Flash News NA 19/08/2024
Portugal_Social Security for Contracting Entities
The IRS tax regime for carrying out a professional or business activity, commonly known as self-employed workers or “freelancers”, is, or should be, an organized way of developing a business as if it were under the Corporate Tax regime through a company.
From the perspective of those who hire a professional service, it should be indifferent the way in which the provider has organized its activity, even though there may be additional obligations, such as withholding tax and Model 10.
However, business owners must know that when they hire the services of independent professionals, there may be additional expenses related to their contribution obligation as a contractor.
The figure of the Contracting Entity was created to promote a fairer balance of Social Security contributions paid by self-employed workers and entities that hire their services, to the detriment of those paid under employment contracts (dependent employees), as a reinforcement of protection social status of this group of workers and proximity of the discounted values as if they had an employment relationship.
Contracting entities are the companies that acquired more than 50% of the total value of the activity provided by the self-employed worker.
This obligation is calculated each year by the Social Security Institute, through the delivery of Annex SS with IRS Model 3, by self-employed workers.
Therefore, the company that hires these services is unable to control exactly the final charge, as it is difficult to predict whether it acquires more than 50% of the total services provided by the professional throughout the year.
The contribution rate cared by the contracting entities is:
• 10% in situations where economic dependence is greater than 80%
• 7%, in situations where economic dependence is greater than 50% and equal to or less than 80%
(until 2018 it was 5% if the dependency ratio was at least 80%)
These values are calculated ex officio in the year following of the provided services. The fee will be applied into the value of the purchased services.
In other words, if, for example, a company acquired a service in 2024 for 20,000 euros, and the self-employed worker had a total annual activity of 30,000 euros, the company will pay social security, in 2025, a contribution of 1,400 euros (7% x 20,000 Euros) because it was acquired more than 50% of the total services provided by the self-employee worker.
It is true that this measure also aims to combat “false” self-employee activity, in which independent workers have a bond of dependence with the entity that hires them.
However, in situations where there are companies that contract services with third parties, without any relationship, the additional burden of social security contributions is a factor that weakens the competitive power of the same activity under the IRS or Corporate Tax regime and may represent unexpected expenses for who acquired the services.
This regime only applies to companies that use self-employed workers covered by the independent social security regime. Self-employed workers who have exemption from contributions do not burden acquiring entities. Also, Lawyers and Solicitors, as they are excluded from the self-employed workers' pension scheme, will not constitute an extra expense for the entities that acquire their services.
At Nominaurea, we are available to support your company in all fundamental topics to develop your activity, always complying with all legal requirements.
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