IRS

IRS is the acronym you'll see on every tax document, portal screen, and accounting conversation in Portugal. It stands for Imposto sobre o Rendimento das Pessoas Singulares, the tax on individual income. If you earn money as a person (not a company), IRS is the tax that applies.

How it works for solo entrepreneurs

As a trabalhador independente, your freelance income falls under Category B of the IRS code. When you file your annual return, you report the income from the previous calendar year.

If you're on the simplified regime (and most solo entrepreneurs are) you don't deduct individual expenses. Instead, the tax authority applies a coefficient to your gross income:

• 75% of income from the professions listed in the Art. 151.º CIRS table is considered taxable
• 35% of income from other services
• 15% of income from goods sales and restaurant and hotel services is considered taxable

The remaining percentage is assumed to cover your business costs. This is a simplification that eliminates the need for organized bookkeeping, though it means you can't deduct individual expenses beyond what the coefficient assumes. The one addition is Social Security: contributions above 10% of gross service income are deducted from what the coefficient leaves (Art. 31.º n.º 2 CIRS). For service income the assumption is not entirely free: if your documented expenses, together with a fixed deduction or, if higher, your Social Security contributions counted up to 10% of that income, come to less than 15% of that income, the shortfall is added back to your taxable income (the 15% expense rule).

Progressive brackets

IRS is a progressive tax. The rates start at 12,5% for the lowest income band and climb to 48% for the highest. Each band only applies to the income within its range, crossing into a higher bracket doesn't increase the rate on your lower earnings.

Withholding tax: paying IRS in advance

If your client keeps (or is required to keep) organised accounting in Portugal, as every Portuguese company does, it must withhold a percentage of each payment as retenção na fonte (withholding tax), unless you qualify for a dispensation, for example because you expect to earn less than the Art. 53 VAT threshold in the year (Art. 101.º-B CIRS). This is an advance payment of your IRS, not an extra tax. When you file your annual return, all withholdings are credited against your total IRS liability. If the withholdings exceed what you owe, you get a refund.

The annual cycle

The IRS year runs January to December. You file your return between April and June of the following year through the Portal das Finanças. The tax authority pre-fills much of it based on the invoices and receipts already in the system. Review, confirm, and submit.