Benefitting from Portugal's NHR scheme as a freelancer with foreign clients

There’s been a lot of interesting content in this thread, however still not enough to completely clarify my position. In regards to Article 14 of the OECD model tax treaty:

(1) Income derived by a resident of a Contracting State in respect of professional services or other independent activities of a similar character shall be taxable only in that State unless he has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities. If he has such a fixed base, the income may be taxed in the other Contracting State but only so much of it is as attributable to that fixed base.

What if I say have an office or renting a co wroking space in the respective country? What if additionally a small percentage of my self employed income is actually taxed in that country because it is “attributable to that fixed base”, meaning I was working there for a few days a year?

In general, if you earned income (rental/dividend/salary/royalties) is from State A, you pay taxes in State A. If you earn it in State B, you pay taxes in State B. If you have income from various States, you pay taxes according to where you earn it, so you could be paying taxes in State A, B, C, etc. Depending if there is a double taxation agreement. Unless you are from the US.
If I am working remotely and renting a coworking space from Portugal but I get paid into an Irish bank account by my Irish employer, I pay taxes in Ireland. If I am remote working from Portugal but I have registered as a Portuguese freelancer, became resident, have the NHR approved, have a NIF and get paid into a Portuguese bank account by my Irish employer, I pay taxes in Portugal. If I rent out my house in Ireland, I pay taxes in Ireland for that rental income.
So with that logic, if you are UK registered company, get paid into your UK account from your UK clients (whether through salary or dividends), then you pay UK taxes even if you are based in a Portuguese location.
NHR is 20% tax (simplified tax) for 1st 10 years and social contributions 15% 2nd year onwards. The tax benefits of NHR is not useful for you unless you are a Portuguese legal entity paying Portuguese taxes. 20% of nothing is nothing.
If you don’t want to pay any taxes to any state, then you need to live a nomadic lifestyle. Get professional advise if that is what you wanted to do.

Hi,

I’m a EU citizen who works as a freelancer for clients outside of Portugal. Due to the nature of my work, I do mainly long-term projects for a single client at a time. I read that working for a single client may pose a problem in Portugal, as one may be labeled as ‘dependent self-employed’. As a consequence, the client may be forced to pay part of your social security contributions:

The contracting entities are subject to a contribution rate of 10% when the economic dependence of the self-employee is higher than 80% and 7% if the economic dependence varies between 50% and 80%. The sole contribution rate of 5% ceases to exist. This measure produces effects as from 1 January 2018.

Source: Social Security – Self-employed individuals contributions regime | Tax flash | PwC Portugal

I understand that this rule was implemented to protect workers who are forced into self-employment. This does however not apply to me. Does anyone know if there are exemptions for foreign clients and/or higher incomes (80-100k€)? I can’t be the only person facing that problem, given that an economic dependence of 50% is easily reached if you work as a software developer on bigger projects for example.

Thanks!

I came across the same issue when trying to figure out the rules. I asked a lawyer and will let you know if I get any useful answers. Otherwise, I’ll follow the thread for updates.

Update: According to a tax advisor from a big four firm - the economic dependency only apply to Portuguese companies. So if your income comes from a foreign entity, it should not be a problem.
Obviously, I’d personally pay a tax lawyer to confirm this, if I were you - however, for now, I will be moving forward based on this finding.

Thank you very much for the update, appreciated!

I will let you know if I encountered any troubles regarding this issue when registering my business in the coming months (with the help of a professional obviously, as you said).

Just an FYI. Another Tax lawyer I have engaged, advises that the economic dependency ALSO applies to foreign entities…

I am starting to give up on the Portuguese tax system…

It is a total mess and weirdly only two people on the internet (you and I) seem to talk about it. I still have a couple of months before I have to decide how to proceed with my business tax wise.

Given how I saw things working here in Portugal I suspect that this law is not being enforced (yet?) or foreigners just keep their business registered in the UK/Germany/whatever. The latter may not be the worst option until there is clarity regarding this situation.

I find it interesting that no one here has mentioned VAT when talking about taxes. I am in a similar situation to the OP. I have a business registered in the US (LLC) and will be working only with US clients from Portugal and will be paid to my US bank account. As a software developer providing programming services, do I have to pay VAT as well?

Your business is registered in the US and you get paid to your US bank account. You are then paying according to US taxes and rules.

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Hi! Originally that was my understanding, but apparently it is far more nuanced than that and the fact that I am managing and running the business from Portugal changes the equation. My current understanding is that I will be paying in tot he Portuguese system instead. With the NHR it would be 20% + Social, which is high but I can digest it…laying VAT, however, really hurts, specially because I am simply rendering a software development service, not selling products. I wonder if anyone else has had experience with this.

You need a NIF number, a Portuguese bank account and access to the Finanças Portal to put through your monthly invoice to get the 20% NHR + social security. You also need to have a piece of paper saying you are approved for the NHR.
I worked for a Spanish company, I moved from Ireland to live in Portugal. I have NHR already, I have set up an activity as an IT consultant freelancer. I get Recibos Verde (green invoice), done up every month through my tax consultant. I should give this invoice to the Spanish company but as it is in Portuguese, I do up my own in English as well. I don’t charge the Spanish company VAT in the invoice. I was told not to by the tax consultant.
The Tax Consultant is AllFinance Matters in Tavira. You best ask a reputable firm for answers to your questions.

Thank you TanteM. I appreciate your feedback. I have a consultation scheduled for next month, but meanwhile I’m sweating bullets. :slight_smile:

May I ask you what your SS rate is as a freelancer? Is it the 21.4% on 70% of the income that I have seen above and elsewhere? I have seen so many numbers thrown around, up to 35%, that at this point I have no clue other than asking someone going through it.

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Please note that I am paid on a daily rate, some months less than others depending on public holidays, sick days, and annual leave which I am not paid for. I registered my activity on 17/6 and started invoicing from 1st of July in Portugal. This was my tax accountant’s explanation of the SS payments to me:

Regarding the SS tax, only 70% of your gross income is liable to be taxed with 21,4%. It means that in practical terms you pay 15%.

As your activity in the tax office is opened since 17-06-02021 and for SS payments you are exempt for 11 months, it means in June 2022 you’ll start declaring and paying.

You will pay according to your income in a quarterly basis, as follows (example):

3rd quarter: July’s gross income: 5.000€ // August’s gross income: 6.000€ // September’s gross income: 3.000€
Total of the quarter: 14.000€
This amount is declared in October (after the end of the quarter) and paid in November, December, and January.

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WOW TanteM, thank you so much. I finally get a clear example from someone under somewhat similar conditions. Your data confirms my recent findings and some of the discussion above. I really, really appreciate it. It also seems that you can choose to go up 25% (increase contributions) or down 25% (decrease contributions). But even if that isn’t the case then the rate you described seems to be fair for what we are getting in beautiful Portugal.

Also, you mentioned that you are paying 20% under NHR, which seems to confirm the notion that the 0% income tax is not really a possibility. I first understood my income to be foreign sourced, since I am operating as a US company working with a US client, but further discussions seem to throw some cold water due to nomenclature, verbiage, etc…apparently because I am running the business from Portugal, or managing it there I should say, it is not considered foreign sourced.

I don’t understand your second paragraph. I manage my freelance business from Portugal, and I get paid into my Portuguese bank account. My client is in Spain. I am going to pay 20% of 75% tax based on simplified NHR rules. It is not due until next year.
The problem I think is that you get paid into your US bank account and you are a US legal company, with a US client so the money isn’t received in Portugal at all. As such you are not a Portuguese entity, and you are not getting an income in Portugal. You’re just like someone working on holidays in a different country. For NHR you also need to be resident here for 183 days or own a residential property here.

Correct. We already have a rental property for 12 months and the contract is signed at this point, so fulfilling the residency criteria won’t be an issue. I have an appointment with a tax expert that worked for the system for several years so I should have more clarity on this. She stated that the 0% is indeed possible in spite of the confusion in my case specifically, so you may be right. That would be pretty awesome.

So I’m going down this road now and this is the advice I’ve received from a tax advisor in Portugal who works with an accountant in the UK for the business side.
I have a UK Ltd company that I am a director of, I live permanently in Portugal. A member of my family who lives in the UK permantently is also a director, so at least 50% of the “control” of the company is in the UK. I have been advised this is enough to keep the company registered in the UK.

I work a day rate for UK clients outside of IR35, and pay VAT. I just charge this on top of my day rate to the client (they claim the VAT back from their own sales).
Will be paying UK corporation tax at 19%, and then the rest is paid to me as dividends.

I will be submitting a UK personal tax return as a non resident, where my dividend payments will be categorised as “disregarded income”, which is taxed at 0% in the UK.
Also submitting a Portuguese tax return, and this is where the funky NHR “if possible to tax at source” rules should mean that since my dividend payments have been “taxed at source” (even at 0%), the NHR scheme means there’s 0 additional tax on my Portuguese tax return on the dividends.

At least that’s the theory. I’ll be keeping a sizeable pot aside if the tax man ever comes knocking.

Right. Thank you for that explanation. It seems like it is possible to do it by the law, but it likely requires some creativity or a deep understanding of the nuances of the system. The person I’m going to work with worked for the Portuguese system for several years, so she might be a great candidate because I want to do everything correctly and by the law.

My situation is similar in the sense that, if I end up not paying income taxes in Portugal, I may not have to pay them either in the US. The US can choose to tax me at that point, but I can claim the FEIE, which excludes a sizable portion of the income, and I can shield the rest with 401K deductions, standard deductions, etc…

I appreciate your explanation and feedback and I hope you can work things out to your advantage. :sweat_smile:

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Hi again!

Was just wondering if you got more clarity?
I found the article that speaks to the dependency bit - https://www.seg-social.pt/documents/10152/5896680/entidades_contratantes/f7b1e0ce-bf6e-43bd-95a4-bf88b7345c6f
With help from Google Translate… I didn’t get any smarter. It says nothing about the local vs foreign entities. I guess one will have to find a lawyer / tax accountant who has actual experience with the matter.

Hi!

I was wondering; it sounds like you only invoice the Spanish company - i.e. you are 100% dependent on this entity. Is the Spanish company not obiliged to pay 10% Social Security Contribution in Portugal then?
I am looking into the same situation as you - however, the foreign entity who will be paying my invoices have no interest in setting up an entity in Portugal to pay Social Security Contribution just to me.

Thanks
JF

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