The World Travel & Tourism Council estimates that tourism in Portugal will expand by 5.3% in 2019, more than double the European average of 2.5%. Last year, the sector grew by 8.1%, contributing €38.4 billion to the Portuguese economy, a total of 19.1% of the country’s overall economic activity.
For IRS declarations running from April through June, there are several updates to take into account in Annex B (freelancers), with more tables to complete: 17A, 17B, 17C and 17D. All are destined to declaring expenses and charges borne by the independent worker in the exercise of a business activity (income, electricity, water, transportation, communications and insurance, among others). They stem from modifications to the Simplified Regime introduced in the 2018 State Budget.
Once again, Social Security has become the object of significant change. The following are the highlights of the legislative updates to Social Security that freelancers will need to take into consideration in 2019 and beyond.
The principal innovation of the 2019 Social Security Reform for Independent Workers is the rolling quarterly calculation of contributions. In the past, payments were determined based on prior earnings from two years before. While the trimester method of calculation requires more bureaucracy, it should prove to be more in line with the economic ups and downs that are the day-to-day realities of most sole traders.
SS rate eases – Starting in 2019, the Social Security contribution rate borne by self-employed workers is fixed at 21.4%, as compared to the prior levy of 29.6%. Individual Entrepreneurs now pay at a rate of 25.4%. *
Basis of incidence changes – From 2019 onwards, the contribution rate base generally considers 70% of the relevant income from the previous quarter (or 20% in the case of production and sales) as opposed to the previous year as before. The self-employed person may request a 25% reduction on the quarterly amounts.
Accumulating dependent work with self-employment has a SS exemption limit
In the past, salaried workers (Category A) who also earned sole trader income (Category B) were wholly exempt from additional contributions to Social Security. Under the new rules, those who receive more than €2,450.86 euros per month must pay additional SS contributions. If they are not exempt, the 21.4% SS rate will be applied to the amount that exceeds four times the value of the IAS (€1,743.04 euros in 2019). Benefits such as unemployment or parenting allowances, for which only salaried income is covered, are excluded.
Mandatory quarterly SS declaration – Based on the quarterly statement, Social Security determines the relevant income and the basis of contributions for the following three months. In this declaration, the worker can request to pay a 25% lower or higher contribution. This declaration should be submitted by the last day of April, July, October and January. Social Security contributions are monthly and now run between the 10th and the 20th of the following month.
Minimum contributions – The new rules also establish a minimum monthly contribution of €20. This amount should be paid when there is no income in the reporting period in question. This measure is designed to ensure social protection in slow periods where independent workers are without income for a limited period.
“Cuidado! O Português pode ser uma língua traiçoeira!” (Beware, the Portuguese language can be treacherous) For Individual Income Tax (“IRS”) purposes, the expression “rendimentos professionais” (professional income) refers to earnings from a specialised career listed in Article 151º of the CIRS. For the most part, these professions require a higher education degree, such as doctors, lawyers, architects, etc. Under the Simplified Regime, the taxable coefficient for these “Individual Entrepreneurs” is 75%. Other freelancers fall under the category of “Rendimentos empresariais” (vocational income) and are assessed based on 35% of their gross sole trader income.
In the lexicon used by Social Security, “Individual Entrepreneur”refers to a Sole Trader who, through a permanent establishment, has or is likely to have employees, such as hairdressers, mechanics, restaurants and others. While these “Empresários em nome individual” may pay the same “IRS” rate as other vocational trades, they are levied a higher Social Security rate (25.2%) on quarterly contributions when compared to other “trabalhadores Independentes” (21,4%).
There are new deadlines for the payment of the Municipal Property Tax (“IMI”). Instead of running between April and October as before, tax settlement will take place between May and November in 2019. “IMI” is paid in one go or in several instalments, depending on whether taxation is less or greater than €100. May is the month for single assessments when the tax due is under €100; or for the first instalment, in cases where the amount owed is greater. Second payments are in August when “IMI” exceeds €500. Finally, November is for final payments when taxation falls between €100 – €500 or third instalments if the levy is greater than €500.
In 2019, the value per square metre for real estate rose from €603 to €615 per m², an amount that had not changed since 2010. This criterion is key in determining a property’s Rateable Value (“VPT”) and consequently the value of “IMI”. The amount due is fixed by factors such as location, condition, quality, size and age of the property. These coefficients are updated every three years at which time a revaluation of the property can be requested. The final “IMI” due is determined by the tax rate established by each Municipality between 0.3% to 0.45% for urban buildings and 0.8% for rustic land.
Established in 2017, “AIMI” is a supplementary property tax assessed on higher valued properties, based on the sum of all taxable “urban” real estate (“VPT”). This incremental levy is sometimes euphemistically referred to as a Portuguese Wealth Tax. Urban properties classified as “commercial, industrial or service” and “other” are exempt.
In 2019, AIMI rates are as follows:
Companies (non-residential use by owners/directors; otherwise same as Individuals):
0.4% for total of rateable urban “VPT”s;
Individuals (for couples, double exempt value):
0.7% When the total “VPT” value of all properties is between €600,000 and €1,000,000;
1% For “VPT” real estate totals between €1,000,000 and €2,000,000;
1.5% For “VPT” total exceeding two million euros (new in 2019).
Assessment of the Additional to IMI is calculated in June referring to real estate holdings on 01 January of each year. Payment is due in September.
Staying in a hotel or local lodging accommodation in Lisbon became more expensive as of the first of the year due to the increase in the Municipal Tourist Tax from one to two Euros. The local municipality estimates additional revenues from the measure of ±_35 million in 2019.
Parents with children studying in universities in the interior of the country can receive a 40% tax credit in 2019 for expenses up to €1,000. This tax break is an increase from 30% with a maximum of €800 as compared to families whose children normally live and study from home.
Beginning in January, paper invoices will start to be phased out with transactions transmitted in real time directly to the “AT” (Tax Authority). Consumers will only receive a hard copy if requested. It is another step towards the dematerialisation of invoices as part of the Simplex + initiative. In the initial phase, merchants must install the applications to establish a direct link to the Finanças’ e-fatura system via a “QR” (quick response) code. Consumers will no longer need to give out their taxpayer number.