Freelancer or single-member company in Portugal? How to choose at your income level
Tax, Segurança Social and running costs side by side at three income levels, and why the decision is best made before 1 January.
Not sure which side of the line you are on?
Book a meetingShort answer: it comes down to one number, the income at which a company's tax and running costs fall below what you would pay as a freelancer. Below it, staying a freelancer is simpler and leaves you more. Above it, a single-member company can leave you more. The table compares both at three income levels, with Madeira rates.
This guide is for anyone working for themselves in Madeira, Portuguese or foreign, who is deciding whether to keep invoicing in their own name or set up a company before the new year.
The two options
Freelancer (trabalhador independente). You work in your own name, registered with the Autoridade Tributária (AT, the tax authority) for categoria B (self-employment income). You invoice through recibos verdes (the electronic receipts issued on the Portal das Finanças) and declare the income on your annual IRS (personal income tax) return. Most freelancers are taxed under the regime simplificado (simplified regime): instead of deducting real expenses, IRS is charged on a fixed share of your income, set by a coefficient that depends on your activity. You also pay Segurança Social (social security) contributions, based on the income you declare each quarter.
Single-member company (sociedade unipessoal por quotas, or Unipessoal, Lda.). You set up a company with yourself as the only shareholder, and usually as its manager (gerente). The company invoices your clients and pays IRC (corporate income tax) on its profit at the Madeira regional rate. Its books must be kept as organised accounts by a certified accountant. You then pay yourself from the company. A salary is a cost for the company and is taxed in your IRS. Dividends come out of profit that has already paid IRC, and are taxed again when you receive them.
So the comparison is not simply IRS against IRC. It is the total cost of each route, from your client's payment to the money in your own account.
Side by side at three income levels
Annual figures for one typical profile, described under the table.
| Gross income invoiced | €25,000 a year | €50,000 a year | €80,000 a year |
|---|---|---|---|
| As a freelancer (categoria B, simplified regime) | |||
| Income taxed after the activity coefficient | €17,505 | €36,850 | €59,356 |
| IRS at the Madeira regional rates | €1,676 | €5,806 | €12,372 |
| Segurança Social contributions | €3,745 | €7,490 | €11,984 |
| Accountancy (optional for a freelancer) | €660 | €660 | €660 |
| Left for you as a freelancer | €18,919 | €36,044 | €54,984 |
| As a sociedade unipessoal (Madeira) | |||
| Running costs, including organised accounts | €1,440 | €1,440 | €1,440 |
| Salary paid to you: IRS and Segurança Social | €4,957 | €5,335 | €5,335 |
| IRC at the Madeira regional rate | €691 | €3,316 | €6,790 |
| Dividends paid to you: tax on distribution | €1,155 | €5,540 | €10,739 |
| Left for you through the company | €16,757 | €34,369 | €55,696 |
| Difference (company minus freelancer) | −€2,162 | −€1,675 | +€712 |
The profile: a single person, tax resident in Madeira, providing services at the 0.75 coefficient, past the first years of activity, not in IRS Jovem, with no other income and no costs but accountancy at Conta Plena's starting fees. As a freelancer, IRS is charged on 75% of income, less Segurança Social above 10% of income, plus a top-up where counted expenses fall short of 15%. Through the company, you take a salary at the Madeira minimum wage, €13,720 a year, with Segurança Social of 23.75% from the company and 11% from you, and the rest as dividends, taxed at Madeira's 19.6%. IRC is 10.5% on the first €50,000 of profit, the small-company rate. Figures exclude IVA and use the rates in force in 2026. The 2027 State Budget may change them, and we will update this table once it is approved.
How to read it. Compare the two "left for you" rows in each column. Where the company figure is higher, incorporating pays at that income for this profile. Where it is lower, it does not yet. The last row shows the gap. For this profile, the point at which the two routes cross is around €70,000.
Two things hold whatever the figures. A company's running costs are largely fixed, so they weigh more heavily on a smaller income. And the freelancer's coefficient assumes a set level of expenses, so whether the simplified regime treats you well depends on how your real costs compare with that assumption.
What the table cannot show
Your situation will differ from that profile in at least one of these ways.
- Your real expenses. A company deducts the costs it actually incurs. The simplified regime does not, so the higher your real costs, the more a company's accounts can work in your favour.
- How much you need to take out. Profit left in the company pays IRC only, and is taxed again only when you pay it out as dividends. If you plan to reinvest, the comparison changes.
- Your first years of activity. New freelancers may be exempt from Segurança Social contributions for their first twelve months, and the simplified regime has reductions in the first years of activity. Both make freelancing cheaper while they last.
- IRS Jovem. If you qualify for IRS Jovem (the partial IRS exemption for younger taxpayers), it changes the personal tax in both columns.
- Liability and clients. A company separates business debts from your personal assets as a rule, and some corporate clients prefer to contract with a company.
- Recently moved to Madeira. Your residency status decides which IRS rules apply to you. See Moving to Madeira: when do you become a Portuguese tax resident?
Deciding before 1 January
IRS is charged on the calendar year. If you incorporate in the middle of a year, that year carries both structures: your IRS return still includes the freelance income you earned before the switch, and the company opens its own first accounts. Starting the company on 1 January keeps each year to one structure, one set of figures and one return.
The company's own tax year normally follows the calendar year too. A company formed in December therefore has a short first period that still needs its own Modelo 22 (the annual IRC return) and IES (the annual accounts and statistical return). Whether to form it in December or in the first days of January is worth deciding with your accountant.
If the figures point to a company, the usual sequence is:
- Decide with your accountant how you will pay yourself, salary or dividends or both, before the company exists.
- Form the company, open its bank account and pay in the share capital. See company creation.
- Register the company's start of activity and its IVA (VAT) position with the AT.
- Tell your clients the new invoicing details: company name, tax number and bank account.
- Close your freelance activity with a declaração de cessação de atividade at the AT, within the legal deadline.
Allow November and December for this, not the last week of the year. If the figures do not favour a company yet, nothing is lost by waiting: run the comparison again next autumn.
What changes when you incorporate
A company is a separate legal person. Its money is not your money, and that changes how you work day to day.
- Organised accounts. The books are kept by a contabilista certificado (certified accountant) under the SNC, the Portuguese accounting standard.
- Regular filings. Monthly SAF-T files (the standard export of your invoices to the AT), IVA returns if the company is registered, and payroll declarations and Segurança Social contributions on your salary as gerente.
- Annual filings. The Modelo 22 and the IES each year, and the approval of the accounts.
- Pagamentos por conta. From its second year, the company usually pays IRC in advance instalments based on the previous year.
- Paying yourself. Money you take out is paid as salary or dividends, or as a refund of documented business expenses, not as an informal transfer to your personal account.
- Your own IRS return continues. Your salary and any dividends are taxed in your hands, each under its own IRS rules.
None of this is difficult once it is running, but it is more than a freelancer does, and it is why the company's running costs appear in the table.
How Conta Plena helps
We look after both: freelancers and sole traders under categoria B, and single-member companies with their organised accounts. We also form companies in Madeira. Bring your latest IRS return and an estimate of this year's income, and we will run this comparison on your own figures.
FAQ
Can I freelance while employed?
Yes. You can open activity under categoria B while keeping a job, provided your employment contract has no exclusivity clause. Your freelance income goes on the same IRS return as your salary. Being employed can also reduce or remove the Segurança Social contributions on your freelance income.
At what income does a company start to pay?
There is no single figure. It depends on your expenses, how much you take out and your personal situation. For the profile in the table above, the two routes cross at around €70,000. Below that, freelancing is the simpler choice.
Is a sole trader the same as a single-member company?
No. A sole trader (empresário em nome individual) trades in their own name, is taxed under categoria B like a freelancer and is personally liable for the business's debts. A Unipessoal, Lda. is a separate legal entity that pays IRC.
Do I need to live in Madeira to pay the Madeira rates?
For IRS, the regional rates apply if you are tax resident in Madeira. For IRC, the regional rate applies to companies based in Madeira, on the income attributable to the region.
Can I go back to freelancing if the company does not work out?
Yes, but closing a company is a formal process with its own costs and final filings. Treat incorporation as a decision for several years, not one.
Not sure which side of the line you are on?
We can look at your income, your expenses and your plans for 2027 with you before 1 January.
This guide is general information based on the rules in force in October 2026. It is not advice for your situation.