PORTUGAL Law and Practice Contributed by: Tânia de Almeida Ferreira, João Pedro Albuquerque, Filipe Gomes da Silva and Pedro Neves, CCA Law Firm
As an EU member state, Portugal is also bound by EU law, including the fundamental freedoms and applica - ble Regulations and Directives. Domestic tax law must comply with EU law, with the case law of the Court of Justice of the European Union (CJEU) having a mate - rial impact on the interpretation and application of Portuguese tax provisions in cross-border situations. Domestic law remains the primary operational basis for taxation. However, in cross-border matters, its interpretation and application are subject to, and con - strained by, the applicable treaty provisions and EU law principles and provisions. 1.3 OECD Model/United Nations Influence on Treaty Practice Portugal was one of the 20 founding member coun - tries that signed the OECD Model in 1960 and its DTTs largely follow the OECD Model both in structure and allocation of taxing rights. While core concepts such as residence, PE and busi - ness profits generally reflect OECD standards, some DTTs include provisions of the UN Model, reflecting the bilateral and negotiated nature of such instru - ments. Portugal has departed from certain provisions of the OECD Model, notably in relation to Article 5 (PE), and in several bilateral DTTs has adopted elements more closely aligned with the UN Model Convention. Moreover, in a number of DTTs Portugal has reserved the right to consider that a PE exists where a busi - ness activity of a non-resident company is carried on in Portugal with a certain degree of continuity through employees or other personnel engaged under con - tract. As a result, Portuguese DTTs are not standardised. A case-by-case analysis is required rather than assum - ing a wholly standardised OECD-based approach. 1.4 Multilateral Instrument Portugal signed the Multilateral Instrument (MLI) in 2017, ratified it in 2020, and it has been in force since June 2020.
As at the most recent date available (early 2026), the amendments introduced by the MLI are effective, in the case of Portugal, in approximately 60 bilateral DTTs, corresponding to around 60 countries or juris - dictions.
2. Territoriality, Residence and Permanent Establishment
2.1 General Principle of Territorial Taxation Portugal applies a residence-based system of taxa - tion, whereby resident individuals and entities are subject to taxation on their worldwide income, whilst non-residents are taxed solely on income sourced in Portugal. The Autonomous Regions of Madeira and the Azores adhere to the same principle, although reduced rates apply in respect of certain taxes. 2.2 Tax Residence of Individuals An individual is deemed a tax resident in Portugal upon staying more than 183 days in Portugal in any relevant 12-month period or maintaining a house under conditions indicating the intention to hold and occupy it is as habitual residence. Residence disputes most commonly arise in the con - text of international mobility and cross-border employ - ment arrangements. Where dual residence occurs, DTTs tiebreaker rules determine the final allocation of residence for tax purposes. 2.3 Taxation of Resident Individuals Resident individuals are taxed on their worldwide income. Employment and business income is gener - ally subject to progressive Personal Income Tax (PIT) rates, currently reaching a top marginal rate of 48%, with an additional solidarity surcharge of up to 5% applying to higher income brackets. Certain categories of income, such as dividends, interest, royalties, other capital income and capital gains, are generally subject to flat rates (typically 28%), unless the taxpayer opts for aggregation and progressive taxation.
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