One of the best parts about freelancing is the freedom it brings, you get to choose your clients, set your own schedule, and even work from the comfort of your home (or your favourite café). But declaring income to the government, submitting VAT declarations, and understanding the accounting – especially in a foreign country – can be daunting. Unlike traditional employees, freelancers are responsible for managing their own taxes, and that means figuring out how to make the most of them while It’s easy to make mistakes that could have been avoided.
The good news? Most of these mistakes are common and completely avoidable. Once you know what to look out for, you’ll be able to save money, reduce stress, and keep more of what you’ve worked so hard to earn.
Let’s walk through the most common mistakes freelancers make, and how you can avoid them.
Many freelancers think that tracking every little expense will slash their tax bill, but under Portugal’s Simple Accounting regime, things work a bit differently. Instead of deducting each individual expense, most freelancers receive a 25% deduction on their taxable income.
That said, there’s a catch. To qualify for that 25% deduction, you need to show at least 15% of your total earnings in real business expenses. If you don’t reach that threshold, you risk losing access to the assumed 25% deduction and that can increase your tax bill significantly.
Keep your receipts, track your business costs, and make sure you’re comfortably over that 15% mark. This way, the tax authorities will accept that your actual expenses line up with the simplified assumption, and you’ll still benefit from the deduction.
When you first start independent activity (aka Green Receipts) in Portugal, your first year of taxes is pretty crazy. First, you don’t pay Social Security for the first year (see more below). Second, you won’t make IRS (income tax) payments until after your first annual IRS declaration is submitted. After your first IRS declaration is submitted, you’ll receive a tax bill for all of the prior year. Then the Tax Authority will send you a quarerly estimated tax bill each quarter going forward.
Let’s use an example. Let’s say you activate your independent activity in January of 2025. You won’t pay any taxes to the government during 2025 but tax will be accumulating. Between April 1st-June 30th of 2026 you’ll submit your 2025 IRS declaration. A few weeks later, you’ll receive a tax bill for all of your 2025 earnings. Around the same time you’ll receive your first quarterly estimated tax for 2026. You’ll receive these every 3 months going forward.
So where does this cause problems? Even though most people know that tax will be due after their first IRS declaration, they don’t properly save for the tax to be paid and they feel blindsided when it arrives. Be sure to plan ahead!
Are you a Freelancer or AL owner in Portugal? Know all about “Vat Changes – 2025 : what every Business owner,freelance and AL host should know”
One of the biggest benefits for freelancers in Portugal is the first-year Social Security exemption. During your initial 12 months of independent activity, you don’t have to pay Social Security contributions, which means more money stays in your pocket. Smart freelancers use this window to declare as much income as possible before contributions kick in. It’s a golden opportunity to maximize your earnings and build financial stability.
But here’s where many run into trouble: after that first year, the exemption ends. Social Security payments start, and they can take a noticeable bite out of your monthly income. Too often, freelancers fail to plan for this, and the sudden reduction in take-home pay comes as an unpleasant surprise.
Some freelancers mistakenly declare income that is already being taxed in another country, like dividends or foreign employment income on their Portuguese “green receipts” (recibos verdes). Green receipts are used to declare your independent contractor or self-employment income earned in Portugal. Income that is already being taxed in another country should not be recorded on a Green Receipt. You’ll record your worldwide income – including things like foreign payroll, dividends, etcetera, on your annual IRS return (submitting between April 1st and June 30th each year).
You’ve probably heard it before, but this is still the most important. In Portugal, your NIF (Número de Identificação Fiscal) is essential. Just put it on every purchase you make, as there may be purchases that can be expensed that you wouldn’t expect. Similarly at the end of the year you may be able to deduct these expenses from your tax bill (for example health, education, and other expenses). By not adding your NIF, you lose the chance to reduce your tax bill. Take our advice – make it a habit to put your NIF on every single purchase, even if you don’t immediately see it as a business expense.
Are you a Freelancer or AL owner in Portugal? Know all about “Vat Changes – 2025 : what every Business owner,freelance and AL host should know”
Here’s another common scenario, you grab a new laptop for work, pay with your personal credit card, and then completely forget to log it as a business expense. By the time tax season rolls around, your receipts are scattered across emails, drawers, and maybe even your car’s glove compartment.
Mixing personal and business expenses makes it almost impossible to track deductions accurately.
A simple solution? Open a separate bank account (and even a credit card) just for business use. It keeps everything neat and clear, and you’ll thank yourself later when it’s time to file.
One of the most common mistakes freelancers make is neglecting their documentation. It doesn’t have to be complicated, in fact, the simpler the better. When you have a business expense, just make sure you put the invoice in a designated place. This could be a folder on your computer or even a physical box on your desk. The key is consistency.
For expenses in Portugal, invoices are automatically registered on eFatura, which is generally accepted by the tax authorities. That means you don’t need to stress about printing or duplicating them. But here’s where many freelancers slip up: non-Portuguese invoices. These will not appear in eFatura, so it’s very important to keep the actual invoice safely stored and upload them to the Tax Authority website at least monthly so they can be counted towards your business expenses and included in your VAT declaration. Without it, you may not be able to prove the expense, and you could lose the deduction.
We’ve all been there, tax season is looming, and suddenly you’re scrambling to pull together receipts, invoices, and bank statements. Rushing almost always leads to missed deductions or filing mistakes, not to mention the stress of late nights spent trying to make sense of it all.
Instead of waiting until April (or the last filing date in your country), try setting aside time each month to organize your finances. Doing a little at a time makes tax season much easier, and way less stressful.
Are you a Freelancer or AL owner in Portugal? Know all about “Vat Changes – 2025 : what every Business owner,freelance and AL host should know”
Rather than trying to learn new systems in a language you may not understand, with rules you’re not familiar with, it’s often better to hire an experienced accounting professional. You can focus on work and play and stop worrying about making a mistake when it comes to Portugal’s ever-changing tax rules.
Taxes don’t have to be scary. Yes, there are plenty of mistakes freelancers make, but once you know what to watch for, you can avoid them. By separating finances, maximizing deductions, keeping good records, understanding eligibility, and seeking professional help, you’ll not only save money, but you’ll also gain peace of mind.
At Elevate Accounting, we provide english speaking accounting services to freelancers just like you. We handle all of the government and tax obligations related to your independent activity so that you can relax and focus on your work.