On July 30, the Portuguese Tax and Customs Authority (AT) issued binding guidance on their website regarding the obligations of companies hiring non-resident independent contractors in Portugal. The guidance addresses a company’s query concerning how to handle such employment engagements.
The AT clarified that, under the Portuguese IRS Code, income from independent work paid to non-resident freelance workers is considered earned in Portugal “provided it is owed by entities with residence, headquarters, effective management, or a permanent establishment in Portugal responsible for the payment.”
In other words, “income from independent work is always considered earned in Portugal if it is owed by a Portuguese resident entity,” even if the services are performed outside Portuguese territory, the AT explained.
Such amounts are subject to a withholding IRS tax rate of 25%, compelling companies to conduct withholding at the source upon payment of these earnings.
An exemption, either full or partial, is possible only if the worker resides in a country with a tax treaty with Portugal aimed at avoiding double taxation, and if the treaty specifies that the taxation responsibility of the income earned in Portugal lies with the other state.
However, these are exceptions applying only in cases where there is a bilateral or multilateral tax agreement.
The AT’s clarification pertains to the general rule mandating IRS taxation.
In addition to the responsibility of withholding tax at the time of payment, companies must also submit the Model 30 declaration to the tax authorities. This document is used to report payments made to non-resident entities. The same declaration is required of owners of local accommodations in Portugal to declare commissions paid to multinational platforms like Airbnb or Booking.
The AT emphasized that the obligation to file the Model 30 declaration applies “even if the non-resident independent worker benefits from a full or partial IRS withholding exemption” under a tax convention between Portugal and the worker’s country of residence.
