MSP Lawyer

Illustration with the title 'Understanding Double Taxation Treaties in Portugal' showing the Portuguese flag, a tax treaty document, a calculator, financial charts, and euro coins, representing international tax agreements.

Understanding Double Taxation Treaties in Portugal: A 2025 Guide for Expats

If you’ve moved to Portugal — or are planning to — you may worry about paying tax twice on the same income: once in Portugal and again in your home country. The good news? Portugal has treaties to avoid double taxation, usually called “Double Taxation Treaties (DTTs)” with many countries to prevent this.

Whether you’re retired, working remotely, or earning passive income abroad, knowing how double taxation agreements work will help you avoid overpaying tax and stay fully compliant.

Here’s what every expat should know in 2025.


What Is a Double Taxation Treaty (DTT)?

A double taxation treaty is a legal agreement between two countries that prevents individuals from being taxed twice on the same income and is also meant to avoid tax evasion.

If you are a Portuguese tax resident but still receive income from abroad — such as pensions, dividends, or rental income — the treaty outlines:

  • Which country has the primary right to tax that income
  • Whether the other country must exempt the income or offer a foreign tax credit

Portugal currently has over 80 double taxation treaties, including with the U.S., U.K., Canada, Australia, and most EU countries.


Why Do Expats Need to Understand DTTs?

Many foreign residents in Portugal earn income from:

  • Pensions
  • Dividends and interest
  • Rental properties
  • Remote employment
  • Royalties
  • Business profits

Without a DTT in place, you could end up paying full tax on the same income in two countries.

A treaty prevents this by:

  • Allowing income to be taxed only in one country, or
  • Allowing both countries to tax the income, but giving a tax credit in one country

How DTTs Work: Common Scenarios

Here’s how double taxation treaties apply to common expat income sources:

Pensions

Most treaties allow Portugal to tax pension income if you are a Portuguese tax resident.
Your home country typically reduces or eliminates tax on that income, depending on the treaty terms.

Dividends and Interest

DTTs often reduce withholding tax rates or exempt these payments when received from abroad.
You will declare them on your Portuguese tax return and receive a foreign tax credit for any tax paid abroad.

Rental Income

Rental income from property outside Portugal is usually taxed in the country where the property is located.
Portugal may also tax it, but will usually provide a foreign tax credit.

Remote Employment Income

If you work remotely for a foreign company:

  • You usually pay tax in Portugal if you are a Portuguese tax resident
  • Some income may still be taxable abroad depending on how long you work there or where the work is performed

Special Case: U.S. Citizens

U.S. citizens must file U.S. tax returns every year, even when living abroad.

However:

  • The U.S.–Portugal tax treaty limits double taxation on pensions, dividends, and certain other income.
  • You can often use the Foreign Tax Credit (FTC) to offset U.S. tax based on taxes paid in Portugal.

Note: U.S. citizens will never fully escape U.S. tax reporting, but DTTs prevent full double taxation.


Special Case: U.K. Nationals

The Portugal–U.K. tax treaty remains active after Brexit.
Key points:

  • U.K. pensions: Typically taxed only in Portugal if you are a Portuguese resident.
  • Dividends and interest: Often subject to reduced withholding tax or exempt abroad.
  • State pensions: Usually taxed only in Portugal but check specific treaty clauses.

Tax Filing in Portugal Under a DTT

To benefit from a treaty:

  1. Declare your worldwide income on your Portuguese tax return (IRS).
  2. Request a tax credit for any taxes paid abroad.
  3. Provide certificates of foreign tax paid or tax residency documents, if requested by Portuguese authorities.

Important:

  • Even tax-exempt income must usually be declared.
  • You may need to inform your foreign income providers (banks, pension funds) about your Portuguese residency to reduce withholding taxes.

Common Mistakes Expats Make

  • Not declaring foreign income in Portugal
  • Failing to request tax credits for foreign taxes paid
  • Forgetting to provide residency certificates to foreign income providers
  • Assuming that income taxed abroad does not need to be reported in Portugal
  • Using accountants unfamiliar with international tax treaties

Portuguese Income Tax Rates (2025)

As of 2025, income is taxed progressively:

Income BracketTax Rate
Up to €7,70314.5%
€7,704 – €11,62323%
€11,624 – €16,47226.5%
€16,473 – €21,32128.5%
€21,322 – €27,14635%
€27,147 – €39,79137%
€39,792 – €51,99743.5%
€51,998 – €81,19945%
Over €81,20048%

Note: Some solidarity surcharges apply for higher incomes and there are deductions that can be applied.


Do You Need a Tax Advisor?

If you only have Portuguese income (such as local employment or pensions), filing your own taxes may be simple.

If you have foreign income — especially from pensions, investments, or remote work — you should work with a Portuguese Attorney who understands double taxation treaties and foreign income rules.

For U.S. citizens, a cross-border tax specialist who understands both U.S. and Portuguese law is essential.


Key Takeaways

  • Portugal has double taxation treaties with over 80 countries.
  • DTTs prevent double taxation of pensions, dividends, interest, rental income, and other earnings.
  • You must declare worldwide income on your Portuguese tax return.
  • Tax credits can reduce or eliminate Portuguese tax on income taxed abroad.
  • Professional tax advice is strongly recommended for anyone with international income sources.

Need help understanding taxes in Portugal or applying treaty benefits?
Contact us here — we assist expats with tax compliance, avoiding double taxation, and staying legally protected while living in Portugal.

× Need help with your Portugal visa? Chat now!