annual income statement (Declaração de IRS) summarizing your income.
- Issuing Invoices Once your activity is registered, you are legally required to issue invoices for the services or products you provide. These invoices must include:
- Your NIF (Tax Identification Number).
- The NIF of the customer (in most cases).
- A description of the service or product.
- The price and applicable VAT (if applicable).
If you are under the Simplified Regime, you will typically issue invoices with VAT (Value Added Tax) included, unless your services are exempt. The standard VAT rate in Portugal is 23%, though certain services and products may be subject to reduced rates (13% or 6%) or exemptions.
Key Considerations and Things to Look Out For
- Know Your CAE Code the CAE code is crucial because it determines your business activity’s classification. It affects your tax obligations, including VAT rates and whether certain tax deductions or exemptions apply. Make sure to choose the correct CAE code during the registration process to avoid potential issues.
- Know the Tax Regime Options Be mindful of your choice between the Simplified Tax Regime and Organized Accounting. While the Simplified Tax Regime is less administrative, it may not be ideal for larger businesses with high turnover. Once your income exceeds €200,000, you may be required to switch to the Organized Accounting Regime.
- Understand VAT Obligations Even if you are a small business or freelancer, you may be required to charge VAT (at 23%) on your services or goods, especially if your turnover exceeds €15,000,00 per year. However, many professional services or exports may be exempt from VAT. Be sure to confirm whether your business activity requires VAT registration.
- Social Security Contributions In addition to your tax obligations, you will also need to make Social Security contributions as a self-employed individual. These contributions provide access to benefits like retirement pensions, sickness leave, and unemployment benefits. The contribution rate for self-employed individuals in Portugal is generally around 21.4% of your taxable income. There are minimum contribution levels (if your income is low) and maximum contribution ceilings.
- Quarterly and Annual Tax Declarations Once your activity is open, you will need to file regular tax returns. In Portugal, self-employed individuals under the Simplified Regime must submit an annual tax return (Declaração de IRS) and pay taxes on the profit for the previous year. Individuals in the Organized Accounting Regime must keep detailed records and submit quarterly tax payments and an annual tax return. Be aware of the deadlines for filing tax returns:
- Quarterly VAT returns: Due in the months of January, April, July, and October for quarterly VAT payers.
- Annual Income Tax Return: Usually due by June of the following year.
- International Taxation If you are working with international clients, make sure you understand your obligations under Portuguese international tax laws. If you are a resident in Portugal, you are generally taxed on your worldwide income. Additionally, if you are receiving income from foreign countries, you may need to consider whether there are any double taxation treaties between Portugal and the country in which your client is based. This can help you avoid double taxation on the same income.
Common Mistakes to Avoid
- Not Updating Your Activity Status: If your business activity changes, be sure to update your registration with the tax office to reflect the new CAE code or changes to your income.
- Not Charging VAT When Required: If you exceed the €15,000 turnover threshold, you must register for VAT. Failing to charge VAT when necessary can lead to fines.
- Not Keeping Proper Records: Even under the Simplified Regime, it’s important to keep records of your income and expenses to report accurately. For those in the Organized Accounting Regime, failing to maintain organized financial records can result in fines and penalties.
Conclusion
Opening an activity with the tax office in Portugal is a relatively straightforward process, but it’s important to understand the various requirements, such as choosing the right tax regime, complying with VAT obligations, and staying on top of your tax filings. Being well-informed about your responsibilities will help ensure that you remain compliant with Portuguese tax law, avoid penalties, and take full advantage of any benefits available. If you’re unsure about the process, it’s always a good idea to consult a tax professional or accountant to guide you through the registration process and beyond.
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