Nuno makes videos and buys equipment. Sofia is a copywriter who mostly works on a laptop. Both want to know whether organised accounting pays off. Expenses are a starting point, but the answer depends on three calculations: IRS, Social Security and the cost of handling your obligations.
The examples below are fictional and use round figures to explain the calculations.
First: when it is mandatory
For someone in the simplified regime, organised accounting becomes mandatory when gross annual category B income exceeds €200,000 in two consecutive years, or €250,000 in a single year. The change takes effect the following year.
Within the simplified regime’s limits, you can opt for organised accounting. If you have already done so, lower turnover does not switch you back automatically: you must notify the AT within the deadline.
- The IRS base starts with a coefficient applied to the income from each activity
- Specific rules apply to Social Security deductions and expense justification
- A certified accountant is not required
- Taxable profit comes from the accounts, with the applicable tax adjustments
- Expenses must be tax-deductible for the year, including equipment depreciation
- A certified accountant and additional accounting obligations are required
IRS: 25% is a starting point
In the simplified regime, services on the official list of professions in CIRS article 151 start with a 0.75 coefficient. Other services may fall under 0.35; sales of goods and products use 0.15. If you have different activities, separate their income. These figures determine the taxable base, not the tax rate.
When you start activity, the 0.75 and 0.35 service coefficients can be reduced by 50% in the tax year you start activity and 25% in the following year, provided you have no employment income (category A) or pension income (category H) in the relevant year. The reduction does not apply if you closed an activity less than five years earlier.
The 0.75 coefficient can therefore become 0.375 or 0.5625, before the other adjustments. The timing runs from starting activity, not from switching regimes.
For services subject to 0.75 or 0.35, two adjustments matter:
- Social Security deduction: you can deduct mandatory contributions actually borne for the activity to the extent that they exceed 10% of that gross income, up to the corresponding net income, provided they have not been deducted elsewhere.
- The 15% rule: if eligible deductions and expenses fall short of 15% of that service income, the shortfall is added to the base. This includes the statutory automatic deduction or, if higher, the contributions not used in the adjustment above, plus other eligible expenses. The same contribution cannot count twice; certain expenses partly linked to the activity count at only 25%.
Sofia’s example: she is in her third tax year of activity, with no interruptions. She invoices €40,000 excluding VAT in services subject to 0.75 and pays €6,000 in mandatory contributions for her activity during the year. Assume she meets the 15% rule, does not deduct those contributions elsewhere and has no special tax benefits:
| Step | Amount |
|---|---|
| Initial base: €40,000 × 0.75 | €30,000 |
| Contributions above 10% of income: €6,000 − €4,000 | −€2,000 |
| IRS base for the activity | €28,000 |
Here, the base is 70% of turnover. Comparing organised accounting expenses with a fixed 25% allowance can therefore lead to the wrong conclusion.
Organised accounting: buying does not always mean deducting it all at once
An equipment purchase may enter the accounts as depreciation, spreading the cost over several years. For Nuno, what matters is how much of the equipment is tax-deductible each year, not just the money leaving his bank account.
Some expenses recorded in the accounts may also be disallowed for tax purposes and added back to the result. Compare using taxable profit, not just the accounting net result.
Careful: expenses below 25% may favour the simplified regime; high expenses may favour organised accounting. Neither situation alone decides the outcome. Organised accounting uses allowable expenses; the simplified regime uses the applicable coefficients and adjustments.
Social Security: compare both the base and the year
For someone required to contribute, the general rules are:
| Calculation method | Monthly base, before limits and special rules |
|---|---|
| Quarterly | The previous quarter’s relevant income ÷ 3; generally 70% of services and 20% of production and sales of goods |
| Based on taxable profit | Taxable profit reported to Social Security ÷ 12 |
The rate applied to that base depends on your classification: 21.4% for TI or 25.2% for ENI/EIRL. Check your category with Social Security; organised accounting does not, by itself, determine the rate.
Nuno’s example: with €9,000 of services in a quarter, a 21.4% rate, no exemption and no base adjustment, his contribution is €9,000 × 70% ÷ 3 × 21.4% = €449.40/month, for the following three months. No limit changes this example.
The profit-based calculation has a minimum base of 1.5 IAS; the general base ceiling is 12 IAS. IAS is an index updated annually. If turnover is uneven, the limits can make an estimate based only on an annual average misleading.
The profit-based contribution base is set in October for the following year. There is a delay: profit in year N → annual IRS return and base setting in N+1 → contributions in N+2. A current contribution based on an older year’s income is not a permanent forecast.
You can choose quarterly assessment while keeping organised accounting. Quarterly assessment also offers the option to adjust the base by up to 25%, subject to limits and with implications for social benefits.
Compare the total cost of both scenarios
| Component | What to include |
|---|---|
| IRS | A simulation of each regime using the same household income and family circumstances |
| Autonomous taxation | Additional tax on certain expenses; some charges, such as those on representation and vehicle expenses covered by CIRS article 73(2), do not apply in the simplified regime |
| Social Security | Expected contributions, allowing for the calendar, rate and available options |
| Accountant or service | Accountant fees, subscriptions, separately charged annual returns and closing the final year under organised accounting |
Do not add autonomous taxation twice if the IRS simulation already includes it. And a lower taxable base does not mean an equal tax saving: the outcome also depends on the household’s tax brackets and deductions.
VAT has its own rules. You can use the simplified IRS regime and the normal VAT regime, with deduction rights when you meet the VAT Code’s conditions. Organised accounting is not a general requirement for deducting VAT. Exclude VAT collected from revenue and recoverable VAT from expenses when doing the comparison.
When and how to switch
- IRS: to change regime by choice with effect from 1 January, the declaration of changes must be submitted on the Portal das Finanças by 31 March of that year, meeting the conditions for the intended regime. Coordinate the filing with your accountant. Leaving organised accounting still requires closing the accounts and fulfilling the obligations for the final year under that regime.
- Social Security: if contributions are based on taxable profit and you want quarterly assessment from January, the option period is 1 to 30 November of the previous year. Check your notification and classification in Segurança Social Direta.
These are separate procedures. Changing your IRS regime with the AT does not guarantee an automatic switch to quarterly Social Security calculations in January; information passes between the authorities on its own timetable.
Before deciding, gather turnover by activity excluding VAT, a breakdown of tax-deductible expenses, contributions actually paid, your current Social Security notification and accountant or service costs. Make a forecast for the next year too: a one-off purchase or an unusually strong quarter may not repeat.
In summary
- Check whether you have a choice. Income limits and any earlier decision to opt for organised accounting determine your starting point.
- Compare IRS, Social Security and service costs. The 25% rule is only an approximation for certain services; Social Security adjustments, eligible expenses and depreciation can change the calculation.
- Plan for both calendars. IRS and Social Security have separate procedures. In the simplified regime, FIZ helps you manage invoicing, expenses, periodic VAT returns and quarterly Social Security declarations. Check what is included in the plans.
