With its connectivity, quality of infrastructures and friendly environment, Portugal is an obvious hotspot for remote workers and digital nomads, but remote working can have relevant tax and social security implications.

It’s virtually impossible to delve into this matter in a concise article, but there is one key concept that you should have in mind: tax residence.

The importance of this concept is its consequence: becoming subject to tax in Portugal over your worldwide income, meaning that you might be subject to Portuguese taxes on your income in addition to any taxes you are already paying/expected to pay in the source/home country.

Tax residence as a remote worker

Under the Portuguese personal income tax legislation, you are considered a tax resident if you:

  • Spend more than 183 days, consecutive or not, in Portugal in any 12-month period starting or ending in the fiscal year concerned; or
  • Regardless of spending less than 183 days in Portugal, maintain a residence (i.e. a habitual residence) in Portugal during any day of the period referred above.

The good news is that double taxation issues may be resolved through the application of the Tax Treaties that Portugal has agreed with several jurisdictions.

Apart from double taxation reliefs and restriction on taxing rights (which, in the case of employment income, typically provide for the taxation in the place where the employment is exercised), the Tax Treaties provide tie-breaker rules that consider a hierarchy of factors to determine the effective place of tax residency, such as the location of the permanent home or the centre of vital interests, i.e., where the individual’s personal and economic interests, such as family or employment, are located.

Social Security for remote workers

In addition to these personal income tax aspects, there might be important social security consequences. For instance, after an initial exemption of 12 months, any self-employed worker established in Portugal must pay monthly social security contributions, calculated at a rate of 21.4% on 70% of the average income of every quarter.

As for remote workers established in Portugal working under an employment contract for a foreign company, attention should be given to the fact that a payroll will need to be set-up by the foreign entity in order to ensure the payment of the social security contributions (of 11%, payable by the employee, and 23,75%, payable by the employer, over the monthly gross income) – this being the main reason why employer of record platforms have boomed in the last few years. In addition, and depending on the exact scope of activities or functions of the employee, attention should be drawn to the risk of permanent establishment of the foreign entity in Portugal, with tax and legal consequences.

Keep this in mind!

Last but not least, apart from paying taxes and social security, remote workers may also be required to file an annual personal income tax return and quarterly social security returns (the latter only in case you are self-employed).

The above can only lead to one conclusion: a tailor-made analysis is recommended for each relocation, taking into account the perspective of the self-employed/employee and the perspective of the company to which the services are provided while ensuring compliance with the local regulations.

NEWCO is your trusted partner in Portugal for seamless investment and relocation experiences. With over 30 years of dedicated service, we specialize in providing a comprehensive suite of services tailored to the needs of investors and expats.

Contact us today!