The agreements to avoid double taxation
constitute an important instrument of international tax laws. In the absence of an international harmonization of legislation in order to establish the taxation of the incomes gained in Portugal
by foreign entities, all the gains earned by residents of other countries would be subject to taxation in this country and in their origin country, giving rise to double taxation. This situation can only be remedied through agreements between states with the main purpose of avoiding double taxation
. Thus, these agreements allow the incomes obtained in Portugal
by a foreign citizen coming from a country that has signed a tax agreement with Portugal
to be taxed at lower rates. International double taxation occurs when an income is taxed in two or more states for the same period of time. If you would like to know the legal aspects of the double taxation treaties in Portugal
, we invite you to talk to our lawyers in Portugal
How is the double taxation eliminated for companies in Portugal?
In international practice, there are three basic methods for the elimination of double taxation:
- • exemption from taxes - exclusion from the taxable base of the income derived from sources abroad;
- • tax credit - transfer in account the tax paid abroad (foreign tax credit);
- • the deduction of tax expense - shift tax liabilities paid abroad because of the expenses incurred by the entity (tax deduction).
Currently, the appliance of the double taxation and the ways to avoid the legal and economic disadvantages is regulated by the Fiscal Code Norms. Thus, there can be considered two sets of legal rules aimed to avoid the double taxation: first, the national legislation and second, the international treaties ratified by Portugal. It is advisable to talk to our attorneys in Portugal and solicit legal support when starting a business in Portugal or for knowing better the tax structure in this country.
International regulations related to double taxation
From the point of view of domestic tax law in parallel with the international tax regulations, it must be stated that the agreed provisions from the bilateral tax conventions prevail over the provisions of domestic law in case of conflict. The convention for the avoidance of double taxation will apply with priority over national law, whenever a non-resident taxpayer fulfills the application of the convention. In this situation, the state of residence will have exclusive jurisdiction to tax the income of the resident, including the income generated in the state in whose territory the taxpayer operates as non-resident.
In opposite, the exception to this imperative rule is the situation where the non-resident does not meet the conditions stipulated by bilateral agreement or when such an agreement does not exist, so only the source state (in whose territory the income realized is subject to taxation) applies the internal fiscal policy on the income earned by non-residents who operate on its territory.
What are the countries that signed double tax treaties with Portugal?
Portugal has signed so far double tax agreements with the following states: South Africa, Germany, Algeria, Austria, Barbados, Belgium, Brazil, Bulgaria, Cape Verde, Canada, Chile, China, Cyprus, Colombia, Korea, Cuba, Denmark, United Arab Emirates, Slovenia, Spain, United States of America, Estonia, Finland, France, Greece, Guinea-Bissau, Netherlands, Hong Kong, Hungary, India, Indonesia, Ireland, Iceland, Israel, Italy, Japan, Kuwait, Latvia, Lithuania, Luxembourg, Macau, Malta, Morocco, Mexico, Mozambique, Norway, Panama, Pakistan, Peru, Poland, Qatar, UK, Czech Republic, Republic of Moldova, Slovak Republic, Republic of Uruguay, Romania, Russia, Singapore, Sweden, Switzerland, Timor –Leste, Tunisia, Turkey, Ukraine, Venezuela.
Who can benefit from the double tax treaties signed by Portugal?
Companies from abroad that have permanent establishments in Portugal can take advantage of the double taxation agreements if their country of origin signed such treaty with Portugal. The profits of a foreign company in Portugal can be protected by the provisions of double taxation conventions, and, more than that, entrepreneurs can consider a series of investment plans in this direction.
Do I need to prove that the taxes have been paid in the country of origin?
Yes, companies with establishments in Portugal that paid the taxes in the country of origin should prove these payments in order to benefit from the double taxation treaty signed by Portugal.
Double tax treaty Portugal – UK
As it is known, the double taxation treaty is meant to help you understand better the taxes on incomes you need to pay, without having to be levied twice on the same earnings. This means that UK companies generating incomes in Portugal will pay taxes only in this country. Tie-breaker divisions are mentioned by the double taxation agreement signed by Portugal and UK, referring to residents who need to respect the applicable laws in UK and Portugal. Here is what you need to know about the double taxation treaties signed between Portugal and UK:
- The incomes are levied in one of the countries, whether in UK or in Portugal.
- In case the earnings are taxed in UK and Portugal, a credit is applicable.
- In the case the tax payable in the country of residence of the company is higher than that payable in the source country, a company will pay the taxes in the source country and formerly pay the difference in the other state.
- Some gains are taxable in one of the states, or in both.
- In case of occupational and private pensions and allowances, these are normally levied in the country of residence.
- The government service pensions are normally levied in the country where they are registered.
According to the double taxation treaty signed by Portugal and UK
, the immovable property gains are taxed in the country where the property is placed. Though, capital gains on shares are only levied in the state of residence, meaning that the gains on UK shares are not exempted in Portugal
. It is essential to have the legal support of a lawyer in Portugal
when it comes to the double taxation treaty signed with UK
because he or she can explain all the requirements in this matter. Also, tax minimization methods are available for UK companies in Portugal
, so you can also ask for legal advice from our Portuguese team of lawyers
. We can also put you in touch with our foreign partners if you want to open companies in other countries, such as Spain, and register for VAT
Tax planning for residents in Portugal
There are many foreign citizens living in Portugal who believe they don’t have to pay other taxes in the home country. It is though recommended to pay attention to the support of a tax planning specialist and be aware of the taxes you need to pay, whether in Portugal or in the country of origin. This way, you can make sure you won’t pay extra taxes and understand the tax liabilities. Filing the correct tax declarations is the first step in this direction, followed by the way in which the finances can be structured in a tax-efficient manner. With our attorneys in Portugal
, you can benefit from our complete legal advice and support in tax matters. Wealth management solutions are offered on request to foreign investors having companies established in Portugal. Moreover, advice for tax minimization methods applicable to business in Portugal
can be provided at any time. Do not hesitate to get in touch with us and find out more details in this direction.
Short facts about taxation in Portugal
The tax system in Portugal is one of the most advantageous among European countries, for local and foreign residents. The non-habitual resident program involves taxes of 25% on incomes in Portugal and of 28% applicable to investment incomes and capital gains. Professionals like actors, dentists, engineers, architectures, and IT specialists are subject to a 20% tax rate on incomes generated in Portugal. Here are some facts about the taxes in Portugal:
- • 21% is the standard corporate tax for companies in Portugal;
- • an additional surtax is imposed for companies generating incomes over EUR 1.5 million;
- • 17.5% corporate tax rate is available for companies established in the free trade zones of the Azores;
- • 28% tax rate is applicable to investment incomes like dividends, interests, capital gains;
- • 23% is the standard VAT rate in Portugal for most of the goods and services offered.
It is important to know that small and medium companies are subject to lower taxes in Portugal for the first EUR 15,000 generated. If you are a foreign investor wanting to start a business in Portugal, you are invited to talk to one of our specialists in tax matters and find out more about the taxation for companies in this country. Moreover, you can solicit complete information about the double taxation agreements signed by Portugal with the above-mentioned countries. You might also be interested in debt collection services, company litigation, company incorporation, company liquidation, mergers and acquisitions, obtaining special licenses and permits for which comprehensive legal advice and support are necessary.
Other facts about DTTs signed by Portugal
As a foreign investor, it is recommended to have an idea about the business climate in the country you wish to develop your economic activities, in this case, Portugal, and to consider a few aspects about the double taxation treaties signed in this matter and meant to avoid the taxation on incomes twice:
- • the permanent establishment represents the office, the branch, the factory or the place of management of your company in Portugal;
- • the revenues gained in the shipping and air transport sector are taxable only in Portugal;
- • the incomes derived from the immovable properties in Portugal are levied in this country;
- • the corporate and the personal income tax, plus the local surtax on corporate income tax are protected by the DTT signed between Portugal and India.
For more details about how you can avoid double taxation, you may contact our law firm in Portugal.