Are you familiar with the IRS rules that apply to self-employed workers? If you have recently started issuing green receipts (recibos verdes), it is important to understand how to correctly submit your annual tax return.
In this article, we explain the main IRS obligations for self-employed taxpayers, the tax return forms you may need to complete, and the differences between the Simplified Tax Regime and Organised Accounting.
Which Tax Return Form Should you Complete?
Self-employed workers fall under Category B of the Portuguese Personal Income Tax (IRS) system.
Taxpayers covered by this category must generally submit their annual tax return using Model 3 together with Annex B, according to the image below.
When completing your tax return, there are two important situations to consider.
- Issuing Green Receipts to Multiple Clients
If you provide services to several companies and your annual turnover does not exceed 200,000 €, you will generally complete Annex B of Model 3.
Under the Simplified Tax Regime, taxation is calculated by applying the legally established coefficients to your gross income, while taking into account the deductible expenses required under the applicable IRS rules, as set out in Article nº 31, nº13, of the Portuguese IRS Code.
Business-related expenses must also be reported in Annex B of Model 3, specifically in Section 17, item C of the tax return.
- Annual Turnover Limits
Another crucial factor concerns taxpayers whose turnover exceeds 200,000 € for two consecutive years, or 250,000 € in a single year.
In these situations, the taxpayer must move to the Organized Accounting Regime from the following tax year.
This means that the assistance of a Certified Accountant becomes mandatory for preparing and submitting the IRS return.
In these cases, the appropriate tax form is Annex C – Category B Income (Organised Accounting Regime).
Simplified Tax Regime vs Organised Accounting
To better understand the subject, it is important to distinguish between the two tax regimes available to self-employed workers.
Simplified Tax Regime
Under the Simplified Tax Regime, taxation is determined by applying the legal coefficients to the taxpayer’s gross income, while considering the deductible expenses required by law.
The taxable amount can never be lower than 85% of the taxpayer’s total turnover, in accordance with the applicable legislation.
Organised Accounting
Professionals operating under the Organised Accounting Regime are required to appoint a Certified Accountant to ensure full compliance with their tax obligations.
Under this regime, taxable profit is calculated by adding together all business income and deducting the expenses that are necessary for carrying out the professional activity and generating that income.
Deductible Expenses for Self-Employed Workers
Self-employed taxpayers may deduct several categories of expenses for IRS purposes, including:
- Staff costs and employment-related expenses, including salaries and remuneration reported to the Portuguese Tax Authority;
- The specific deduction of up to 4,104 €;
- Imports or intra-Community acquisitions of goods and services.
Additional business expenses may also qualify for deduction.
However, where an expense is used for both professional and personal purposes, only 25% of its value may generally be considered deductible.
Examples include:
- Office supplies and consumables;
- Rent;
- Water;
- Electricity;
- Other goods and services directly related to the professional activity.
IRS Exemption and Automatic IRS
An IRS exemption may apply where the taxpayer’s annual business turnover does not exceed 12,500 €, subject to the legal conditions in force.
In addition, since 2021, self-employed workers operating under the Simplified Tax Regime have been eligible for Automatic IRS.
The main exceptions include:
- Self-employed workers registered under the category of “Other Service Providers”;
- Individuals who combine self-employment with employment income.
These are the main aspects that self-employed workers should understand regarding their IRS obligations.
As tax rules may vary depending on your individual circumstances and may change over time, it is advisable to seek guidance from a Certified Accountant. Professional support can help ensure that your tax return is completed correctly, that you benefit from all available deductions, and that you remain fully compliant with Portuguese tax legislation.