Overview: Types of activities, registration, and taxation of individual entrepreneur in Portugal

In Portugal, the registration of individual entrepreneurs is essential for the development of small and medium-sized businesses. Choosing the right economic activity code (CAE) and taxation system (CIRS) determines how your business will be regulated and what tax rates will apply to you.

In this article, we'll go into detail about what CAE and CIRS stand for, how they work for individual entrepreneurs, the important changes coming into force in 2024 and what to expect from the transition to the new version of the classifier in 2025.

What is CAE and how do you choose a code for your business?

When registering an individual entrepreneur, you need to choose the CAE code - Classificação das Atividades Económicas - which classifies your economic activity. The CAE code defines what kind of business you do, how your business will be regulated by government agencies, and what tax rates and rules will apply to you.

How CAE works:

Tax regulation: choosing a CAE code affects what taxes you will pay. Some activities may have special tax rates or exemptions.

Access to government programmes and subsidies: if your activities meet environmental or innovation standards, the correct CAE code will allow you to participate in government support programmes.

Licensing and permits: the CAE code also determines what licenses you may need to run your business.

Examples of CAE codes:

56101 — "Full-service restaurant operations" for the restaurant business.

41200 — "General construction works" for companies involved in construction.

62020 — "Computer consultancy activities" for IT consultants.

Why choosing CAE is important?

Choosing the wrong CAE can lead to a variety of consequences:

• Overpayment of taxes.
• Loss of the right to tax benefits or subsidies.
• Problems with licenses or when interacting with tax authorities.

For example, in 2024, the Portuguese government introduced tax incentives for sustainable projects. If you're planning to launch an environmental business, it's important to choose the appropriate CAE code to access the benefits.

What is CIRS and how does it work?

The CIRS (Código do Imposto sobre o Rendimento das Pessoas Singulares) is a taxation system for individuals, including individual entrepreneurs. CIRS regulates how your income will be taxed and provides several categories of taxation.

The major categories of taxation in CIRS:

Category B: taxation of income from independent economic activity. This category covers activities such as trading, services and consulting.

Taxation options for individual entrepreneurs

In Portugal, self-employed individuals can choose between two taxation systems: the simplified taxation system (Regime Simplificado) and the organized accounting system (Regime de Contabilidade Organizada). Each is suitable for certain types of businesses and differs in terms of accounting complexity and cost accounting capabilities.

Simplified taxation system (Regime Simplificado)

This system is designed to simplify tax administration. The taxable base is calculated based on fixed ratios assuming a certain percentage of income as expenses.

The tax authorities consider for most professional activities that 25 per cent of income is a presumed expense and the remaining 75 per cent is taxable. It's convenient for entrepreneurs who don't have a lot of expenses and want to simplify the reporting process.

Who is eligible: Regime Simplificado is recommended for small businesses with annual revenues up to €200,000 and minimal operating costs. The advantage of this system is that it does not require complex bookkeeping and the use of an accountant. However, if the business is associated with high costs, such a system may not be favorable, as the tax base does not take into account the real costs.

Organized accounting system (Regime de Contabilidade Organizada)

In this system, the entrepreneur is required to account for all real income and expenses. The taxable base is formed by deducting proven expenses (rent, salaries, purchase of equipment, etc.) from the total income.

This regime requires strict bookkeeping with the involvement of Técnico Oficial de Contas, a certified accountant.

Who is eligible: This system is ideal for businesses with high operating costs, as it maximizes tax optimization. Here it is better to use the services of a professional accountant, in this system accounting is more complicated.

This taxation option is preferred for entrepreneurs with income over €200,000 or with large expenses that can be deducted to reduce the tax base.

The choice between taxation systems should be made taking into account the size of the business, the amount of operating expenses and the need for tax optimization. Understanding these systems will help you choose the most favorable option for your business in Portugal.

Why is it important to choose the right tax system?

The simplified taxation system is the best choice for entrepreneurs with small incomes and minimal expenses, as it simplifies tax calculations and reduces the administrative burden.

A ‘net income’ system is favorable for businesses with high costs because it allows business expenses to be deducted from income, thereby reducing the tax base, but requires more complex accounting records.

To sum up, the choice between the simplified system and the ‘net income’ system for self-employed persons in Portugal depends on the size of your income and expenses. The simplified system is ideal for start-ups and small businesses with minimal costs, providing simplicity and convenience in tax calculations.

At the same time, the ‘net income’ system is favorable for those with high operating expenses, as it allows a significant reduction in the tax base, but requires careful accounting of all expenses and more complex financial management.

CAE and CIRS in Portugal

It is important to distinguish between the CAE and CIRS systems to fully understand tax liabilities and properly register your business, as they work differently.

CAE is responsible for classifying your business. It defines specifically what do you do and what regulations and taxes will apply to you based on the type of activity.

CIRS is responsible for income taxation. It regulates how your entrepreneur income will be taxed and gives you a choice between a simplified system or a ‘net income’ system.

Let's imagine you run an IT consulting business. Your CAE code is 62020 and classifies your business as a 'Computer consultancy activities'. However, for taxation, you can opt for simplified taxation under CIRS to pay 15% on your anticipated income.

The specifics of registration and reporting for an individual entrepreneur

Registering an individual entrepreneur through Portal da Empresa seems simple, but it is important to keep a few things in mind:

Multiple CAE codes: If your business covers more than one area, you need to register multiple codes. For example, if you do both IT consulting and retail at the same time, you need to specify both codes so that you don't have problems with tax and licensing.

Regular filing: Even if you have no income for a certain period, you still need to file tax returns. Failure to file reports on time leads to penalties.

Important changes in 2024

In 2024, the Portuguese government introduced several key changes that simplify the registration and taxation process for small entrepreneurs.

New CAE codes for digital and green businesses:

New codes have been introduced that allow entrepreneurs involved in environmental projects or digital technologies to receive tax breaks and access subsidies.

Example: if you plan to launch an eco-production facility, a new CAE code can give you access to the government's eco-business support programme.

Simplified tax system:

It has become more affordable for low-income entrepreneurs, reducing tax costs in the first year of operation.

CAE updates in 2025

Starting from the 1st of January 2025, the fourth revision of the CAE classifier (Rev.4) will come into force. This change was introduced by European Commission Delegated Regulation No. 2023/137 and Regulation No. 1346/2024, and it requires some entrepreneurs to update their activity codes.

The IRCAE Program

To simplify the process of updating codes, the National Institute of Statistics (INE) and the Internal Revenue Service (AT) have launched the IRCAE programme. This is an online survey that needs to be completed by the end of November 2024.

Even if you did not receive a notification, we recommend checking your codes through the Webinq portal and updating them if necessary.

Tips for the successful launch of an individual entrepreneurial

Get help from the experts

If you are just starting your business in Portugal, interacting with the tax system can seem complicated. Any mistakes at the stage of registration or selection of codes can lead to unpleasant consequences, such as overpayment of taxes or loss of eligibility for subsidies.

Accountants and tax advisors can help you avoid these mistakes. Not only will they help you choose the right CAE code for your business, but they will also advise you on which taxation system through CIRS will be most favorable for you.

It is especially important to contact specialists if you have several activities and plan to register several CAE codes: this will avoid confusion in tax reporting and penalties.

The consultants can also offer competent bookkeeping, which is particularly useful if you decide to opt for a ‘net income’ tax system that requires complex cost accounting.

Use the government's online resources

There are several useful government portals in Portugal that can help you not only register your business, but also keep track of your tax obligations:

Portal da Empresa is a platform for online business registration. It allows you to register an individual entrepreneurial, select a CAE code and perform other administrative tasks such as changing data or closing a business.

Portal das Finanças is your main tool for interacting with the tax office. Through this portal, you will be able to file returns, track your tax payments, and get all the information you need about your tax obligations. It also provides tax calculation functions that will make your life easier, especially if you use a simplified tax system.

Instituto Nacional de Estatística (INE): If you are not sure which CAE code is appropriate for your activity, this portal will allow you to find and check codes. This will help you avoid registration errors and choose the codes that accurately reflect your business.

Conclusions

Successfully launching and running a business in Portugal depends largely on how thoroughly you choose your CAE code and taxation system through CIRS. These decisions determine how your business will be regulated, what taxes you will have to pay, and what benefits you can receive.

With the introduction of the new CAE codes in 2024, entrepreneurs have more opportunities for green and digital projects. The simplified tax system has also become more accessible, which is particularly useful for small entrepreneurs just starting out.

However, it is not only important to register your business properly, but also to be prepared for future changes. In 2025, a new edition of the CAE classifier will come into force, which will require many businesses to update their codes.

Regular monitoring and timely updates on your activities will help you avoid fines and take advantage of all business opportunities.

Making smart decisions early on, utilizing available resources and seeking professional advice will help you build a sustainable and successful business in Portugal.

Useful links:

• Portal da Empresa - online business registration.
• Portal das Finanças - for filing tax reports.
• Instituto Nacional de Estatística - for searching and verifying CAE codes.
• Webinq - for checking and updating CAE codes.
• Instituto dos Registos de do Notariado (IRN) - for registration and liaising with state authorities.