British expat business owners need to understand how the double taxation treaty will affect them when moving from the UK to Portugal.
British expat business owners with companies based in the UK who are looking to move to Portugal can have permanent establishments in Portugal and the profits from their foreign company in Portugal can be protected by the double taxation treaty.
The trick is to minimise the tax in both countries, legally, so that the minimum amount of tax is paid. Our specialist expat accountancy team can help you ensure you minimise your taxes in both countries with an effective cross-border tax planning strategy.
The UK-Portugal double taxation treaty is extremely sophisticated. To help you navigate the details we interviewed Jeremiah our expat accountant and tax planning specialist who answered the most FAQ’s asked by British expat business owners like you.
1.2 What is the double taxation treaty?
Double taxation treaties are agreements between 2 states which are designed to:
- Protect against the risk of double taxation where the same income is taxable in 2 states
- Provide certainty of treatment for cross-border trade and investment
- Prevent excessive foreign taxation and other forms of discrimination against UK business interests abroad
1.3 Is there a double taxation agreement between the UK and Portugal?
Yes The Income Tax convention entered into force on 17 January 1969. It has been effective in Portugal since 1 January 1970 and in the UK since :
- 1 April 1970 for Corporation Tax
- 6 April 1970 for Income Tax, Capital Gains tax and surtax
GENERAL EFFECTIVE DATE UNDER ARTICLE 30: 1 JANUARY 1996
You can access the US tax treaty here
1.4 Which country has the most double tax treaties?
The UK has double tax treaties with more than 130 countries, making it one of the world’s largest networks.
1.5 How is the double taxation eliminated for companies in Portugal?
This would depend on the other countries double tax treaty with Portugal, fiscal tax advantages and laws according to where the tax should be paid. Every situation is different.
1.6 How can you avoid double taxation? Or how do you avoid double taxation between the UK and Portugal?
There is no general blanket statement as there are different circumstances, Individual can perhaps take advantage of the Non-habitual resident scheme which offers a generous tax rate from o% up for certain types of income. The UK also has something called disregarded income rules which can be a major benefit for non-UK residents.
1.7. How much tax do you pay in Portugal?
How long is a piece of string! We would perform a thorough review of your specific situation to find the most tax efficient method to pay the correct legal amount of tax.
1.8. Are taxes high in Portugal?
The tax rates in Portugal can rise to the progressive rates of up to 48%
1.10. Does Portugal have inheritance tax?
Yes and no. The Portuguese government abolished inheritance tax several years ago, but a stamp duty known as Imposto do Selo may apply instead. This applies at a flat rate of 10%. The tax is only levied on Portuguese assets – rather than assets held in other countries – and is exempt when they are inherited by legitimate heirs. These include a spouse, children, grandchildren, parents and grandparents.
1.11 What is IVA tax in Portugal?
IVA is Value added Tax (VAT in the UK) The standard VAT rate in Portugal is 23%; with a reduced rate of 6% and intermediate rate of 13%. There are also different VAT rates applicable in the Portuguese Islands (Azores and Madeira). In Azores the standard VAT rate in Portugal is 18%, with reduced rate of 5% and intermediate rate of 10%. In Madeira the standard VAT rate in Portugal is 22%, the reduced rate is 5% and the intermediate rate is 12%
1.11 How Income tax in Portugal works for business owners?
Self-employed business owners would be classed as Category B income. Portugal’s rates for individuals in 2020 are as follows:
Annual taxable income
Portugal income tax rate
up to €7,112
1.12 My Business is in another country and I am a personal tax resident in Portugal, is this legal and what are the implications of tax in Portugal?
This is legal and we would need to study the double tax treaty with the other country to find the most tax efficient scenario.
1.13. Does Portugal have double taxation treaty with other countries?
Double taxation treaties are agreements between 2 states 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.
1.14. Can you be taxed in both countries?
Yes this is a possibility which depends on the type of income streams and also the specific double taxation treaty.
1.15. What are the problems of double taxation?
The main issue we have is that clients or other tax adviser do not understand the implications of what they mean as they are complex. How best to gain the most legal tax efficient advantage?
1.16. Who can benefit from the double tax treaties signed by Portugal?
Companies, entrepreneurs, retirees and individuals who want to come to Portugal for a better lifestyle and tax advantages like NHR
1.17. Do I need to prove that the taxes have been paid in the country of origin?
Yes this is a must as the Portuguese authorities do speak to certain other states with DTT.
As you can see, tax treaties can be very complicated and each one is very different. Make sure you seek professional advice from an accountancy firm experienced at guiding expats through an effective and advantageous tax planning strategy.
If you would like to know the legal aspects of the double taxation treaties in Portugal talk to one of our legal team in either Porto or Lisbon today.