Portuguese law allows an individual to have both employment income and self-employment income (commonly known as working on recibos verdes) at the same time.

Many people choose this arrangement to supplement their income and improve their household finances.

Although this is fully permitted under Portuguese law, it is important to understand that combining these two types of work comes with specific tax and social security obligations.

In this article, we explain the main rules you should be aware of.

Employment Income and Self-Employment: Your Main Obligations

Before looking at the tax obligations, it is helpful to understand the difference between employment and self-employment.

When working as a self-employed professional, you are responsible for managing your own tax and social security obligations.

This includes responsibilities such as:

• submitting quarterly Social Security income declarations; 
• determining whether you are required to withhold IRS tax at source; 
• issuing invoices, invoice-receipts, or electronic recibos verdes. 

By contrast, when you are an employee, these obligations are handled by your employer.

Your salary is paid after the appropriate deductions for income tax and Social Security contributions have already been made.

If you combine both types of work, you must comply with the rules applicable to each regime.

IRS (Personal Income Tax)

Many taxpayers who combine employment with self-employment worry that earning income from both sources will automatically move them into a higher tax bracket.

In practice, this is not how the system works.

Employment income is taxed according to the rules applicable to Category A income, while income earned through recibos verdes falls under Category B and is taxed according to the rules applicable to self-employment.

Regarding self-employment income, withholding tax is generally only required when the annual turnover exceeds 12,500 €.

This threshold also determines, in many cases, whether the individual is required to charge VAT. Self-employed workers whose annual turnover remains below this limit are generally not required to charge VAT on their services.

When filing the annual IRS tax return, taxpayers who receive both types of income must complete the annexes corresponding to each source of income.

This means submitting:

• Annex A for employment income; 

• Annex B for income earned through recibos verdes. 

In certain situations, taxation solely under Category A may be possible, provided the taxpayer is covered by the simplified tax regime and the self-employed activity has been carried out exclusively for a single client.

In these cases, the income from both activities is combined, and the applicable specific deduction of €4,104 is applied to the total amount.

Because the most advantageous option depends on each taxpayer’s individual circumstances, it is advisable to consult a Certified Accountant before making any decisions.

Social Security Contributions

Until 2019, individuals who combined employment with self-employment were generally exempt from paying Social Security contributions on their self-employed activity.

However, the rules have changed.

Today, the exemption depends primarily on the level of income earned through self-employment.

Additional conditions for the exemption include:

• the self-employed services must be provided to entities that are different from the employer; 
• employment income must exceed four times the Social Support Index (IAS) applicable in the relevant year; 
• the average monthly relevant income from self-employment must not exceed the legal threshold established for that year. 

If income from self-employment exceeds the applicable limit, Social Security contributions are generally payable only on the amount above that threshold.

There are also situations where an individual works both as an employee and as a self-employed professional for the same company.

In these cases, the self-employed activity is subject to a different legal framework. As a result, the individual is generally not required to pay separate Social Security contributions on the self-employed income, with the standard contribution rate applicable under the employment contract continuing to apply instead.