Organised accounting in Portugal: when it starts to pay off

Two ways of measuring the same income

Article 28(1) of the Portuguese income tax code settles the whole architecture in one double paragraph: business and professional income «faz-se: a) Com base na aplicação das regras decorrentes do regime simplificado; b) Com base na contabilidade»¹. Two routes to the same question, how much of what you invoiced is taxable income, and they give different answers on exactly the same facts.

Under the simplified regime the law presumes your expenses. It applies a coefficient to gross income and the rest disappears, whether you had expenses or not. If your coefficient is 0.75, a quarter of what you invoiced never becomes taxable income, and you show nothing to anybody for that to happen.

Under organised accounting nothing is presumed. Article 32.º has a single sentence and it is decisive: «Na determinação dos rendimentos empresariais e profissionais não abrangidos pelo regime simplificado, aplicam-se as regras estabelecidas no Código do IRC»³. A real profit is computed, revenue less deductible costs, and that profit is what you pay tax on. In exchange, the accounts must be organised under commercial and tax law and signed by a certified accountant.

Someone with few expenses gains from the presumption. Someone with many gains from reality. The whole question is where the line sits.

The coefficient, and which one is yours

Article 31(1) fixes the coefficient by the nature of the activity, and that choice changes everything else²:

• 0.75 to «rendimentos das atividades profissionais especificamente previstas na tabela a que se refere o artigo 151.º» (paragraph b). This covers the great majority of liberal professions with their own activity code.
• 0.35 to «rendimentos de prestações de serviços não previstos nas alíneas anteriores» (paragraph c), where services registered under the generic "other service providers" code fall.
• 0.15 to sales of goods and products and to restaurant, drinks, hotel and similar activities (paragraph a), presuming 85% costs, which makes sense for anyone buying to resell.

The gap between 0.75 and 0.35 is large. On the same €40,000 of turnover, taxable income before the other adjustments is €30,000 in one case and €14,000 in the other. And there is a fourth line worth knowing: paragraph 10 says that «os coeficientes previstos nas alíneas b), c) e f) do n.º 1 são reduzidos em 50 % e 25 % no período de tributação do início da atividade e no período de tributação seguinte, respetivamente, desde que, nesses períodos, o sujeito passivo não aufira rendimentos das categorias A ou H»². A 0.75 coefficient is worth 0.375 in the first year and 0.5625 in the second, which makes the simplified regime nearly unbeatable while it lasts.

The line is 15% of what you invoiced

This is the number that matters, and it comes out of a two-line calculation.

Under the simplified regime, on the 0.75 coefficient, the relief you get has two parts: the 25% of gross the coefficient discards, and the deduction of article 31(2), which allows the mandatory social-security contributions to be deducted «na parte em que excedam 10 % dos rendimentos brutos»². Under organised accounting the relief also has two parts: the expenses you can document, and all of the contributions.

Put the two sides face to face. Simplified: 0.25 × gross + (contributions − 0.10 × gross). Organised: expenses + contributions. The contributions appear on both sides and cancel, leaving:

expenses = 0.25 × gross − 0.10 × gross = 0.15 × gross

Below 15% of what you invoiced in documented expenses, the simplified regime pays less tax. Above it, organised accounting. And the most useful thing about this form is what it does not contain: the social-security rate has dropped out of the answer. If the rate changes tomorrow, the line does not move.

One adjustment remains, and it is the only one: the certified accountant. Being a cost that exists only on the organised side and is itself deductible, it shifts the line down by its own amount. With €40,000 of turnover and a €600-a-year retainer, the line moves from €6,000 to €5,400, i.e. 13.5% of gross.

Why the paragraph 13 add-back cannot bite below €30,580.60

The 25% presumption is not unconditional, and this is where almost all the available information stops. Article 31(13) says that «a dedução ao rendimento que decorre da aplicação dos coeficientes previstos nas alíneas b) e c) do n.º 1 está parcialmente condicionada à verificação de despesas e encargos efetivamente suportados, acrescendo ao rendimento tributável apurado nos termos dos números anteriores a diferença positiva entre 15 % dos rendimentos brutos das prestações de serviços previstas naquelas alíneas e o somatório» of six amounts².

Note the first of those amounts, paragraph (a): «montante de dedução específica previsto na alínea a) do n.º 1 do artigo 25.º ou, quando superior, os montantes comprovadamente suportados com contribuições obrigatórias para regimes de proteção social […] que não sejam dedutíveis nos termos do n.º 2»². And article 25(1)(a) is «8,54 vezes o valor do IAS»⁴, i.e. €4,587.09 in 2026.

That deduction is not an expense. It is granted to everyone, with nothing to justify. So while 15% of your gross stays below it, the add-back is zero even if you do not hold a single invoice in your name. And €4,587.09 ÷ 0.15 is €30,580.60. Below that gross income the add-back is impossible.

What happens above that line, and it is surprising

Past €30,580.60, if documented expenses do not grow at the same pace, the add-back starts eating the presumption. And when you do the algebra, it eats it whole.

Inside the add-back zone, the simplified taxable income is 0.75 × gross, less the contributions above 10%, plus (0.15 × gross − offset (a) − expenses). Collect the terms and that simplifies to:

gross − contributions − expenses − offset (a)

Compare organised accounting, which is gross − contributions − expenses − accountant. Exactly the same shape. The two regimes differ only by the gap between offset (a) and the accountant's retainer. In that band the coefficient has stopped being a benefit and all that survives of it is offset (a).

One important qualification, because it changes the size of the problem: offset (a) is not always the €4,587.09. It is the higher of that deduction and the contributions left outside paragraph 2, i.e. those falling at or below 10% of gross. Since a Portuguese freelancer pays 14.98% of gross in contributions, that slice is always exactly 10% of gross, so offset (a) becomes 0.10 × gross above €45,870.90. From there upwards the maximum add-back is no longer 15% of gross, it is 5%: your own contributions justify two thirds of what the rule demands.

The cost only one regime carries

There is one item that enters no published comparison and can reverse the decision: the autonomous taxation of article 73.º. Paragraph 1 taxes «as despesas não documentadas, efetuadas por sujeitos passivos que possuam ou devam possuir contabilidade organizada […] à taxa de 50 %», and paragraph 2 taxes «os encargos dedutíveis relativos a despesas de representação e a viaturas ligeiras de passageiros ou mistas cujo custo de aquisição seja inferior a 30 000 €, motos e motociclos, à taxa de 10 %» and, where the acquisition cost «seja igual ou superior a 30 000 €, à taxa de 20 %», excluding vehicles powered exclusively by electricity⁵.

Read the condition on the taxpayer carefully: «que possuam ou devam possuir contabilidade organizada». Under the simplified regime this tax simply does not exist. The same car costs you an extra 10% or 20% tax on its charges on one side and absolutely nothing on the other. If your activity involves a vehicle or significant representation expenses, the 15% line moves in the simplified regime's favour, and the size of the shift is the autonomous tax you would stop paying.

How to switch, and the three-year myth

Article 28(2) puts you in the simplified regime if you «não [tenha] ultrapassado no período de tributação imediatamente anterior um montante anual ilíquido de rendimentos desta categoria de (euro) 200 000», and paragraph 3 lets you «optar pela determinação dos rendimentos com base na contabilidade»¹. Paragraph 4 gives the deadline: the option is made «na declaração de início de atividade» or «até ao fim do mês de março do ano em que pretendem alterar a forma de determinação do rendimento, mediante a apresentação de declaração de alterações».

And now the part that circulates wrong in almost everything published. There is no three-year minimum. Paragraph 5 says: «a opção referida no n.º 3 mantém-se válida até que o sujeito passivo proceda à entrega de declaração de alterações, a qual produz efeitos a partir do próprio ano em que é entregue, desde que seja efetuada até ao final do mês de março»¹. It holds until you change it, and you change it with effect in the same year if the return goes in by 31 March. The deadline is the part not to miss, not the tenure.

In the other direction there is another tolerance that is equally little known. Crossing €200,000 once does not expel you from the simplified regime: paragraph 6 says the regime «cessa apenas quando o montante a que se refere o n.º 2 seja ultrapassado em dois períodos de tributação consecutivos ou, quando o seja num único exercício, em montante superior a 25 %», i.e. above €250,000, «caso em que a tributação pelo regime de contabilidade organizada se faz a partir do período de tributação seguinte»¹.

A worked case, start to finish

A professional listed in the article 151.º table invoiced €40,000 in the year, documented no expenses, and would pay €600 a year to a certified accountant.

Social security is 21.4% on 70% of gross, i.e. €5,992, and it is the same on both sides.

Under the simplified regime: the 0.75 coefficient leaves €30,000; paragraph 2 deducts the contributions above 10% of gross, 5,992 − 4,000 = €1,992; and paragraph 13 adds €1,412.91 back, because 15% of €40,000 is €6,000 and offset (a) only covers €4,587.09. Taxable income lands at €29,420.91.

Under organised accounting: the profit is 40,000 − 5,992 − 600 = €33,408.

The simplified regime pays €1,391.50 less tax. And the dividing line sits at €5,400 of documented expenses, 13.5% of gross: the general 15% less the €600 retainer. With €4,900 of expenses the simplified regime still wins; with €5,400 both pay exactly the same; with €5,900 organised accounting moves ahead.

What this calculation leaves out

Three things, and it is honest to name them rather than dilute them.

The eligibility of each expense is where the real work lives, and it is not the same in the two regimes. Under the simplified regime paragraph 13 lists what counts (the article 25.º deduction, staff costs, rents of premises used for the activity, 1.5% of the rateable value of premises used for the activity or 4% for those used for hotels and short-term rentals, other expenses on goods and services evidenced by reported invoices, and imports and intra-EU acquisitions), paragraph 14 orders only 25% of those «apenas parcialmente afetos à atividade» to be considered, and paragraph 15 requires them to be identified on the Portal das Finanças by the end of February of the following year². Under organised accounting the deductibility rules of the corporate tax code apply.

The rest of your return is also out: the comparison runs on category-B income alone, using the article 68.º brackets, because tax credits, joint filing and any other household income apply equally to both sides and cancel out.

And VAT is a different calculation. The figures here are net of VAT: if you are inside the article 53.º exemption of the VAT code you charge no VAT at all, and if you are outside it the VAT you charge is never your income.