Kindly be informed that, as a result of the publication of decree-law 25/98, on February 10, 1998, a 15% withholding tax was levied on income derived from services rendered or used in the Portuguese territory by non-resident entities (corporate or individual), provided the payor of such services is resident in Portugal or such payment is imputable to the permanent establishment of a non-resident entity in Portugal.
Not all services are included by this provision. A specific exception is granted for transport, communications or financial services. However, such concept does include income derived from mediation services connected with the execution of contracts.
This new decree-law does not affect the contents of all Double Taxation Conventions executed by Portugal. In accordance with the text of most of these Conventions, the right to tax income not specifically mentioned therein remains with State of Residence.
At the same time, another exception was introduced in order to avoid the application of this withholding tax to income generated in connection with activities in the Madeira and Santa Maria Free Trade Zones.
Furthermore, a provision was created whereby income earned by the members of the corporate bodies of Portuguese resident companies is subject to taxation in Portugal. A withholding tax of 25% is applicable to such type of income.
The contents of this information is intended to provide a specific notice on the subject matter. Specialist advice should be sought about your specific circumstances.
For further information contact Miguel Teixeira de Abreu; Abreu, Cardigos & Partners, Lisbon, Portugal.