The default tax system for freelancers is easy to enter but expensive to get wrong.
Introduction
The name “simplified regime” is a branding trick. While it removes the need for complex accounting, it replaces that paperwork with a rigid math problem that catches thousands of freelancers off guard every year.
If you choose the wrong activity code, you overpay. If you misunderstand the expense rules, you pay tax on money you already spent. If you claim a discount you aren’t eligible for, the tax authority (Autoridade Tributária) will ask for it back with interest.
This guide breaks down the 2025 rules for the regime simplificado. It explains how the coefficients work, why the “new activity” discount is dangerous, and how to avoid the automatic transition to organized accounting.
How the simplified regime works
Most tax systems ask you to list your income and subtract your expenses to find your profit. Portugal’s simplified regime ignores your real profit.
Instead, it assumes a profit margin based on your job title.
When you register your activity (início de atividade), you select a CAE code or CIRS code. This code carries a “coefficient” (coeficiente). The government multiplies your gross income by this number to decide how much tax you pay.
If you earn €50,000 as a consultant (coefficient 0.75), the government assumes your taxable income is €37,500. The remaining €12,500 is considered “assumed expenses” and is tax-free.
It does not matter if you spent €1,000 or €20,000 to run your business. The math stays the same.
The coefficient table (2025)
Your tax bill depends entirely on which bucket you fall into.
| Activity Type | Coefficient | Taxable % of Income |
|---|---|---|
| Sales of goods (shops, e-commerce, restaurants) | 0.15 | 15% |
| General services (cleaning, repairs, transport) | 0.35 | 35% |
| Professional services (IT, design, law, consulting) | 0.75 | 75% |
| Crypto mining | 0.95 | 95% |
| Crypto trading (non-mining) | 0.15 | 15% |
Note: Most remote workers and digital nomads fall into the “Professional services” category (0.75). If you try to classify consulting work as “sales” to get the 0.15 rate, you risk an audit and heavy fines.
The new activity reduction (and why it fails)
Portugal offers a massive incentive for new freelancers. For your first two years, the coefficient is reduced.
- Year 1: 50% reduction (Coefficient drops from 0.75 to 0.375).
- Year 2: 25% reduction (Coefficient drops from 0.75 to 0.5625).
On €40,000 of income, this reduction saves you tax on €15,000 of earnings in the first year.
The eligibility trap
You only get this discount if you are “purely” a freelancer. You are disqualified if:
- You receive any employment income (Category A) in the same year.
- You receive any pension income (Category H) in the same year.
- You closed a similar business activity in Portugal within the last five years.
If you have a small side job or a pension from abroad, the system may let you tick the box, but the annual tax assessment will reject the discount and demand full payment.
The 15% expense obligation
For freelancers with a 0.75 or 0.35 coefficient, the “tax-free” portion of your income is not fully guaranteed.
The law assumes 25% of your income is for expenses. However, you must prove that at least 15% of your gross income went to real, deductible costs.
If you earn €80,000, the system expects to see €12,000 in verified expenses.
What counts as an expense?
- Social security contributions (this is usually your biggest deduction).
- Staff costs and wages.
- Property rents and professional insurance.
- Specific business expenses registered on the e-fatura portal.
If your verified expenses fall short, the difference is added back to your taxable income. If you only prove €5,000 of expenses on that €80,000 income, the missing €7,000 becomes taxable.
Action step: Log in to the e-fatura portal monthly to classify your invoices. The deadline to finalize this is February 25 of the following year.
Social security interactions
Your IRS tax regime is separate from your social security obligations, but they use similar math.
As a freelancer (trabalhador independente), you pay social security monthly. The amount is calculated based on your “relevant income” (rendimento relevante).
- Services: 75% of gross income is relevant.
- Sales: 20% of gross income is relevant.
You pay 21.4% on that relevant income.
Unlike IRS, which is settled annually, social security is a cash-flow pressure. You must pay between the 10th and 20th of the month following the income period.
When you are forced to leave
The simplified regime has a ceiling. It is designed for small to medium businesses. If you grow too big, the state forces you into “organized accounting” (contabilidade organizada).
The exit triggers
You must hire a certified accountant and switch regimes if:
- Your gross income exceeds €200,000 in two consecutive years.
- Your gross income exceeds €250,000 in a single year.
Once triggered, the change takes effect on January 1 of the following year.
In organized accounting, you pay tax on your actual profit (Income minus Real Expenses). This can be beneficial if you have high operating costs, but it requires strict bookkeeping and higher accountant fees.
Common traps (and how to avoid them)
- Claiming the new activity bonus with a side job
→ Leads to a tax bill shock. If you have an employment contract, assume you pay full tax rates. - Ignoring the February 25 e-fatura deadline
→ Causes your expenses to be rejected. Set a calendar reminder to validate invoices by Feb 20. - Choosing the “Other Services” (1519) code incorrectly
→ The tax authority often reclassifies vague codes to the higher 0.75 rate during audits. Be specific with your activity code. - Forgetting the VAT threshold
→ If you cross €14,500 (2025 estimate) in a year, you must start charging VAT the following February. Watch your run rate.
Bottom line
The simplified regime is only simple if you fit the standard mold: a freelancer with low expenses and no other income sources.
For everyone else, it is a calculation of trade-offs. The 0.75 coefficient is high compared to real-profit accounting if you have significant costs (office, travel, software, subcontractors).
Do not guess your coefficient. A mistake here compounds every month you send an invoice.
Key takeaway: Information is useless without a next step. Check your activity code on the finance portal today to ensure you aren’t being taxed at 75% when you should be at 35%.
FAQ
What is the income limit for the simplified regime in 2025?
The standard limit is €200,000 per year. If you earn more than this for two years in a row, or more than €250,000 in a single year, you are moved to organized accounting.
Can I deduct expenses in the simplified regime?
You cannot deduct individual receipts to lower your tax base directly. However, you must justify 15% of your gross income with valid expenses (like social security or professional fees) on the e-fatura portal to avoid a tax penalty.
Does the new activity reduction apply to social security?
No. The 50% and 25% reductions apply only to your IRS (income tax) coefficient. Your social security contributions are calculated on the standard 70% or 75% base regardless of your new activity status.
What happens if I have a pension and freelance income?
You are taxed on both, and you lose the eligibility for the “new activity” coefficient reduction. The pension income (Category H) disqualifies you from the startup tax incentives.
When do I have to pay VAT?
If your annual turnover exceeds the exemption threshold (currently €14,500, subject to 2025 budget confirmation), you must register for VAT and start charging it from February of the following year.
What is the tax rate for crypto in Portugal?
Crypto trading (sales) has a coefficient of 0.15. Crypto mining has a punitive coefficient of 0.95. If you hold crypto for more than 365 days, gains are currently tax-exempt, though rules are tightening.
Do I need an accountant for the simplified regime?
It is not legally required, but it is highly recommended. A certified accountant (contabilista certificado) ensures you file your quarterly VAT and annual IRS declarations correctly, preventing fines that often cost more than their fee.
