Withholding tax for freelancers in Portugal: green receipt rates, exemption and your IRS return

Summary

• Withholding tax (retenção na fonte) on a Portuguese green receipt is not an extra tax. It is an advance payment of your own IRS: the client keeps part of your fee, pays it to the tax authority in your name, and the amount is subtracted from your final IRS bill when you file your annual return.
• In 2026 the standard rate on Category B professional income is 23% for activities that appear by name in the official activity table, and 11.5% for service income that does not, including the residual code 1519 “other service providers”.
• A rate of 16.5% applies to income from intellectual or industrial property, and 20% to income of taxpayers covered by the tax incentive for scientific research and innovation (only if the taxpayer is registered under IFICI and the income is from the qualifying activity).
• You can ask for no withholding at all if you expect less than €15,000 of Category B income in the year. The receipt must then carry the sentence “Sem retenção, nos termos do n.º 1 do artigo 101.º-B do Código do IRS”.
• The exemption is optional. Skipping withholding gives you more cash during the year, but it leaves a larger amount to settle in the summer after you file.
• Only clients that keep organised accounting must withhold. A private individual, or a client based outside Portugal, has no withholding duty, so you invoice the full amount.
• Withheld amounts go in Quadro 6 of Anexo B of the Modelo 3 return, together with the tax number of each client that withheld. The tax office then settles the difference in your assessment.

Introduction

Withholding tax catches most freelancers in Portugal by surprise. You send a €1,000 invoice through the Portal das Finanças, with no VAT added because of the small business exemption, and the client pays €770. Nothing went wrong: the client applied retenção na fonte and paid €230 of your fee to the Portuguese tax authority in your name.

If you are new to recibos verdes, that feels like a penalty. It isn’t. It’s the Portuguese system collecting your income tax in instalments instead of in one payment at the end. Every euro withheld counts towards the IRS you owe.

This article answers the practical questions: which clients have to withhold, which rate applies to your activity in 2026, how the exemption below €15,000 works, where the withheld amounts go in your return, and what to do when a client gets it wrong. Rules differ per situation and this is general information, not tax advice.

What is withholding tax on a green receipt?

Withholding tax on a Portuguese green receipt is an advance payment of your own income tax, not a second tax on top of it. The client keeps a percentage of your fee, usually 23% or 11.5%, and pays it to the tax authority under your tax number. That money is credited against the IRS on your annual return.

Portuguese law calls it a pagamento por conta do imposto devido a final, a payment on account of the tax due at the end.

The mechanism is called substituição tributária, tax substitution. Your client steps into your place for one step of the process. Instead of you paying that slice of IRS later, the client deducts it now and hands it over to the state. The client is responsible for the amounts withheld and not delivered to the state, so the risk of the transfer sits with them, not with you.

Two consequences follow, and they matter more than the rate itself.

First, withholding is never your final tax. Your final tax is calculated on your whole year: all your income, your family situation, your deductions and the IRS brackets. The withheld amounts are then subtracted from that result.

Second, the withholding rate has almost no relationship to your real tax rate. Under the simplified regime, only part of your turnover is taxed. The taxable base is 75% of income from listed professional activities and 35% of other service income. A freelancer withheld at 23% can end the year with a much lower effective IRS rate. It can also be higher, if there is salary income in the same year. That is why the annual return exists.

Who withholds the tax, and when?

Only clients that keep organised accounts withhold tax on a Portuguese green receipt. In practice that means companies, associations, public bodies and self-employed professionals taxed under the organised accounting regime. Private individuals, self-employed clients in the simplified regime and clients based abroad do not withhold anything. The tax is deducted at the moment the invoice is paid, not on the date it was issued.

The obligation falls on entities that have, or are required to have, organised accounting. Three common situations fall outside that rule.

A private individual as client. If you design a website for a neighbour, or teach a private student, there is no company behind the payment and no organised accounting. No withholding applies. You issue the receipt for the full amount, and the whole IRS on that income is settled later.

A self-employed client under the simplified regime. Most small freelancers in Portugal are taxed under the simplified regime, which does not involve organised accounts. Such a client is not a withholding agent either, even though they are a business.

A client outside Portugal. A company in Germany or the United States is not bound by the Portuguese IRS Code, so it will not withhold Portuguese tax. You receive the gross amount. It is still fully taxable in Portugal if you are resident here, and it still goes in your annual return.

The moment of withholding is the moment of payment, not the date on the invoice. Tax is withheld when the amount is paid or made available to you. An invoice issued in December and paid in January therefore belongs to the January cycle.

What your client must do after withholding

Your client has three separate obligations. Each one produces a document or a deadline that affects you.

The payment deadline is set by article 98 of the IRS Code, and the two reporting duties by article 119.

Keep the January statement. It lists, per client, the gross income paid to you in the previous year and the tax withheld from it. It is what you check your own records against before filing. If it has not arrived by 20 January, ask for it, because it is an obligation and not a courtesy.

The February Modelo 10 filing is why some withholding data may already appear when you open your return. It is also why a client who files late or incorrectly can leave a gap in those pre-filled figures. The figures that count are the ones on your receipts and on the January statement.

Is your work withheld at 23% or 11.5%?

A Portuguese freelancer is withheld at 23% when the activity appears by name in the official table of professional activities, and at 11.5% when it does not, including the residual code 1519, “other service providers”. Income from intellectual or industrial property carries 16.5%, and 20% applies to taxpayers covered by the incentive for scientific research and innovation. The code on your activity registration decides which one you get.

These are the rates set out in article 101 of the IRS Code.

What the “activity table” means

When you register as self-employed, you choose an activity code. Some freelancers pick a code from the CAE list of economic activities. Others pick one from a separate list of professional activities attached to the IRS Code, the list referred to in article 151. That second list names professions directly: lawyers, architects, doctors, engineers, translators, designers, actors, economists and many more.

The 23% rate applies only to income from activities specifically named in that list. That is the legal test, and it is narrower than it looks.

Why code 1519 is withheld at 11.5%

Code 1519, “other service providers”, sits at the end of the professional activities list as a catch-all for work that does not match any named profession. Many freelancers are registered under it: consultants, online marketers, general IT contractors, virtual assistants.

Because 1519 describes no profession in particular, income earned under it is not income from an activity “specifically named” in the table. The binding ruling of the tax authority confirms that the rate for income under code 1519 is 11.5%, not 23%.

If a client has been applying 23% to your 1519 invoices, they have been withholding roughly twice as much as the law requires. It is not lost money, but it is your cash sitting with the tax office until the following summer. Check which code appears on your activity registration before you assume a rate. That is also worth doing when you set up or review your green receipts.

What the rate is applied to

The rate is applied to the gross fee, before VAT. The law is explicit that the rate is applied to the gross income subject to withholding, before any VAT is added.

An example makes the order of operations clear. Take a €1,000 fee, with 23% VAT and a 23% withholding rate:

VAT is never touched by withholding. It was never your money: you collect it and pass it on to the state in your VAT return.

Two details often catch people out. Reimbursed expenses that you paid in the client’s name, and travel or accommodation costs recharged to a client, are exempt from withholding. Three things must hold at once: they are properly documented, they correspond to services supplied by a third party, and they can be linked clearly and in full to one identified client. The second detail concerns mixed invoices. When a technician bills parts and hours on the same document, withholding applies only to the labour if the two are itemised separately. If they are not itemised, it applies to the whole amount.

To see what a given fee level means as a yearly tax position rather than a monthly deduction, the tax profile calculator works from your full income picture instead of a single invoice.

Can you stop a client withholding?

Yes, if you expect less than €15,000 of Category B income in the year. You can then ask for no withholding at all on your green receipts. This is the dispensa de retenção na fonte, and you claim it yourself on each receipt. It is optional, it needs no approval from the client, and it does not reduce the tax you owe. It only changes when you pay it.

The exemption is written into article 101-B of the IRS Code. The threshold is not a fixed number in the IRS Code. It points to the VAT exemption limit, which is currently €15,000 of annual turnover. When that limit changes, the withholding threshold changes with it.

The three conditions

You must expect to stay below the limit. The test is what you expect to earn in the current year. In your first year of activity, this is the income estimate you gave when you registered.

You cannot have exceeded it last year. Someone who earned €15,000 or more in the previous year cannot use the exemption in the current one.

It does not cover intermediation commissions. Commissions for arranging contracts are excluded from the exemption and are always withheld.

How you claim it

The exemption is optional and it is claimed by you, not granted automatically. You apply it when you issue the receipt. In the fatura-recibo form on the Portal das Finanças you select the option for no withholding. The document must then carry the exact sentence “Sem retenção, nos termos do n.º 1 do artigo 101.º-B do Código do IRS”. It means “no withholding, under article 101-B(1) of the IRS Code”. That line is what tells the client they may pay you the full amount without breaking their own obligations. If you are not yet comfortable with the issuing screens, the step-by-step guide to the Portal das Finanças walks through where these fields sit.

When the exemption stops

The exemption ends the month after the month in which you pass €15,000. If your cumulative Category B income crosses the limit during September, withholding starts on receipts issued from October. Receipts you issued earlier in the year without withholding stay valid, and you do not go back and correct them.

One further rule works in your favour regardless of income level. No withholding is due when the amount of an individual withholding would be less than €25. On a 23% rate, that covers invoices under roughly €109.

The cash-flow trade-off behind the exemption

Taking the exemption does not reduce your tax. It moves it. Every euro not withheld during the year is a euro you must find when the assessment arrives.

The trade-off looks like this for a freelancer with €14,000 of income taxed at a 23% withholding rate:

Neither column is the right answer for everybody. Withholding suits people who prefer their tax handled in small pieces, and who do not want a bill in August. The exemption suits people with tight or irregular cash flow, who would rather keep the money working and set it aside themselves. The risk is discipline. If you take the exemption, move the equivalent amount into a separate account as each invoice is paid.

There is a second layer. Freelancers who are not withheld at source may fall into pagamentos por conta, three advance payments due by 20 July, 20 September and 20 December, calculated by the tax office from your previous return. They are not charged when the calculated amount is below €50. So the choice is not always “withholding or nothing”. It can become “withholding or instalments”.

What happens to the money that was withheld?

Withheld tax comes back to you through the annual IRS return. You declare it in Quadro 6 of Anexo B of the Modelo 3, with the tax number of each client that withheld. The tax office compares the IRS calculated on your whole year with everything already collected, and settles the difference. That difference can be a refund or a payment, depending on your own figures.

Anexo B is the annex for self-employed and business income. You file between 1 April and 30 June for the previous year’s income.

The relevant part of Anexo B is Quadro 6, the box for withholding and payments on account. It has a clear structure:

Listing each client separately is what allows the tax authority to match your figures against the Modelo 10 filings your clients submitted in February. Mismatches are a common reason a return is flagged.

When the return is filed on time, the tax office issues the assessment by 31 July, and the resulting payment or refund falls due by 31 August. What you receive or pay is the difference between your calculated IRS and everything already collected during the year. Whether that difference is a refund depends entirely on your own income, deductions and family situation. There is no standard outcome.

If your year involved several clients, mixed income types or a change of regime, it is worth having the Modelo 3 return prepared and reviewed before it goes in. The broader rules for filing as a freelancer in Portugal set out what else belongs in the same return.

What if a client withheld the wrong amount?

A wrong rate does not change the tax you owe for the year. Because Category B withholding is an advance payment, it changes only how much has already been collected, and your annual assessment corrects the difference. Declare in Quadro 6 what was actually withheld, not what should have been withheld, and ask the client to use the correct rate from the next receipt onwards.

That is not just practical logic, it is the legal position. A taxpayer can normally challenge a withholding through a formal complaint, except where the withholding is merely a payment on account of the final tax, which is exactly the case here. There is no separate appeal route for a freelancer against a Category B withholding, because the annual return already fixes it.

If the client withheld too much, for example 23% on income that should carry 11.5%, tell them. Ask them to apply the correct rate on the next receipts and to issue a corrected statement for the year. A client who has already delivered too much tax offsets the excess against their later deliveries of the same kind in the same year. From your side, declare in Quadro 6 the amount that was actually withheld. Over-withheld tax is not lost: it increases the amount already collected against your final bill.

If the client withheld too little, or nothing when they should have withheld, the tax still has to be paid, by you. Where the withholding is a payment on account, the taxpayer carries the original liability for tax that was not withheld, and the client only a secondary one. Declare what was actually withheld, not what should have been.

If the client’s Modelo 10 does not match your receipts, file on the basis of your own documents. The figures pre-filled in the return are a convenience, not the legal record.

The one error worth fixing immediately is a wrong activity code on your own registration, because it produces the wrong rate on every future invoice rather than one. The Portuguese tax glossary explains the terms you will meet on those forms, and the tax calendar for Portugal shows how the withholding, VAT and IRS deadlines fall across the year.