Regime Simplificado
Regime Simplificado de Tributação · Simplified Tax Regime
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Portugal's simplified tax regime for solo entrepreneurs and small businesses, where taxable income is calculated using fixed coefficients applied to gross revenue.
If you register as a freelancer in Portugal, this is the tax regime you'll land on by default. The full name is regime simplificado de tributação (simplified taxation regime), and the "simplified" part is not just branding. It means the tax authority doesn't expect you to keep full accounting books.
How the coefficients work
Instead of calculating your profit from detailed records of income minus expenses, the simplified regime uses fixed coefficients. The tax authority takes your gross revenue and multiplies it by a coefficient to get your taxable income.
For services (which covers most freelance work, consulting, development, design, translation), the tax authority assumes 25% of your income goes to expenses and taxes you on the remaining 75%. Earn 40,000 euros in a year, and the tax authority treats 30,000 euros as taxable income. The other 10,000 is the assumed expense deduction.
Different activities have different assumed expense rates. Sales of goods assume 85% expenses (only 15% taxable). Rental income from short-term accommodation assumes 65% expenses (35% taxable). But for the typical freelancer providing services, it's 25% assumed expenses, 75% taxable.
Your taxable income then goes through Portugal's progressive IRS tax brackets like any other income.
The 15% you need to prove
The 25% automatic deduction isn't entirely free. You need to justify 15% of your gross income in real, documented expenses, invoices with your NIF registered in the e-fatura system, classified as professional expenses. If you don't reach that 15%, the shortfall gets added to your taxable income.
On 40,000 euros income, that means 6,000 euros in documented expenses. The remaining 10% (4,000 euros) is a genuine free deduction. There's also an automatic specific deduction of about 4,104 euros that counts toward the 15%, so if your income is under roughly 27,000 euros, you may not need to present any documented expenses at all.
Foreign supplier invoices (Stripe, Adobe, AWS, and similar) don't appear in e-Fatura automatically. They still count toward the 15% if you register them manually on the e-Fatura portal as the acquiring party (registar fatura as adquirente), or declare them in Anexo B Quadro 17 of your IRS Modelo 3. Keep the originals and payment proof for 10 years (Art. 52 CIVA).
First-year discount
When you start a new activity, the tax benefit is significantly larger. In your first calendar year, only 37.5% of your service income is taxable, roughly half the normal rate. In your second calendar year, it's 56.25%. From year three onward, you're at the standard 75%.
Two details most people miss:
It's per calendar year, not your first 12 months. If you open your activity in November, you only get the reduced rate for two months of income. If you can time it, starting your activity early in the year gives you the full benefit.
The 15% expense proof requirement still applies. Even with the reduced taxable portion in years one and two, you still need to justify 15% of your gross income in documented expenses. Your mandatory Social Security contributions count toward this, but in year one you're exempt from Social Security, so the automatic deduction (€4,104) is all you get. Keep that in mind if your first-year income is high.
To qualify for the first-year discount, you can't have employment income or pension income in the same year, and you can't have closed a similar activity in the last 5 years.
The cash-basis advantage
The simplified regime gives solo entrepreneurs cash-basis accounting. Your IRS income and Social Security contributions are based on when you receive payment, not when you issue an invoice. If a client pays you in January for work you did in November, the income counts in January.
This applies regardless of which document type you use. Whether you issue a Recibo Verde (fatura-recibo, FR) or a standard fatura (FT) followed by a receipt (RC), the tax timing follows payment.
This is a real benefit when you have clients who pay on 30, 60, or 90-day terms. You're not paying tax on money that hasn't arrived yet.
Compare this with the organized accounting regime (contabilidade organizada), where issuing an invoice creates the income tax obligation regardless of payment. Different timing, different cash flow implications.
Who it's for (and who outgrows it)
The simplified regime works for solo entrepreneurs earning under 200,000 euros per year. Below that threshold, the math is straightforward and the administrative burden is minimal: issue Recibos Verdes, file your annual IRS return, done.
It stops making sense in two situations. First, if your actual business expenses significantly exceed what the coefficient assumes. A developer who spends 40% of revenue on subcontractors and tools is being taxed as if expenses are only 25%. Second, if you're approaching the 200,000 euro threshold, because crossing it forces you into organized accounting anyway.
At that point, you'd switch to contabilidade organizada, hire a certified accountant, and start deducting real expenses. It's more work, but the tax math might favor you.
For most freelancers and solo entrepreneurs starting out in Portugal, the simplified regime is the right place to be. It's simple in the way the name promises.
See the numbers
Use the tax calculator to estimate your income tax and Social Security contributions for your first three years on the simplified regime.
Frequently asked questions
What is the revenue limit for the simplified regime in Portugal?
You can stay on the simplified regime as long as your annual gross revenue doesn't exceed 200,000 euros. Go over that and you're required to switch to organized accounting (contabilidade organizada), which means hiring an accountant and keeping full books.
How does the simplified regime calculate my taxable income?
The tax authority assumes a fixed portion of your income goes to business expenses. For most services, they assume 25% is expenses and only tax you on the remaining 75%. You don't need receipts for every purchase, the deduction is automatic. However, you do need to prove 15% of your gross income in documented expenses (invoices with your NIF in the e-fatura system). If you fall short, the gap gets added back to your taxable income.
Do I need an accountant on the simplified regime?
Not legally, no. That's one of its main benefits. You don't need to keep organized accounting books or hire a certified accountant (TOC). You issue Recibos Verdes, track your income, and file your annual IRS return. Many people do it themselves.
Can I deduct actual business expenses on the simplified regime?
Not in the traditional sense, you can't subtract expenses from income like in organized accounting. Instead, the regime gives you an automatic 25% deduction (for services). But you must justify 15% of your gross income in documented expenses: invoices with your NIF registered in the e-fatura system, classified as professional expenses. If your income is under about €27,000, the automatic deduction (~€4,104) alone covers the 15% requirement.
Do I get a tax discount in my first years of activity?
Yes. In your first calendar year, only 37.5% of your service income is taxable (instead of the normal 75%). In your second calendar year, it's 56.25%. From year three onward, you're at the standard 75%. Important: this is based on the calendar year, not your first 12 months. If you open your activity in November, you only get the reduced rate for two months. To qualify, you can't have employment or pension income in the same year, and you can't have closed a similar activity in the last 5 years.
What happens if I switch from simplified to organized accounting?
You'll need to hire a certified accountant and maintain proper bookkeeping. You can deduct actual expenses against revenue, which may result in lower taxes if your real costs exceed the assumed 25%. The switch makes sense once your expenses are high or your revenue approaches the €200,000 threshold.
Related terms
The Portuguese term for an independent worker or sole entrepreneur, the equivalent of a freelancer or sole trader in other countries.
Recibo VerdeGreen ReceiptA combined invoice-receipt (fatura-recibo) issued by solo entrepreneurs in Portugal through the Portal das Finanças when they receive payment for services.
NIFNúmero de Identificação Fiscal · Tax NumberPortugal's 9-digit tax identification number, required for every tax-related interaction from opening a bank account to issuing an invoice.