Home » Portugal » Taxation » Tax Treaty Considerations for Expats in Portugal

Tax Treaty Considerations for Expats in Portugal

Submitted: July 2014

Tax treaties exist to protect taxpayers from being taxed twice on certain money flows between two countries. Treaties are particularly important if you have investments outside Portugal, and intend bring money earned from them into Portugal during your stay. They also apply if you build up some investments in Portugal during your stay, and intend to leave them there after you have left Portugal. Portugal has a network of tax treaties in force with over 60 countries worldwide.

Most tax treaties will conform to the OECD Model Treaty, and typically will state how the various forms of income are taxed. A treaty will state whether the specific income is only taxed in Portugal, only taxed in your home country, or taxed in both countries. It may also state what rate of tax is applicable in different cases. The treaty will also contain a definition of residence only for the purposes of the treaty; this is not the same as the definition of tax-residence in tax law. The types of income covered by a treaty may include:

It is important to recognise that a tax treaty operates on money flows both into and out of the treaty countries.

The withholding tax rate in Portugal on dividends sent to a country without a tax treaty is 25%, if sent to a country with a tax treaty, the rate is generally reduced to 10% or 15%. Under certain circumstances the rate can be reduced to 0%; though the treaty usually requires that the payee company owns a certain percentage of the paying company.

The withholding tax rate in Portugal on interest sent to a country without a tax treaty is 25%, if sent to a country with a tax treaty, the rate is generally reduced to 10% or 15%. Under the EU Interest and Royalties Directive and the rate is reduced to 0%.

The withholding tax rate in Portugal on royalties sent to a country without a tax treaty is 25%, if sent to a country with a tax treaty the rate is generally reduced to 10% or 15%. Under the EU Interest and Royalties Directive and the rate is reduced to 0%.

It should be noted that Portugal charges a higher withholding tax rate of 35% for dividend , interest and royalty payments sent from Portugal to countries deemed by Portugal to be tax havens.

 Portuguese tax treaties with other countries generally restrict the amount of withholding tax those countries can charge Portuguese residents. For the complete rules and rates it is necessary to read the treaty itself. A list of each Portugal treaty in force can be found here with links to the wording of each treaty. Some only have the Portuguese version of the treaty, so for the treaty details you may have to look on your own country’s tax department website. The sections dealing with dividends, interest and royalties can usually be found half way through the treaty document.

Prior to arriving in Portugal you may be able to arrange your existing investments so that the maximum advantage is gained from the terms of any treaty. This may involve moving investments from one non- Portuguese country to one with a more favourable tax treaty, or even to Portugal itself, to reduce the tax rate paid.

If your home country has a generally higher rate of tax than Portugal, you may benefit by becoming tax-resident in Portugal as early as possible. At the end of your stay in Portugal, you can also rearrange your affairs to ensure that any on-going income from Portuguese employment or investments is also taxed at the lowest rate possible in the future.

 

 




Moving to Portugal

If you are considering moving to Portugal or are soon to depart, you can find helpful information and advice in the Expat Briefing dedicated Portugal section including; details of immigration and visas, Portuguese forums, Portuguese event listings and service providers in Portugal.

picture1

Living in Portugal

From your safety to shoppingliving in Portugal can yield great benefits as well as occasional drawbacks.  Find your feet and stay abreast of the latest developments affecting expats in Portugal with relevant news and up-to-date information.

picture1

Working in Portugal

Working in Portugal can be rewarding as well as stressful, if you don't plan ahead and fulfill any legal requirements. Find out about visas and passports, owning and operating a company in Portugal, and general Portuguese culture of the labour market.

picture1

 

Portuguese Expat News Headlines

Portuguese Expat Service Providers

Expatriate Healthcare Mieu Phan Coaching Global Tax Network (GTN) 1st Move International

Portuguese Expat Tools