Overseas workers' tax obligations made clear by government officials
Portuguese Company Hiring Non-Resident Self-Employed Workers: Tax Obligations Explained
Portuguese companies hiring self-employed non-resident workers should be aware that the income paid to these workers is considered Portuguese-source income and is subject to Portuguese income tax. According to the Portuguese Tax and Customs Authority (AT), this income is subject to a 25% withholding tax by the hiring company.
The AT has clarified that even if the services are performed outside Portugal, if the paying entity is resident or has a permanent establishment in Portugal, the self-employment income must be withheld at source. This withheld tax should then be reported to Portuguese tax authorities.
Regarding the Tax Treaty Avoidance of Double Taxation, Portugal has agreements with many countries to prevent double taxation. These treaties can reduce or eliminate Portuguese withholding tax if the worker is resident in a treaty country and qualifies under the treaty provisions. However, the obligation to withhold remains unless a relief certificate or exemption is provided based on the treaty.
It's important to note that the Model 30 (Modelo 30) declaration, used for tax registration and declarations in Spain, is not a Portuguese form. This form is relevant only if the worker has a tax presence in Spain. If a self-employed worker is in Spain or has Spanish tax obligations, they need to deal with Modelo 30 filings with Spanish authorities.
In summary, for a Portuguese company hiring a non-resident self-employed worker:
- The income paid is treated as Portuguese-source income and subject to a 25% withholding tax unless a double tax treaty provides relief.
- The company must withhold this tax at source and report it to Portuguese tax authorities.
- Double Taxation Treaties can apply to avoid double taxation but require proper documentation.
- Model 30 is a form used in Spain for non-resident tax registration and declarations, relevant only if the worker has a tax presence there.
The AT's clarification does not specify whether the Model 30 declaration requirements are different for non-resident self-employed workers who benefit from a tax agreement. The AT's clarification also does not apply to non-commercial entities or to non-resident self-employed workers not falling under the category of commercial companies.
The AT's information applies specifically to commercial companies hiring non-resident self-employed workers in Portugal. The obligation to submit the Model 30 declaration applies even if the self-employed worker is not resident in Portugal and benefits from a total or partial exemption from IRS withholding tax under a tax agreement concluded between Portugal and their home country.
Under the IRS Code, self-employment income paid to non-resident self-employed workers in Portugal is considered to be obtained in Portuguese territory when the paying entity is resident in Portugal. The AT's clarification does not specify any deadlines or procedures for withholding tax at source or for claiming exemptions or reductions in the tax rate.
If such a tax treaty exists, and it specifies that taxation on income obtained in Portugal falls to the other state, then an exemption or reduction of the tax rate may apply. The AT's clarification does not provide details on how the existence of a tax agreement affects the taxation of self-employment income.
Companies hiring non-resident self-employed workers in Portugal must submit the Model 30 declaration to the Tax Authorities to report payments made to non-resident entities. The AT's information does not affect the obligation for companies to withhold tax when paying self-employment income to non-resident workers in Portugal.
- To ensure compliance with Portugal's tax laws, businesses employing non-resident self-employed workers in Portugal should be aware that their income is considered Portuguese-source income, subject to a 25% withholding tax, and should be withheld at source by the hiring company.
- Portugal's double taxation treaties with foreign countries can potentially reduce or eliminate this withholding tax for workers residing in treaty countries, provided they meet the treaty's specified conditions and documentation requirements are met.
