# Freelancer tax in Portugal



## leehod

Hi,

I'm a freelancer software developer originally from the UK, but living in Spain currently. I'm considering how tax would look if I was to reside in Portugal, as Spanish tax is a little aggressive as a sole-trader, at least compared to the UK.

My clients are mostly businesses in the UK or the USA, and my services are digital. Payments usually go to UK bank account.

I've read a little about the simplified regime and NHR, but I'm quite confused. Could someone clear up exactly what taxes I'd pay in my situation assuming income is approx 35kEUR p.a. 

I also assume that since my service are B2B and my clients are not in Portugal I'd be exempt from VAT right?

Thanks for any help


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## Strontium

Hi,

Shirley it's better to get specific, to your situation, professional advice if you're currently living in Spain - doing work but getting paid by USA company to the UK bank account etc. and considering moving to Portugal - and obviously Brexit will also not change anything. I have worked in Spain (and Turkey) as a contractor for a French company paid in the UK et al....


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## leehod

Hi, Yes professional advice would obviously be the final step before making this leap, but right now just exploring my options.

Currently I understand that I could apply for NHR (given I've not been a tax resident in Portugal ever in my life). My foreign income (from self-employment in ICT) should then either be taxed only at 20% under the NHR simplified regime for 10 years.....Or possibly even be 0% [at least tax on foreign dividends because of the double tax agreement between Portugal and UK is zero, or foreign pensions is zero. Self-employment foreign income seems a grey area to me]. Although I doubt very much I'd get 0% as I'd be operating as a sole-trader based from portugal and even if my clients are in other countries I can't image they'd let that slide as "foreign income", even if the clients and bank account are in the UK. Doing other more complex things like setting up a company in another country like estonia that then pays me dividends starts to smell like tax evasion...I'm not sure about this. 

I think even with NHR at 20% however, which is in itself an attractive tax rate, I'd still be forced to pay 29% for social security anyway in addition, which is a very high rate for SS, almost worse alone than tax+social security combined in the UK or Spain, so given that I wouldn't actual end up better off anyway?

Moreover at the end of the 10 years I'd be lumped with crazy high progressive level taxes and also social security that together would eat like 60% of my quite modest salary.

Would be great if anyone here has more knowledge about this.


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## Ukkram

Income derived from within Portugal will be taxed at a flat rate of 20% under the NHR scheme.
Income derived from a foreign source will be tax free for 10 years if it can be taxed under the DTA rules in the other state.
The other state will most likely not tax you as you are non resident so you will not pay tax anywhere.


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## leehod

Yeah, that's what I understood. However it's not clear to me if working as a self-employed freelancer whilst living and residing in Portugal, but with clients in UK/USA and payments to UK bank, really would count as "foreign-earned" income. Or whether they'd treat that as income earned in Portugal.

I mean fantastic if they do, 0% tax for 10 years, is worth 100s of thousands of Euros, but it seems to good to be true.


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## Ukkram

Even though you will be actively working from within Portugal your income will still be "foreign earned income" and as such it will be exempt. How else can the term "foreign earned income" be explained other than imported money from outside of Portugal? 

However do seek professional advice on this. Denis Swing-Green at Eurofinesco will be your man. Very approachable and free Skype call for the info. He will do your NHR application and tax if you so wish. You will not find cheaper.

If you do contact him please post the answer here so I can add it to my list of NHR exempt incomes that are confirmed as correct.


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## leehod

Thanks for the recommendation. I will get in contact with him


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## RichardHenshall

Ukkram said:


> ... How else can the term "foreign earned income" be explained other than imported money from outside of Portugal? ...


A musician performing at a concert in another country or a surgeon operating at a foreign hospital, perhaps? More clear cut than selling a digital product to foreign customers.


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## Ukkram

RichardHenshall said:


> A musician performing at a concert in another country or a surgeon operating at a foreign hospital, perhaps? More clear cut than selling a digital product to foreign customers.


A musician does not become a resident of the country they are performing in. They pay tax according to the DTA rules and most state that tax must be paid locally at a set percentage. When they return home it will be foreign earnings.


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## RichardHenshall

The payment of foreign withholding taxes by the musician would 'prove' that it's foreign income. If a musician performed at a concert in Portugal that was broadcast or streamed to paying customers in other countries it would be Portuguese sourced income, in my opinion, regardless of where those customers are or where they paid.

The OP's situation is more ambiguous and, again in my opinion, the fact that the customers/clients are foreign does not necessarily define the income that results as foreign income, particularly for a sole-trader.


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## Ukkram

On further research I see that if you work from home in Portugal and earn income from foreign countries you would be liable for tax in Portugal. 

If you work from home in Portugal for a company in the UK then you will be liable to UK tax.

So the OP will pay a fixed 20% with NHR.

QUOTE from DTA UK - PT.

(1) Income derived by a resident of a Contracting State in respect of professional services or
other independent activities of a similar character shall be taxable only in that State unless he
has a fixed base regularly available to him in the other Contracting State for the purpose of
performing his activities. If he has such a fixed base, the income may be taxed in the other
Contracting State but only so much of it is as attributable to that fixed base.
(2) The term "professional services" includes, especially independent scientific, literary,
artistic, educational or teaching activities as well as the independent activities of physicians,
lawyers, engineers, architects, dentists and accountants. 
END QUOTE.


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## leehod

Thanks for researching that Ukkram. I was suspecting as much, but amazing that you managed to dig that out.

So clearly I'd be charged 20% as an NHR for ten years on my freelance (IT) activities, which is still a good deal.

However, what about social security? I've read it's 29%, but is this 29% of my entire gross salary or some fraction? Is it optional to some extent?

It's just that 20+29% for the 2 starts to look like not such a good deal at all, NHR or not. And without the discounted NHR 20% it would be utterly crippling.

I guess NHR is mainly there to attract pensioners, and for freelancers/small-business not so much.


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## RichardHenshall

I believe that the social security contribution is expressed as a percentage of the minimum wage (€8400 per annum) but I could be very wrong. I have not researched it.


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## leehod

Oh, ok, so it may just be 29.4% of 8400=2436eur?

Would be great if someone could confirm


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## leehod

Also another related question. If I didn't go for NHR, but had the "simplified regime", does that mean my taxable income would just be 75% of my gross and 25% auto written off for expenses regardless of my real expenses


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## RichardHenshall

leehod said:


> Also another related question. If I didn't go for NHR, but had the "simplified regime", does that mean my taxable income would just be 75% of my gross and 25% auto written off for expenses regardless of my real expenses


The coefficient will depend on the nature of the business but that's the principle. You can opt for conventional accounting if you expect your expenses to be greater but you would then have to employ an accountant etc etc. That will apply whether or not you have NHR status. I doubt that NHR status will make you worse off.


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## Marcprome

leehod said:


> Also another related question. If I didn't go for NHR, but had the "simplified regime", does that mean my taxable income would just be 75% of my gross and 25% auto written off for expenses regardless of my real expenses


Hi!

How did you solve the issue? Do you have any new info? I'm just going through the same situation now. Would be extremely grateful for advice!

Cheers


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## portuguesedude

Consult PWC








IRS


Consulte o resumo completo sobre as matérias de relevância fiscal para 2019.




www.pwc.pt


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