Taxes in Portugal: Residing in Portugal and Working for a Foreign Business
- If you work abroad but maintain your tax residence in Portugal, you will need to declare in Portugal all income earned during the fiscal year, both in Portugal and abroad, as per Article 15 of the Personal Income Tax Code (CIRS).
However, the foreign country where you work will also tax your income, which theoretically could mean double taxation, which obviously doesn't make sense.
- How to avoid double taxation? There are two mechanisms in place: either you activate the existing convention with the country in question (if there is one), or Portugal unilaterally reduces or eliminates that taxation, according to Article 81 of the CIRS.
- Which countries have agreements with Portugal and how can I activate them? According to the Portal das Finanças, as of 2022, there are 77 conventions in force with countries around the world. Remember, if there is a bilateral agreement that prevents double taxation, you will need to activate it through a tax residency certificate.
Here are some of the countries listed in the agreements: Germany, Algeria, Austria, South Africa, Belgium, Bulgaria, Brazil, Cape Verde, Canada, Cuba, Chile, China, Denmark, Slovenia, Spain, United States, Finland, France, Greece, Guinea-Bissau, Netherlands, Hungary, Italy, Ireland, India, Iceland, Israel, Latvia, Lithuania, Luxembourg, Macau, Malta, Morocco, Mexico, Mozambique, Norway, Poland, Pakistan, United Kingdom, Czech Republic, Romania, Russia, Singapore, Switzerland, Tunisia, Turkey, Ukraine, and Venezuela.
It is important to note that in 2021, Sweden informed Portugal of its intention to terminate the convention between the two countries to avoid double taxation on income and capital taxes. The notice, published in the Official Gazette, has been effective since January 1, 2022.
To obtain the document, you should visit the Portal das Finanças, go to "Request certificate" and select "tax residence". Fill in the requested fields and leave field Q5 blank. Then attach this document to the completed foreign form and submit it in the foreign country.
- If there is no convention, do I have to pay tax in both countries? No. If there are no agreements in force, legislation provides for a reduction or elimination of taxation by deducting the income tax paid abroad from the Portuguese tax payable, or by deducting a fraction of the IRS tax, calculated before the deduction. This is known as a tax credit, which in practice is a fiscal credit granted to resident taxpayers and corresponds to the lower amount: either the tax due in Portugal or the tax paid in the other country.
- How do I declare this income in the IRS? You must complete the IRS Form 3 and Annex J, where you will indicate gross income, social security contributions, and the tax paid in the country where you are (or were) working. Only in this way can the Tax Authority determine if you are entitled to a tax credit due to international double taxation, according to Article 81 of the CIRS.
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