Recibos verdes: IRS and Social Security explained

What are recibos verdes?

"Recibos verdes" (green receipts) is the popular name for the electronic receipts a self-employed worker issues when providing a service or selling a good. People working this way are in category B of IRS: doctors, designers, programmers, consultants, trainers and many other independent professionals.

Unlike an employee (category A), the self-employed worker has nothing withheld automatically when paid: over the year they hand to Social Security and to the State the two charges that fall on what they bill. Understanding those two charges is what avoids surprises at year-end.

Two charges: Social Security and IRS

Two separate things fall on what you bill on recibos verdes, each with its own rules:

1. The Social Security contribution, paid monthly (assessed quarterly).
2. IRS, the income tax, settled on the annual return.

There is also VAT, but that is a separate case; we return to it at the end. Let us take it step by step.

Social Security: 21.4% on 70%

The self-employed contribution is 21.4%¹. The point that confuses most people is that the rate does not apply to everything you bill: it applies to the relevant income, which for services is 70% of what you receive.

Social Security = 21.4% × (70% of what you bill) ≈ 15% of gross income

The base is assessed quarterly: each quarter you declare what you received in the previous three months, and the monthly contribution comes from that average. So for an annual estimate, think of about 15% of what you bill going to Social Security.

For example, someone billing €30,000 in a year has a relevant income of €21,000 (70%) and pays €4,494 of Social Security a year (21.4% of €21,000), just under €375/month.

IRS: the simplified regime and the 0.75 coefficient

Most self-employed workers are on the simplified regime, the default for income up to €200,000/year. Here, IRS is not charged on all income: a coefficient is applied that presumes the activity's expenses².

For the vast majority of "recibos verdes" (professional services), the coefficient is 0.75: 75% of what you bill is taxed, and the other 25% is treated as expenses. The general IRS brackets³ then apply to that 75%, the same progressive rates an employee pays (see how IRS is calculated).

One important note: to keep the 0.75 coefficient, the law requires you to justify expenses equal to 15% of gross income. In practice, your mandatory Social Security contributions (≈ 15% of income) already count toward that minimum, so for most cases the coefficient applies in full.

Worked example

Back to the €30,000 billed in a year for services:

• Social Security: 70% → €21,000 relevant income; 21.4% of that = €4,494/year.
• IRS (simplified regime): 75% → €22,500 taxable income; via the general brackets, the tax is about €3,946.
• Net: around €21,560 is left for the year, or roughly €1,797/month.

Run the numbers with your own figures in the recibos verdes calculator; you can also toggle the first-year exemption.

And in the first year of activity?

Someone starting an activity for the first time is normally exempt from the Social Security contribution for the first 12 months¹. This eases the start a lot: during that period only IRS is deducted from what you bill. IRS itself applies from the outset.

What this calculation does not include

To stay an honest estimate, some things are left out that you may need to consider:

• VAT: unless you are exempt (Art. 53), you charge clients VAT and hand it to the State. VAT is not your income, so it does not enter the calculation of what you earn.
• Dependants, tax credits (health, education, invoices) and IRS Jovem, which can reduce the final tax.
• Organised accounting (an alternative to the simplified regime) and the minimum and maximum limits of the Social Security base, which matter at very low or very high incomes.

For tax on employment income, see the net salary calculator; for the IRS bill, the IRS calculator.