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Details

  • Service: Tax, International Executive Services
  • Type: Business and industry issue, Regulatory update
  • Date: 1/1/2014

Portugal 

A person’s liability to Portuguese tax is determined by the residence status and the source of income received by the individual.


Portuguese residents are subject to tax on their worldwide income at progressive marginal tax rates, and non-residents are subject to Portuguese tax on their Portuguese-sourced income at the applicable rates (between 25 and 28 percent), depending on the type of income received. A double taxation treaty may provide a variation to these rules.


Under the new regime of non-habitual tax residents, the individuals who qualify as tax residents may be subject to tax on Portuguese-sourced income at a special 20 percent rate; a tax exemption may apply to the foreign-sourced income received by the individual (if certain conditions are met, namely, if the referred income is subject to tax in its country source).


Key message

Extended business travelers are likely to be taxed on employment income related to their Portuguese working days, provided that their income is paid or the related costs are recharged to a Portuguese entity.


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Income tax

Liability for income tax

A person’s liability for Portuguese tax is determined by residency status.


A person qualifies as a resident for tax purposes in Portugal provided that the person is physically present in Portugal for more than 183 days during the calendar year, either continuously or not, or that the person owns a home in Portugal at 31 December of the relevant year, with the intention to use and occupy it as a habitual residence. Portuguese residents are liable for tax on their worldwide income.


If none of the above conditions are met, the person is considered to be a non-resident. Tax liability will occur only with regards to the individual’s Portuguese-sourced income (in case of employment income, Portuguese-sourced income would include compensation derived from activities performed in Portugal, as well as compensation paid by a Portuguese entity).


The special regime for non-habitual tax residents (valid for a 10 year period) will apply, provided that the individual:


  • has not been taxed as resident in Portugal in the last 5 years;
  • qualifies as tax resident in Portugal under the domestic rules in each year of that 10-year period;
  • is registered as a non-habitual tax resident with the Portuguese tax authorities.

An application must be filed up to 31 March of the year following the one in which the individual qualifies as a tax resident in Portugal.

Tax trigger points

There is no minimum threshold/number of days that exempts the employee from the requirements to file and pay tax in Portugal regarding Portuguese working days. However, the application of a double tax treaty may determine that the employee does not have a filing obligation, provided that the individual spends less than 183 days in Portugal and that the individual’s income is not paid by, or recharged to, a Portuguese entity.

Types of taxable income

For extended business travelers, the types of income that are generally subject to tax are employment income, as well as any other Portuguese-sourced income, and gains from taxable Portuguese assets (such as real estate). The definition of employment income is broad and tends to include all benefits-in-kind.

Tax rates

Net taxable income earned by a resident is taxed at progressive marginal tax rates from 14.5 percent up to 48 percent.


A 3.5 percent surcharge is due on the taxable income above EUR 6,790 and a solidarity surcharge also applies (2.5 percent on the taxable income between EUR 80,000 and EUR 250,000 and 5 percent on the taxable income exceeding EUR 250,000).


Some flat rates may apply (for example, interest, dividends and rental income are taxed at 28 percent).


For non-residents, the tax rate depends on the type of income received, as follows:


  • employment income is taxed at a 25 percent flat tax rate;
  • rental income is taxed at a 28 percent special tax rate;
  • interest is taxed at a 28 percent flat rate;
  • dividends are taxed at a 28 percent flat rate;
  • capital gains arising from immovable property located in Portugal are subject to a 28 percent autonomous tax rate.

Under the non-habitual tax residents’ special regime, where the activity performed by the individual in Portugal is deemed to be a ‘high-value-added’ activity,1 the net employment income derived from such activity is taxed at a 20 percent special rate, plus the 3,5% additional surcharge due as described above.


Otherwise, if the activity that the individual performs is not deemed to be ’high-value-added’, the employment income received will be taxed at marginal tax rates up to 48 percent, plus the 3.5 percent surcharge and the 2,5% and 5% solidarity surcharge due as previously described.


This regime also allows for a tax exemption on the foreign-sourced income received by the individual. For example, with regards to foreign source employment income, an exemption appliesprovided that one of the following conditions is met:


  • such income is subject to tax in the country of its source under the provisions of a double tax treaty;

Such income is subject to tax in the country of its source under the provisions of the Organisation for Economic Co-operation and Development (OECD) model tax convention, provided that it does not relate to any activity performed in Portugal.


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Liability for social security

Individuals working in Portugal are liable for social security contributions at a rate of 11 percent on their gross remuneration (9.3 percent for board members who are not “Administradores” or “Gerentes”).


Employers are liable for social security contributions at a rate of 23.75 percent on the same gross remuneration (20.3 percent for members of the board who are not “Administradores” or “Gerentes”).


The social security contributions dueare not capped.


In general terms, an exception for social security contributions can apply if a foreign employee is assigned to work in Portugal for an expected period of less than 1 year and continues to pay social security contributions in their home country. Such a period of exemption may be extended for an additional 12 months.


Based on the European Union (EU) regulations, as well as on social security bilateral agreements, an exemption may apply on social security contributions for extended business travelers.


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Compliance obligations

Employee compliance obligations

Tax returns are due within the following deadlines, depending on the type of income received.


On paper:


  • from 1 March to 31 March, if only employment or/and pension income was received;
  • from 1 April to 30 April, if any other type of income was received.

By internet:


  • from 1 April to 30 April, if only employment or/and pension income was received;
  • from 1 May to 31 May, if any other type of income was received.

Employer reporting and withholding requirements

If the income is paid by a Portuguese company, the employer is required to withhold tax on a monthly basis at:


  • progressive marginal rates, if the individual qualifies as a resident;
  • a 25 percent flat rate, if the individual qualifies as a non resident.

The employer is also required to report the income paid and tax withheld to the employee and to the tax authorities within specific deadlines.


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Other issues

Work permit/visa requirements

Non-EU individuals must apply for a visa before their arrival in Portugal. The type of visa required will depend on the purpose of the individual’s entry into Portugal.

Double taxation treaties

In addition to Portuguese domestic arrangements that provide relief from international double taxation, Portugal has entered into double taxation treaties with more than 50 countries to prevent double taxation and allow cooperation between Portugal and overseas tax authorities in enforcing their respective tax laws.

Permanent establishment implications

There is the potential risk that a permanent establishment could be created as a result of extended business travel, but this would be dependent on the type of services performed and the level of authority the employee has.

Indirect taxes

Value-added tax (VAT) may be required in Portugal on the following:


  • supply of goods and rendering of services carried out in the Portuguese territory;
  • imports of goods;
  • intra-community acquisition of goods.

There are three different VAT rates (for the transactions deemed to have been supplied in the Portuguese Mainland):


  • Reduced: 6 percent (applied in general to basic food products, pharmaceutical products, etc.);
  • Intermediate: 13 percent (applied in general to wine, flowers, etc.);
  • Normal: 23 percent (applied to the remaining goods and services not subject to the above rates).

Transfer pricing

Portugal has a transfer pricing regime. A transfer pricing implication could arise to the extent that the employee is being paid by an entity in one jurisdiction but is performing services for the benefit of the entity in another jurisdiction, in other words, a cross-border benefit is being provided. This would also be dependent on the nature and complexity of the services performed.

Local data privacy requirements

Portugal has data privacy laws.

Exchange control

Portugal does not restrict the flow of Portuguese or foreign currency into or out of the country. However, certain reporting obligations are imposed to control tax evasion and money laundering.

 

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Contact

Jorge Taínha

Partner

KPMG in Portugal

+351 210 110 078

Thinking Beyond Borders