US - Portugal Tax Treaty - Legal Advice for Foreign Investors

Updated on Monday 23rd August 2021

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The US Portugal tax treaty entered into force in 1996 when both countries agreed on the tax treatments related to incomes generated by Portuguese and American citizens. Besides tax exemptions, there are also tax preferences that can be explained by one of our lawyers in Portugal with experience in this field. International entrepreneurs can hire the services of our specialists if they are interested in starting a business in this country.

What are the taxes covered by the US Portugal double tax treaty?

The agreement between the US and Portugal covers the corporate income tax, personal income tax, and local surtax in the case of Portugal. Regarding the taxation in the USA, according to the US Portugal tax treaty, the excise tax and federal income taxes are covered by the treaty signed by the two countries.

The same convention applies both for taxes similarly imposed on income, but also for other types of taxes, and in case of changes to the document, each country is obliged to make the necessary notifications. For a better understanding of the taxation system of these countries, do not hesitate to talk to our team of lawyers in Portugal.

Details about the taxes covered by the US Portugal double tax treaty

According to the US Portugal tax treaty, the following taxes are imposed only once, either in Portugal or in the USA, in order to avoid double taxation of the incomes registered in one of the countries. Here is some useful information in this regard:

In the case of taxation of branches of Portuguese companies in the USA, the dividend tax is 5% rate.
Withholding tax on interest and royalties is set at 10%, regardless of the country in which the income is generated.
There are exceptions to the withholding tax for researchers, teachers, coaches, and students. They do not pay the above taxes if they live in Portugal or the USA for about two years.
In the case of the islands of Madeira and the Azores, the taxation system specific to the free zones there applies.

Discover more information in this regard from our lawyers in Portugal. Our team can offer you the necessary support if you are an American citizen interested in setting up a company in Portugal.

General definitions mentioned by US Portugal double tax treaty

There are a number of definitions in the US Portugal tax treaty that you need to understand when you learn more about double tax protection. Among them, we mention the following:

Contracting state means either Portugal or the USA, depending on where the income is taxed.
Permanent establishment refers to the place of business of a company established in Portugal or the USA. It can be the office, factory, branch, mine, or even the place of extraction of natural resources, where appropriate.
Resident of a contracting state refers to a person resident in one of the countries that has signed the US Portugal tax treaty and which is subject to income taxation.
Immovable property or real property is considered depending on the country in which it is located. The equipment used in agriculture can also be taken into account.

These are some of the important definitions found in the US Portugal tax treaty. It is essential to consider the taxation system before opening a business in Portugal, and here you can benefit from the support offered by our specialists. Our lawyers in Portugal are at your disposal from the very beginning in your efforts.

Why invest in Portugal

Portugal is an extremely attractive country in terms of foreign investment. As tourism generates quite generous profits, many people choose this sector to set up a company. The much simplified formalities related to the registration of a company, the experienced workforce, the advantageous taxation system, and the stable and solid business climate represent some of the benefits offered by Portugal to those who come to open their business in this country. Here are some data and statistics that reinforce the above-mentioned aspects:

Approximately USD 162 billion represented the total foreign investment in Portugal in 2019.
According to the 2020 Doing Business report, Portugal ranked 39th out of 190 world economies in terms of business simplification and more.
Portugal offers a Golden Visa for those interested in obtaining citizenship. A minimum investment of EUR 350,000 is one of the conditions to be able to enter this program.

Want to know more about the US Portugal tax treaty? We invite you to contact our law firm in Portugal and discover all the legal services offered. You can ask for a free case evaluation or a call back, and we will take care of all the formalities.