Tax Guidelines for Hiring Non-Resident Workers in Portugal

On July 30, the IRS department provided insights on its website regarding how businesses in Portugal should approach hiring non-resident workers, specifically those classified under the self-employed category.

The tax authorities clarified that, according to the IRS code, any income earned by non-resident self-employed workers is considered to be sourced in Portugal.

Essentially, this means that “self-employed income is always regarded as being earned in Portuguese territory if the responsible entity is present in Portugal,” as noted by the tax authorities. This income is subject to a 25% income tax rate, which means companies need to withhold this tax when compensating these workers.

Exemptions, either full or partial, can only be applicable if the non-resident worker is a tax resident of a nation that has a tax treaty with Portugal intended to prevent double taxation, provided that the income has already been taxed in another country.

Yet, such cases are rare and only apply in situations where specific bilateral or multilateral agreements exist. The guidelines from the tax authorities emphasize standard regulations regarding IRS taxation.

In addition to the tax withholding obligation, companies are also required to submit a Model 30 declaration to inform the tax authorities about payments made to non-resident entities. This declaration must be filed by local accommodation owners in Portugal to report payments made through platforms like Airbnb and other booking services.

The tax authorities stressed that the requirement to file a Model 30 declaration holds true “even if non-resident self-employed workers qualify for a full or partial tax exemption based on agreements between Portugal and their country of residence.”