Double Taxation Agreements and tax planning: how to minimize tax burden when investing in Portugal

Double Taxation Agreements (DTAs) are essential instruments for foreign investors looking to acquire property in Portugal, as they ensure that income is not taxed twice – both in the country of residence and in Portugal. These agreements are fundamental for efficient tax management, allowing resident and international investors to optimize their tax burden.

1. What are DTAs?

Double Taxation Agreements are bilateral treaties signed between Portugal and other countries to avoid the double taxation of the same income by two or more States. Currently, Portugal has 79 active agreements, covering countries from the European Union, the United Kingdom, the United States, Canada, Brazil, China, Hong Kong, Angola, the UAE, among others.

These agreements establish rules to determine in which country (source and/or residence or headquarters) certain incomes are taxed and what the maximum applicable rates are in some cases, creating a more predictable tax environment for foreign investors

2. How do DTAs benefit foreign investors in Portugal?

Foreign investors who acquire property in Portugal can benefit from Double Taxation Agreements in several ways:

<> Reduction or exemption of tax on rental income: If a foreign investor (i.e., non-resident) receives rental income in Portugal, they may be entitled to reduced rates or exemption from income tax in their country of origin, depending on the applicable DTA.

<>Avoidance of double taxation on real estate capital gains: When a foreign investor sells a property in Portugal, capital gains may be subject to taxation both in Portugal and in their country of residence. However, many DTAs establish that taxation occurs only in the country where the property is located (i.e., Portugal), preventing additional taxes in the investor’s home country.

<> Favorable treatment for retirees and expatriates: DTAs are crucial for retirees moving to Portugal who receive pensions or other income from abroad. In some cases, it is possible to obtain tax exemption on private pension income or benefit from a reduced tax rate in Portugal.

3. How to optimize taxation through DTAs?

To ensure you are benefiting from a DTA in the most efficient way, follow these steps:

• Check if your country has a DTA with Portugal: You can consult the list of treaties on the website of the Portuguese Tax Authority (AT).
• Fill out the Tax Residence Declaration (Form 21-RFI): To take advantage of DTA benefits, the investor must submit this form to the Portuguese tax authorities to prove their tax residency abroad.
• Personalized tax planning: Depending on the investor’s profile and the origin of the income, it is possible to structure investments and earnings to maximize treaty benefits.
• Support from Lawyers and Tax Consultants: Tax legislation can be complex and varies between countries. A specialized lawyer can help interpret and correctly apply DTAs.

Double Taxation Agreements are an essential tool for those investing in Portugal, ensuring that real estate income, capital gains, and inheritances are not taxed twice. With proper tax planning and support from experts, it is possible to optimize tax benefits and structure investments efficiently.

At MATLAW, we help investors and foreign residents maximize the benefits of DTAs, ensuring a transparent and advantageous process. Contact us to learn more.