How foreign source income is taxed

 

Other income

Foreign source capital gains, investment and rental income, together with self-employment and professional income derived from high value added activities, shall be tax exempt from PIT if:

  • the income can be liable to tax in the country of source, according to the applicable Tax Treaty or according to the OECD Model Tax
  • Convention, as interpreted according to the Portuguese comments and reservations made to its articles; and
  • it is not deemed derived in Portugal in accordance with Portuguese sourcing rules nor deemed obtained in a tax haven.

Employment Income

High value added activity employment income received by a NHR shall be tax exempt from PIT provided that it is either:

  • Taxed in the source State according to the applicable Tax Treaty; or,
  • If no treaty is applicable, the income is effectively taxed in the source State and not deemed as derived in Portugal in accordance with Portuguese sourcing rules.

 

 

Foreign source pensions

Foreign sourced occupational pensions shall benefit from a tax exemption if they are liable to tax in the source country in accordance with the provisions of a tax treaty or are deemed not to be derived in Portugal in accordance with the Portuguese sourcing rules, i.e., not paid by a Portuguese tax resident entity nor attributable to a Portuguese permanent establishment of a non-resident entity.

Foreign source occupational pensions may also benefit from a potential double non-taxation should the applicable tax treaty preclude the source country from taxing the pension.

(Note that taxing rights in relation to pensions of retired civil servants and other government employees generally are allocated by tax treaties to the paying country, regardless of the residence status of the recipient).




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