business codes: CIRS and CAE

When you start a business in Portugal you will encounter CIRS and/or CAE codes. The codes refer to the kind of business activity an entrepreneur or company carries out. One business can use various codes for various business activities.
At first, I thought it was just a way for the state to simplify categorizing companies. But there’s more behind it! I found out that by choosing the right (and still appropriate) code, I would end up in a lower tax regime.

I wrote the first version of this article in April 2020.
In Dec 2022, based on my personal experience, I added some things.

CIRS and CAE codes

Freelancers who start an ‘Empresário em Nome Individual’ in Portugal, will have two sources to choose their business activity codes from. One is the CIRS-list (Código do Imposto sobre o Rendimento das Pessoas Singulares) and the other one is de CAE-list (Classificação das Atividades Económicas). I would like to simplify the difference by saying the CIRS list, is a list of liberal professions, like lawyers, architects, artists, dentists, etc. And the CAE list is a list of business activities, like running a B&B, or a shop, or a bar or building websites, furniture, etc.

Freelancers, who opt for a simple tax regime (which I explained in this post), pay income tax over a fixed percentage of their annual turnover. As far as I understand it, for more freelancers who are offering a service, the percentage is 75%. It doesn’t matter if their business activity is described by a CIRS code or a CAE code.

But, if the freelancer’s business activity is not a service, but selling products, it might be that the deduction percentage is much more then 25%!
For instance, when you are running a small B&B, and you’ve opted for the simple tax regime, your turnover will be reduced with 65% to calculate your taxable income. So you only pay income tax over 35% of your annual turnover, the other 65% is considered to be expenses.

there’s a snag…

For most freelancers, choosing the right, appropriate code won’t be that difficult and they just have to accept the deduction code they get. But for myself, working in a greyer area between film/writing/media/web design, no code from the CIRS or CAE list matched exactly all my business activities.
In this case, it was worthwhile to think and research the possibilities. My accountant was helping me with this. We found the code that, in principle, will give me a 65% deduction on my turnover.
In principle, yes. Because the Portuguese tax office can decide otherwise. They can even decide to differ the deduction percentage between the projects you work on. I found examples of photographers, who were allowed to use a deduction percentage of 65% on wedding reportages. But weren’t allowed to use it on portraits for an advertisement. It was motivated by reasons like creativity, authorship and things like that.
Once again, the proof will be in eating the pudding…

How the pudding turned out to be…

Unfortunately, the pudding turned out differently. The first time I filed my declaration for the IRS (annual income tax), the tax office ruled that I could use the 65% deduction rate indeed.
But the following year, they ruled otherwise. It stated that I was not entitled to this deduction percentage because I did my invoicing with ‘recibos verdes’. So when you classify your business activities with a CAE code, you have to create e-invoices with a certified accounting programme. And enter these invoices yourself on the Finanças portal. I am going to do that from 1 January 2023.

additional info:

Here you will find the list of CIRS codes
And this is the CAE code list
Be careful though, the lists are changing now and then, so always check with an accountant or the Portuguese tax office.

useful Portuguese words for a freelancer

April 2nd, 2020

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