Misclassification risk: Freelancers treated as employees in Portugal
A software company based in the Netherlands hires several graphic designers living in Portugal. The company assumes that by classifying these designers as freelancers, it is not subject to employment laws in Portugal. However, the actual working relationship may suggest otherwise, leading to potential legal challenges.
Input Data
- Company type: EU-incorporated tech company
- Country of incorporation: Netherlands
- Management location: Netherlands
- Employee location: Portugal
Jurisdiction Conflict
Country of registration — The company is formally registered in the Netherlands, complying with Dutch corporate regulations and tax filings. It assumes that all operations are governed by Dutch law.
Country of effective activity — The graphic designers perform their work in Portugal, which may establish a local presence under Portuguese law. This could trigger local employment obligations.
Conflict — The main issue arises from the potential reclassification of freelancers as employees under Portuguese law, exposing the company to local payroll taxes and social security contributions. The interpretation of the working relationship by Portuguese authorities could differ significantly from the company’s assumptions.
AI Analysis
Scenario A — Reclassification Risk
- Portuguese authorities may view the working relationship as employment rather than freelance work.
- This could lead to unexpected liabilities for payroll taxes and social security.
- Risk: Reclassification as employees.
Scenario B — Compliance with Local Laws
- If contracts do not align with Portuguese labor criteria, the company may face compliance issues.
- Failure to comply could result in fines or legal disputes.
- Risk: Non-compliance with local labor laws.
Scenario C — Audit Exposure
- During an audit, the Portuguese tax authority might scrutinize the nature of the working relationship.
- A finding that the relationship resembles employment could trigger back payments and penalties.
- Risk: Increased scrutiny and potential penalties.
Key risk indicators
- Existence of contracts that do not clearly define independence.
- High level of control and dependency in the working relationship.
Output of Richys AI Analysis
- AI assesses exposure based on the mismatch between contract terms and actual work conditions.
- AI identifies potential discrepancies in the classification of workers.
- AI highlights the need for expert evaluation to mitigate reclassification risks.
Expert Boundary
Involvement of a verified EU expert is required for:
- country-specific interpretation of Portuguese labor laws
- application of the Netherlands–Portugal tax treaty to specific circumstances
- selection of a defensible filing position
- preparation for potential audits by Portuguese authorities
Case Conclusion
Portuguese tax authorities observe the nature of the working relationship. The assumption that freelancer status exempts the company from local obligations is exposed as potentially false. A mismatch between legal classification and factual working conditions is identified. Risk becomes material when Portuguese authorities conduct an audit or review.
Start case analysisThis case is for illustration purposes only. Real outcomes depend on residence, income structure, documents and timing. For your specific situation, use structured case analysis with AI and verified EU experts.
Sophie Bizelle
AI assistant – Business Setup