Starting Your Activity in Portugal: A Complete Guide for Expats, Freelancers, and AL Owners

Starting a business or freelance activity in Portugal as an expat can feel overwhelming. From tax obligations to social security contributions, understanding the legal and financial requirements is essential to avoid surprises down the line. Whether you’re a freelancer offering services, running a short-term rental (AL), or managing a small business, this guide will walk you through the steps to start your activity legally and efficiently.

At Elevate Accounting, we specialize in helping expats navigate Portugal’s complex tax system. Our goal is to simplify accounting for expats and make sure you stay compliant while focusing on growing your business.

1. Organize Your First Steps

Before you register your activity, take time to plan the foundation of your business:

  • Define your activity: Decide what services or products you will offer. This will determine your tax codes (CAE for products, CIRS for services) and whether you operate as a Freelancer (TI), Individual Entrepreneur (ENI), or a company.
  • Decide where your customers will be: This can impact whether you must be VAT registered or not, and when VAT will be charged.
  • Forecast your business numbers: Ignoring numbers is a common reason new businesses fail. Estimate startup costs, expected monthly expenses, and your your expected revenue.
  • Determine your goals: Know your objectives — revenue targets, business growth, and expansion plans — then compare them against your actual results each month.
  • Choose a start date: The date you open your activity can affect VAT exemptions (Art. 53 CIVA) and social security rules.

 

Checklist:

  • Define what you sell and who your clients are
  • Determine whether your clients are in Portugal, outside of Portugal, or both
  • Decide on pricing and expected turnover
  • Separate personal and business finances

2. How to Start: Independent Activity

When launching your activity in Portugal, you need to decide between opening a freelance activity or forming a company.

Freelance Activity (TI or ENI)

  • TI – Trabalhador Independente (Freelancer):
     Primarily for service providers; taxed under CIRS Article 151.
  • ENI – Empresário em Nome Individual (Individual Entrepreneur):
     Primarily for selling products, but can also offer services; taxed under CAE.


Advantages of opening a freelance activity:

  • No opening costs
  • No mandatory accountant (unless choosing organized accounting)
  • Flexible and allows you to test your business idea
  • Easy to open and close
  • Often results in advantageous tax rates

Tip: Freelance activity is ideal for expats starting small or offering digital services, consulting, or short-term rental management.

3. Registering Your Activity in the Portal das Finanças

All expats must register their activity in Portugal’s Tax Portal (Portal das Finanças).

Step-by-Step Checklist:

  1. Select the activity codes that apply to your situation (CAE for products, CIRS for services)
    1. Identify which activities are primary and secondary
  2. Estimate your volume of business (turnover)
  3. Decide on VAT exemption eligibility (Art. 53 CIVA)
  4. Identify clients and suppliers (national or international)
  5. Open a bank account exclusively for your business (mandatory for organized accounting, encouraged for Simple Accounting)
  6. Choose your business address (residential or virtual office/coworking)


Tips for VAT exemption:

  • If your turnover is below the limit (≈€15,000 in 2025), you can opt for VAT exemption
  • If services are provided outside of Portugal, you must be VAT registered even though you may not need to charge VAT
  • VAT exemption affects pricing and client perception
  • Exemption may not be beneficial if your business has many expenses with deductible VAT
  • Individuals who are not residents in Portugal are required to be VAT registered.

4. How to Issue Invoices

As a freelancer, independent worker, or AL owner, issuing Portuguese certified invoices is mandatory — no exceptions.

Invoice Types:

  • Invoice: When selling a product or service
  • Receipt: When payment is received
  • Invoice-Receipt: When payment and sale occur simultaneously


Methods:

  • Portal das Finanças: Free, automatic reporting, but limited reports
  • Billing software: Options like Moloni, Vendus, WeoInvoice, InvoiceExpress; allows branding, reporting, and management


Checklist:

  • Never ignore a client requesting an invoice
  • Maintain clear records to avoid tax issues
  • Keep business and personal finances separate

5. Taxes and Social Security

Social Security (Segurança Social)

Independent Workers and AL owners must contribute to social security:

  • Contribution rate:
      • Freelancers (TI): 21.4%
      • Individual Entrepreneurs (ENI): 25.2%
  •  
  • First-year exemption: Available for new activities, but not always recommended — may affect future benefits.


  • Calculating relevant income:
    • 70% of service revenue
    • 20% of product sales or hospitality/restaurants

Tip: Always simulate monthly contributions and set aside money in a separate account to avoid surprises.

IRS – Simplified vs. Organized Accounting

  • Simplified Regime: Taxed on a percentage of turnover (15%, 35%, 75% depending on type of activity – most freelancer will be 75%).  You must identify your business expenses in eFatura and meet the minimum expense threshold in order to be taxed on only a portion of your total revenue.  With the Simplified accounting regime, an accountant is not mandatory.  Essentially with Simple Accounting the Tax Authority “guesses” how much your expenses will be based on your total income, rather that doing traditional business bookkeeping where you’re taxed on exact profits.

  • Organized Accounting: This is traditional bookkeeping, and you’re taxed on actual profit (revenue minus expenses). It is required for companies, and independent workers earning over 200k per year.  This may be more beneficial (even when not required) if a person has higher costs than the expenses that are assumed in the Simplified Regime.

Checklist:

  • Validate expenses in e-Fatura if using Simplified Regime – this means identifying what expenses are personal, business, or a mix of the two.
  • Decide whether you benefit more from simplified or organized accounting
  • Track payments, receipts, and invoices carefully
  • Highly recommended: Create a separate bank account for your business activities to separate them from your personal spending.

Retention at Source (Automatic Withholding Tax)

  • Optional or mandatory depending on client type and activity
  • Applies mostly when providing services to companies with organized accounting
  • Must report client by client in IRS

Payments on Account:

      • During your first year of Independent Activity, your earnings will be taxed, but you won’t pay that tax until after your annual IRS tax return, which is submitted between April and June.

      • After your annual IRS tax return is submitted, IRS payments are due in advance, and are based on the previous years’ income

      • These are typically sent in  three installments: July, September, December

6. Common Mistakes to Avoid

  • Starting activity in the Tax Portal before actual work begins (and wasting part of the year without Social Security benefit).
  • Starting activity without proper planning
  • Mixing personal and business finances
  • Ignoring invoice obligations or client requests for receipts
  • Forgetting that Social Security payments begin after 1 year, and not planning accordingly for this additional tax bill
  • Failing to validate expenses in e-Fatura.  You must show a certain percentage of business expenses in order to get the Simplified Regime coefficient.

Pro Tip: Regularly reviewing your accounting, taxes, and contributions with an accountant in Portugal ensures compliance and avoids costly errors.

7. Why You May Need an Accountant in Portugal

Navigating Portuguese tax law can be daunting for expats. A professional accountant helps you:

  • Record business expenses for you, ensuring you are legally maximizing the expenses that you can deduct
  • Ensure your income is being correctly invoiced and reported to the Tax Authority
  • Choose between simplified and organized accounting
  • Register your activity correctly and assist in selecting the correct activity codes for your situation
  • Avoid common mistakes that could lead to fines
  • Understand social security and IRS contributions
  • Handle short-term rental (AL) tax obligations
  • Handle the work for you, so you can focus on your work and enjoying life in Portugal


At Elevate Accounting, we specialize in accounting for expats, guiding freelancers and AL owners every step of the way so you can focus on growing your business.

Conclusion

Starting independent work in Portugal doesn’t have to be overwhelming. With planning, a clear understanding of taxes, and the support of an experienced accountant in Portugal, expats can legally and efficiently launch their activities, avoid common pitfalls, and enjoy the benefits of operating in Portugal.

📩 Next Step: Contact Elevate Accounting today to start your activity the right way. We provide paperless, modern accounting for expats with fast responses, so clients can worry less and enjoy life more.

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