Whether for profit or pleasure, the truth is that there are many people who choose to be sole traders as a way to make a living. More than one out of five Portuguese workers are self-employed, a percentage that places Portugal within the highest level of entrepreneurs in the EU. For a person to operate as a sole trader, there are some preliminary requirements that must be met with Tax Authority and Social Security Administration before starting up a business operation.
Opening a business activity
If you want to do business as a sole trader, the first step is to communicate your intentions to the Tax Authorities (“A.T.”), even before you launch your business. This is done by registering the Opening of Business Activity Declaration (“Declaração de Início de Actividade”). This step can be done in person at a Finanças office or in a Citizens’ Centre (“Loja de Cidadão”). In these cases, a civil servant guides you through the process to complete the necessary forms and enroll you directly into the system.
Taxpayers should also choose between being assessed in the Simplified Regime or under Standard Accounting procedures. Portuguese tax residents can also open their business activity on the Internet through the Finanças website. To submit a declaration, you must first have a Portuguese Tax Identification Number (“NIF”) as well as your Finanças password (“senha”). Proceed as follows:
Home ➾ Services ➾ Submit ➾ Activity Declarations ➾ Opening of Business Activity
An important note: Once you have completed these steps, you can start your business or professional activity after receiving confirmation by post in the form of a “dependability code” that will be sent to your registered address.
Another important point: If you intend to perform a one-off “Isolated Act” rather than exercise an on-going business activity, you are excused from the requirement of submitting an Opening of Business Activity Declaration.
Registration for Social Security happens automatically and does not require you to complete any additional forms. If this is your initial registration, you are eligible for a first year exemption from Social Security contributions. Likewise, until your taxable sole trader income surpasses €2,515.32, you will also be exempt. In situations where you accumulate an independent business activity with salaried work or are in receipt a Social Security Old Age pension, you are also excused from Social Security contributions. Standard contributions for Sole traders are at the rate of 29.6%.
Closing your business activity
It is not at all uncommon for sole traders to cease their business activity yet fail to notify the Tax Authority of the fact. It should not come as a surprise that as far as Finanças is concerned, the activity remains open until reported closed. To wind up your self employment, you should go to an “AT” office, a Citizens’ Centre or to the Finanças website. To close your activity online, proceed to the “AT” website and go though the following steps:
Home ➾ Services ➾ Submit ➾ Activity Declarations ➾ Closing a Business Activity
On your next IRS tax return, you must refer to the cessation of activity in Annex B. As happens with the opening of a sole trader activity, the cessation will be reported automatically to Social Security by Finanças and no further declaration is necessary on your part. Failure to close your business with result in ongoing assessment based on previous activity.