Freelance Contractor in Portugal what is it

Difference between Freelancer and Contractor in Portugal

In Portugal, the difference between “Freelancer” and Contractor (“Contractor” in English) lies in the way they both work and the sectors to which they are associated. Both are Independent Workers, without employment or exclusivity. So let's see what a freelancer and a contractor are.

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“Freelancer” and Contractor

A “Freelancer” is an Independent Worker, who offers his services to companies or individual clients and with whom he defines the price of his work.

The “Freelancer” does not have an employment contract and, therefore, can work simultaneously on several projects and organizations.

This work model encompasses several industries and sectors, and may include “copywriters”, “designers”, photographers, “web developers” and translators, among others.

On the other hand, a Contracted professional (“Contractor”) is also an Independent worker, without an employment contract or exclusivity regime, but who normally works full-time and for a certain period, for the same client.

These professionals fulfill specific functions during a certain period, usually associated with a project.

It is a regime that offers great flexibility, tax benefits and is appealing to those who work and gives flexibility to those who hire. The Information Technologies (IT) sector is the most common to find workers under this regime.

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Both “Freelancers” and Contractors are responsible for their tax declarations and social security contributions. They have more financial and professional independence than the typical employee with an employment contract with the company.

Differences between Freelancing and Contracting

Both “Freelancers” and contractors work on a temporary basis for an organization.

“Freelancers” deliver projects while the contractors fulfill specific functions, during a certain period and in the company that hired them.

In the case of “Freelancer”, for example, an organization asks a “designer” to make a logo proposal or an “IT Developer” to develop an application (App), so that customers can access its portal and make purchases of your products.

Some specifications are established which, depending on each case, can be more or less complex and hence different prices and delivery times will arise.

In the case of the Contractor, for example, he may be responsible for implementing a computer project that involves several analysts, programmers and users and hires a specialist to coordinate and manage the entire project. This will result in a price appropriate to the complexity of the task.

Freelancer Infographic Hired Portugal What It Is
Infographic: What is a “Freelancer” and a Contractor in Portugal, what are the differences.

What is the difference for an Individual Entrepreneur (ENI)

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The independent worker, whether “Freelancer” or Contractor, is a professional who offers his services without having an employment relationship with any entity.

You are responsible for your tax obligations and Social Security contributions.

Um Individual Entrepreneur (ENI) is a person who carries out an economic activity in their own name. The very name of this entity, in addition to the name, may have a reference to the field of activity to which it is dedicated.

There is no separation between personal assets and business assets, meaning that the entrepreneur's personal assets are allocated to the operation of the activity and become the property of the “Company”.

Liability is unlimited and, therefore, the entrepreneur is responsible for all debts incurred by the company, with all the assets that make up its assets.

For tax and Social Security purposes, an individual entrepreneur (ENI) is treated as an independent worker.

However, the main difference between a Freelancer and an ENI in Portugal lies in the structure and nature of the work they carry out.

While a “Freelancer” can work for several clients on different projects, an ENI generally has a more structured business and focused on a certain type of activity.

Advantages and disadvantages

“Freelancers” and Contractors represent around 16% of the workforce, according to data from the National Statistics Institute (INE).

These independent professionals have the freedom to choose their clients and projects; however, they face financial uncertainty, with around 30% of these professionals indicating that they have had periods without income.

With all the responsibilities they have, the biggest difficulty will be finding enough time for non-technical tasks, such as invoicing and collecting from customers, paying fees and taxes, and also analyzing the results obtained and outlining strategies for the future. .

Although being a “Freelancer” offers several advantages such as flexibility and autonomy, there are also significant disadvantages to consider.

The uncertainty of continuing work means that “Freelancers” are responsible for managing their own social security and taxes, which can be a complex and costly task.

They also need to create their own emergency fund to cover eventualities and emergencies.

The absence of a fixed work environment and colleagues can also lead to a feeling of professional isolation.

These disadvantages highlight some of the challenges that “Freelancers” in Portugal may face in managing their independent career.

Time management can be a problem, as the flexibility that attracts many to freelancing also requires great discipline and resilience to meet deadlines.

Furthermore, “Freelancers” have to invest in their own professional development and in acquiring new skills without the support of an organization. This may mean additional costs for training and professional updating.

In Portugal, Freelancers and Contractors need to carefully consider the issues of the social security system in order to ensure their protection.

Finally, the need for self-promotion and constant acquisition of new clients can be exhausting and requires marketing knowledge, which not all independent professionals possess.

Social security for “Freelancers” refers to mandatory contributions that guarantee access to benefits such as old-age pensions, sickness benefits and unemployment support. These contributions are calculated based on declared income and have specific rates defined by the Portuguese social security system.

On the other hand, taxes relate to the payment of IRS (Personal Income Tax), which is calculated based on the “Freelancer’s” annual income after specific deductions. Value Added Tax (VAT) is added when income reaches a certain size.

“Freelancers” and Contractors must issue electronic green receipts for each service provided, which serve as the basis for declaring income and calculating the tax due.

Therefore, while social security is focused on the social protection of the “Freelancer”, taxes are related to tax obligations towards the State. Both are essential for the regularization of independent professional activity in Portugal.

How to become a Freelancer or Contractor in Portugal?

To become a “Freelancer” in Portugal, the first step is to define the type of services you want to offer and ensure that you have the necessary skills to do so. Next, it is important to register as an independent worker with Finance to obtain a tax identification number (NIF) and begin the activity.

It is recommended to create a network of professional contacts and establish a robust online presence, whether through your own website or “freelancing platforms”, to promote your services and attract clients.

Finally, it is important to be prepared for the financial management of your business, including setting prices for your services, negotiating contracts and monitoring customer payments.

Becoming a “Freelancer” in Portugal requires dedication and organization, but it can be a very rewarding professional option.

How can the hourly rate be calculated?

The best thing is to know what your competition charges in terms of hours and, based on this and your own experience, consider a slightly lower or higher price.

Another way is to compare it with what an employee with the same role and experience earns, to calculate this hourly rate.

For example, you want to offer your services as a project leader in an information technology sector.

Verify that a professional employed in private companies, with the aforementioned category, earns €2.500 per month, gross value.

First calculate the annual remuneration value which will be €2.500x14 months = €35.000.

Per year the worker works an average of 48 weeks with 40 hours per week = 1.920 hrs.

The hourly rate will then be 35.000/1.920 = €18,22 per hour.

Don't forget that the employer also deducts the Single Social Tax (TSU), so a percentage for Social Security (23,75%).

The issue of civil liability insurance must also be addressed, as well as training costs and other important ones.

Therefore, it will be a value of around €25 per hour.

Compare now with the competition and make your own offer.

Contribution Rates for Social Security

Social Security Contribution Rates, April 2020.

Source: General Directorate of Social Security.
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