Ana had just received €2,000 for a design project. She opened her calculator and started working through the numbers: “If I pay income tax on all of this…” — she stopped halfway. The result was alarming.
But Ana was making a mistake that most freelancers make: assuming she would pay IRS on the full amount she invoiced. That is not how it works.
The fact most people miss: you only pay tax on 75%
Under the simplified regime (regime simplificado), the state does not tax your full invoiced income. It applies a coefficient to calculate your taxable income — the portion on which you actually pay tax.
For most services — design, programming, consulting, translation, marketing — the coefficient is 0.75. That means for every €1,000 you invoice, IRS is calculated on €750. The state assumes the remaining €250 represents professional costs, with no need to present any receipts.
Concrete example:
- You invoiced €12,000 for the year
- Taxable income (75%): €9,000
- You pay IRS on: €9,000 — not €12,000
Important note: The 0.75 coefficient applies to the professions listed in Article 151 of the CIRS (designers, programmers, consultants, accountants, etc.). For services not on that list, the coefficient is 0.35. For sales of goods, it is 0.15.
How IRS progressivity works
IRS in Portugal is progressive: the more you earn, the higher the percentage — but only on the portion that exceeds each bracket, not on your total income.
The logic is straightforward: the first euros you earn are taxed at a low rate. As income rises, each additional bracket is taxed at a higher rate. If your taxable income reaches the second bracket, only that extra slice is taxed at the higher rate.
Note: Tax rates and bracket thresholds are updated every year. Always check the current-year tables on the Finance Portal before calculating your liability.
What this means in practice:
Ana with €12,000 in invoicing has €9,000 in taxable income — she sits in the lowest brackets, with a low effective rate.
João with €24,000 in invoicing has €18,000 taxable — still well below the upper brackets.
Your real effective rate is always lower than the marginal rate of the highest bracket you reach.
The golden rule: set aside 25–30% of every payment
Regardless of how much you invoice, one simple habit prevents unpleasant surprises in July:
Always set aside 25–30% of every payment you receive.
Why that percentage? Because beyond IRS, you also pay Social Security contributions. In your first year of activity you are exempt from Social Security contributions, but from the second year onwards that amount enters the equation.
Practical example:
- You received €2,000 this month
- You transfer €500–600 to a separate savings account
- You keep €1,400–1,500 for day-to-day expenses
When the state’s tax assessments arrive, the money is already there. No surprises, no panic.
When and how you pay IRS
IRS is paid once a year, not monthly. The calendar works like this:
- 1 April to 30 June of the following year — you file your annual IRS declaration (Modelo 3, Categoria B)
- The state calculates what you owe or what it owes you
- Payment or refund is processed after the assessment
One important detail: IRS is calculated based on when you receive money, not when you issue the invoice. If you issue an invoice in December 2026 but only receive payment in January 2027, that amount counts toward your 2027 IRS declaration. Under the simplified regime, income is taxed on a cash basis (Article 3 of the CIRS).
The withholding at source option
If you work regularly for Portuguese companies, you can ask them to apply withholding at source (retenção na fonte) — the company retains a percentage of your invoice and pays it directly to the state as an advance on your IRS.
The standard rate for independent workers is 23% (Article 101 of the CIRS). You receive less upfront, but when you file your annual declaration that amount is deducted from what you owe — and if too much was withheld, you get the surplus back as a refund.
This suits freelancers who prefer to pay steadily throughout the year rather than face one large bill in July.
✅ In summary
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Under the simplified regime, you pay IRS on 75% of what you invoice — not on everything. This is the 0.75 coefficient for most service professions listed in Article 151 of the CIRS.
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IRS is progressive but the effective rate is always lower than it looks — you only pay the higher rate on the slice of income above each bracket. Check the current tables on the Finance Portal.
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With FIZ your annual IRS declaration is submitted with your data already organised — no scrambling to compile everything at the last minute in April.
