Portugal is not only a desirable tourist destination, but also a great place to live! It has affordable prices, high quality of life, well-developed infrastructure, efficient public transportation, and good health care. Many people are willing to relocate with their remote jobs, especially from the cold and rainy United Kingdom.
Working remotely in Portugal for a UK company is possible and has been practiced by many people. It can be done in three main ways:
- Working remotely as an employee of a UK company
- Working remotely as a contractor for a UK company
- Work remotely by becoming an employee of a Portuguese company
Working remotely isn’t a big deal anymore, and can even be done from another country. While working your remote UK job from Portugal, you need to keep in mind all the legal implications one might encounter. Particularly, Brexit might have added a lot of concerns in regard to working abroad. In this article, we discuss all possible ways to work remotely from Portugal for a UK-based company, and the legal side of it.
Working remotely in Portugal for a UK based company
You may have fallen in love with Portugal, as many visitors do and decided to stay there for longer and work remotely. In fact, many people base themselves in this beautiful country for the majority of the year and continue working for a company based in another country.
Luckily, there are some ways you can work for a UK-based company while living in Portugal.
Residence permit for remote workers in Portugal
When living and working abroad, a question about the residence permit first comes into your mind. If you decide to stay in Portugal permanently or for an extended period of time, you should consider getting a residence permit. EU/EEA citizens won’t have any issues while staying as long as they wish in the country.
UK citizens and some other non-EU citizens (US, Canada, Australia, etc.) can stay in Portugal for up to 90 days visa-free, and after that, they should apply for residency. Yet, most of the non-EU nationals will need a Schengen visa even for a stay of up to 90 days.
Portugal has signed a Withdrawal Agreement, where UK citizens can enjoy free movement in the EU. After living for at least 5 years in Portugal, foreign residents can obtain Portuguese citizenship.
By having a remote job with a UK company you might be eligible for several residence permits in Portugal, such as D7 Visa, which is a good option for non-EU citizens with passive income or remote jobs. Moreover, they can opt for the popular “Golden investor visa”. Residence permits in Portugal are valid for one year with a possible extension.
A temporary residency (D7 Visa) can be obtained in Portugal by having income or funds on the banking account of €7,200 which is equal to twelve minimum wages. You must also provide 6-months of bank statements.
Paying taxes while working remotely in Portugal
While a problem with a residence permit can be solved easily, taxes take more time to figure out. Paying taxes while living in one place and working in another is always a challenging question.
The general rule for the EU is that a person becomes a tax resident when spending more than 183 days in the country. Hence, legally you should file a tax return and pay your taxes in Portugal. Therefore, by being a tax resident you will be taxed for worldwide income.
While staying less than 183 days in the year, a person will be only taxed on the income generated in Portugal, which should be zero when working remotely for a UK company.
Employees of UK companies living in Portugal
While being an employee of a UK company and residing in Portugal, you need to pay the local income taxes in Portugal. Also, the double taxation agreement will apply, where you pay the taxes to Portugal. Luckily the double taxation agreements between the countries guarantee that you don’t pay twice (or if so you can claim the extra amount back).
The problem arises when your UK company becomes liable to pay Portuguese Social Security for the employee, which is higher than in the UK. In order to do that the UK organization needs to be registered in Portugal (to get a tax ID) which means opening a subsidiary. The UK company will also have to make sure that you comply with all Portuguese laws in terms of employment. Hence, your employer might not be willing to do it.
Working remotely as a contractor for a UK company
As a contractor living and working in Portugal, you will pay local taxes. An independent worker must be registered as a sole trader or single-person company in Portugal, so they can bill their UK employer.
The benefit of setting up this structure is that your company doesn’t need to pay UK social security. Moreover, a contractor can still get paid on their UK banking account and be able to write off some costs (i.e. a trip to the UK).
As a self-employed, you will also have the full responsibility for conformity with Portugal legislation (taxes, social security, immigration, employment law) as well as organizing your own life insurance, medical coverage, pension, etc.
Besides that, a contractor doesn’t enjoy paid sick days and holidays. As you can see there are some trade-offs here.
Work remotely from Portugal by becoming an employee of the local company
By this, we don’t mean to find another job in Portugal. A Portuguese company will serve you solely as a partner; you will be officially employed by them and they will send invoices to the UK company, so you can get paid.
You will find such companies across the country, they specialize in servicing someone like you as a middleman. It can be a small agency, for example. They could either hire you as an employee or as a contractor. For you, it will be more beneficial to become an employee.
This company will take care of taxes and insurance, but you continue to provide your services to the original UK employer. This middleman firm will invoice your UK employer (with a slight uplift for their costs) and pass money to you.
The huge benefit of using such organizations is that they take care of local taxes, laws, and legal issues. Therefore, all employment issues are now with that company and no longer with you. So you can work remotely from Portugal on the safe side.
Tax advantages when working remotely for a UK company in Portugal
Portugal has developed a tax beneficial NHR program for non-habitual residents residing in the country. Your income can be taxed with a fixed rate of 20% (+ social security) over the next 10 years, regardless if you are self-employed or an employee. Particularly high earners can reduce their taxes that way.
In order to be qualified for this tax rate, you must belong to one of the following professions from the list:
- Data processing specialists
- IT consultants
- IT experts and specialists
- Theatre, radio, ballet, and TV performers
- Life science professionals
- Medical practitioners
- News agencies and other reporting personnel
- Scientific research and development professionals
- Senior executives, except for directors
- Tax consultants
- University professors
- Web developers and designers
- Tax auditors
By pursuing one of those jobs or being self-employed, your income received in Portugal will be taxed at 20% and all foreign income sources will be tax-exempt. However, usual progressive tax rates apply if employment doesn’t fall under the list of eligible professions.
Moreover, you will be eligible to pay for Social Security in Portugal under this program, which can be quite expensive. If you don’t generate your income in Portugal, you will pay Social Security calculated according to the minimum wage of the country, which is €7,070 annually.
The owed amount for social contributions in Portugal will be 34,75% of the minimum wage (€7,070), which comes to €2,300 annually, 11% of which can be deducted from possible taxes.
If a foreign resident doesn’t fall into one of the listed professions, the following tax rates will apply in Portugal (plus 3,5% when the amount exceeds €7,070):
|€0-14,000||28.5% + €980|
|€20,000-40,000||37.5% + €2,680|
|€40,000-80,000:||45% + €5,880|
|Over €80,000:||48% + €8,280|
|Up to €250,000||2.5% surcharge|
|Over €250,000||5% surcharge|
Foreign income from trade and self-employed work in the eligible professions (see the list above) is exempt from taxes in Portugal, provided that there is a possibility of taxing the income in its country of origin (UK).
Typically, when reporting your income in Portugal, you should indicate the tax you have already paid in the UK. That amount will be deducted from the tax you may still have to pay here (or you may not have to pay at all if UK taxes are higher than in Portugal).
So how will you pay taxes on your income generated in the UK?
Portugal has regulations in regard to the income from foreign employment for people eligible for the NHR program.
Tax-exemption on income earned in the UK depends on whether or not it’s taxed in the UK or if the employment is in the eligible professions. The only income that has already been taxed in the UK is tax-exempt in Portugal.
If your salary or allowance hasn’t been taxed in the UK at all, it will be considered as Portuguese income with a fixed tax rate of 20% (if gained from an eligible profession).
Consequently, if you decide to live in Portugal as an NHR resident, you can even select in which country you prefer to be taxed.
What are the requirements for an NHR status in Portugal?
Candidates for NHR must meet these 3 essential criteria:
- Have a residency permit in Portugal. People from the UK, and EU/EEA countries can easily become residents. Non-EU passport holders can apply for a D7 or “Golden Visa”.
- Have not been a Portuguese tax resident in the five years prior to taking up residence in Portugal.
- Maintain a residency status in Portugal by having a place to live in Portugal.
Finally, to benefit from NHR you need to meet at least one of those criteria:
- Stay for a minimum of 183 days in Portugal whether interrupted or continuous
- Have a house/apartment/room available in Portugal and have the “intention” to live there
- Be a member of a Portuguese ship or aircraft crew
- Have a spouse or children in Portugal
- Be employed overseas by the Portuguese state
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