Employer of Record & PEO — 10 min
If you’ve decided to go it alone as an independent contractor, then Portugal is a pretty ideal location.
Whether you want to embrace the color, chaos, and cobbles of Porto and Lisbon, while away your working days in the sun-kissed Algarve, or escape — laptop in hand — to the Azores, this historic country is the perfect place to mix work and lifestyle.
Before you can get started, though, you’ll need to know how to:
Register your business in Portugal
Avoid misclassification as an employee
Create compliant contracts that protect you
Invoice and collect payments from around the world
In this article, we’ll cover all these things, and help you navigate your tax responsibilities as a self-employed worker. We’ll also discuss some of the other risks and liabilities you should be aware of.
First, it’s important to clarify how Portugal defines independent contractors.
Independent contractors are workers who provide paid services (or products) to another party. However, they are classified differently to employees, and are usually not entitled to the same benefits, such as paid leave, sick days, and minimum wage. On the flip side, contractors have more freedom and flexibility in the way they work.
In Portugal, there is no specific law or code that covers independent contractors. However, the Portuguese Labor Code (Codigo Trabalho) clearly lays out the legal definition of an employer-employee relationship. Based on these guidelines, you can generally be considered a contractor if you:
Determine your own work schedule and working hours
Perform work for other companies
Set your own rates and scope of work
Provide your own tools or equipment
Are not integrated into one specific company and its operations (i.e. you don’t have an internal email address)
Are able to delegate or subcontract work
Work without direction or supervision
When you work with clients, it’s important to be correctly classified to avoid penalties and fines, and to ensure that you are paying the right taxes.
Before you can begin working as an independent contractor in Portugal, you’ll first need to choose a formal structure for your business.
The most popular model for sole owners is the Individual Entrepreneur (Empresário em Nome Individual) structure, as it’s quick and easy to set up and maintain. In this structure, you have full control of the enterprise, although there is no legal separation between you (the owner) and the business; you are personally responsible for all its debts and liabilities.
If you want more legal protection, or you anticipate generating a large amount of revenue, you can also incorporate an Individual Limited Liability Establishment (E.I.R.L.), or a Sole Proprietorship by Shares (Sociedade Unipessoal por Quotas). If you’re unsure which structure is most suitable for your business, it’s a good idea to speak with a registered solicitor or accountant.
If you do opt for the Individual Entrepreneur model, you will need to register as self-employed with the Tax and Customs Authority (AT). This can be done in person at your local tax office, or online through the Finance Portal (Portal das Finanças).
You must also register as self-employed with Social Security (Segurança Social).
If your business activity is regulated (i.e. you practice a protected profession such as medicine or law, or you’re handling food), you’ll also need to acquire the relevant business permits or licenses from the issuing authorities.
As an independent contractor, it’s down to you to handle your invoices and payment collection. Unfortunately, this means billing each client individually and collecting payment through their preferred payment method — which can be inefficient and time-consuming.
Some of the most common ways to collect payments include:
Digital transfer services like PayPal and Wise
These methods all have their own pros and cons. For instance, bank and digital transfers can be pretty quick, but often come with hefty service fees. And if you have clients in other countries besides Portugal, the payment collection process can be even more complicated.
Alternatively, you can use a trusted solution like Remote. Our platform is a simple, secure, and reliable way to get paid quickly in euros — and with no hidden fees. Learn more about how our platform can help.
As an independent contractor, you’re responsible for filing and paying your own taxes and social contributions.
The good news is that, as an Individual Entrepreneur, you pay personal income tax on your business profits. This means that you do not have to fill out extra returns, or pay additional corporate taxes.
Like many countries, Portugal has a progressive income tax rate. You can expect to pay anywhere between 14.5% and 48%, depending on how much you earn. However, if you earn less than €200,000 annually, you may qualify for a simplified tax regime where your turnover is taxed at 0.15% on sales of products, or 0.75% on certain business and professional services. This “simplified” regime is actually quite complex, so it’s a good idea to speak with a qualified tax specialist before you make any decisions.
If your annual taxable income exceeds €80,000, you must also pay a solidarity tax of between 2.5% and 5%.
In addition, you must make monthly social security contributions, which are calculated at around 21.4% of your income. Note that, if you are using the simplified tax regime, this rate is slightly different. If you perform a lot of work for the same client, they may also be liable to make contributions on your behalf.
You must submit your annual tax return by June 30 each year. Once you receive your tax assessment (usually by July 31), you have one month to pay what you owe.
On the flipside, you can claim tax deductions for multiple business expenses, such as:
Travel, fuel, and vehicle maintenance
Tool and equipment maintenance
Professional services fees
Utility bills and maintenance for business premises
If your annual income exceeds €12,500, you must charge your clients VAT. You must also declare your VAT on a quarterly basis through the AT website (unless your income exceeds €650,000, in which case, you must declare monthly).
The standard VAT rate in Portugal is 23%, although some goods and services are charged at the lower rates of 13% and 6%. Some services, such as healthcare provision, are exempt from VAT.
Note, too, that some Portuguese islands have lower VAT rates, such as the Azores and Madeira.
As an Individual Entrepreneur, you are personally liable for finance and tax debts, which means your private assets can be forcibly used to settle your business debts. Many independent contractors purchase liability insurance to help mitigate this risk.
It’s also important to cover yourself when drafting and signing agreements with clients. Our legal experts can provide you with fully compliant contract templates, for both Portuguese and international clients.
As an Individual Entrepreneur, you do not need to publish financial statements or accounts (unless you earn over €200,000). However, you must still keep organized, accurate records of all your income and expenditure (including client invoices, VAT invoices, purchase orders, bank statements, and receipts) for at least 10 years. This will help you correctly file your taxes, give you a stronger picture of your financial situation, and generally make life easier if you are audited by the tax authorities.
You can either manage these records yourself using an accounting or bookkeeping tool, or hire a professional bookkeeper or accountant.
As we’ve mentioned, independent contractors are classified differently to employees in Portugal. Many of the protections and benefits employees enjoy do not typically apply to contractors.
As a result, companies may deliberately misclassify you to circumvent their legal obligations, while at other times, it may happen accidentally. Whether it’s intentional or not, misclassification can result in penalties and fines for both you and your client.
As an independent contractor, you can work with your clients to ensure this doesn’t happen. Discuss your role and responsibilities with them, and review the working arrangement regularly.
If your working relationship changes over time and you become more integrated into a client’s company, you can ask to be converted into an employee.
Work through this checklist to help determine if a new hire should have a contractor or employee relationship.
Open a dialogue with your client and carefully discuss the risks and benefits of moving to an employer-employee relationship. In particular, be clear about how it can benefit both parties — not just you.
You can even suggest the help of a third-party solution, such as Remote, to ease the transition. Our global employment services help both parties stay compliant by taking care of key HR functions (like payroll management and benefits administration) in line with Portuguese law.
As you can see, there’s a lot to take on board when setting up as an independent contractor. Remote can help you with many of these challenges, allowing you to focus on growing your business and delivering to your clients. Here’s how:
Navigating all of your clients’ different invoicing, approvals, and payments systems can be complicated and time-consuming. And manual methods of invoicing and collecting payments can increase the risk of fees, errors, and delays.
Remote gives you access to a highly secure, streamlined dashboard that makes invoice management and international payments cost-effective and efficient. You can use our platform to get paid in euros (or other currencies), without any hidden fees.
When you draft agreements and contracts for your clients, you run the risk of non-compliance with local labor laws — especially when working with international clients. Remote offers localized contracts tailored to Portuguese laws, ensuring that you stay compliant. Our legal experts can also provide guidance on complex issues, such as local classification and intellectual property protections.
With Remote, you no longer need to rely on spreadsheets and other manual tools to invoice for payments; we remove many of the inaccuracies and delays caused by archaic processes and manual management. Our platform lets you create invoices, submit them for approval, and subsequently get paid in your local currency without needing to switch to any other tool or software.
Tax management is notoriously complex work. Remote helps you quickly and efficiently deal with tax management by compiling data about your income based on your invoices and payments received.
Having the freedom and flexibility to work on your own terms is liberating. But your administrative responsibilities can distract from what you really want to be doing: helping your clients, delivering great work, and collecting invoices.
By using a stable, trusted platform like Remote, you can manage these obligations quickly and efficiently, allowing you to focus on your business goals. Specifically, we can help you:
Avoid intermediary fees and delays with international client payments
Draft compliant contracts for Portuguese and foreign clients
Enhance your invoice management and avoid manual processes
Comply with local labor laws regarding work practices
Our platform makes it quick, simple, and seamless to get started as an independent contractor. Learn more about how our expertise can save you time and resources today.
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