Portuguese withholding tax on services

Following the termination of the Double Tax Treaty between Sweden and Portugal, Swedish companies invoicing Portuguese companies for services may, under certain conditions, be subject to withholding tax. There may be an opportunity for Swedish companies to recover a full or partial refund of the withholding tax imposed on Portuguese-sourced income.
 

As a general rule, certain income sourced from Portugal and owed by resident companies to non-resident entities is subject to corporate income tax through withholding tax at a rate of 25%. Specifically, income derived from services rendered or used in Portugal (excluding those related to transportation, communication, and financial services) is considered to be obtained in Portugal whenever the debtor has its head office, effective place of management, or a permanent establishment in Portugal to which the payment can be attributed.

According to KPMG Portugal it may be questioned if taxing a company resident in another EU Member State, with no permanent establishment in Portugal, on its gross income – without allowing deductions for costs incurred to generate that income – is discriminatory. It is possible to argue that Portugal’s practice of the withholding tax breaches the EU's fundamental principles of free movement of capital and freedom of establishment.

Therefore, a non-resident company could claim that withholding tax should be applied to net income rather than gross income. Furthermore, it may be possible to request a refund from the Portuguese Tax Authority for any excess tax withheld, within 2 years from the end of the calendar year in which the taxable event occurred.

KPMG is, of course, available to assist in this process. Welcome to contact us.

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Hanna Harling
Skatterådgivare
KPMG i Sverige
+46 72 394 64 62
hanna.harling@kpmg.se