Foreign earnings necessitate reporting
Scoot over, tax anxiety! Let's get down to the nitty-gritty of avoiding double taxation when you're earning some dough abroad. The folks at the Federal Revenue Service (AT) have spilled the beans on how to do it, and a handful of tax gurus back it up. Here's the lowdown.
First things first - the law says you gotta declare every penny you make, whether it's in Portugal or elsewhere. So, if you're making bank from jobs, rentals, pensions, or dividends overseas, AT wants you to include Annex J in your declaration. You report the gross income (i.e., the un-taxed earnings), the contributions to foreign Social Security schemes, and the taxes you've paid in the country where you earned your bread. These taxes paid will act as a credit to prevent double taxation in Portugal.
Now, to dodge that double taxation, you can sure as heck deduct taxes paid overseas from your IRS in Portugal. Suppose you're a Portugal resident with a French property rental. You'd be taxed in both countries, but Portugal will gladly grant you a tax credit for the French tax you paid or what you'd pay in Portugal, effectively eliminating double taxation. That's how it goes!
For those seeking more strategies, consider the Double Taxation Agreements (DTAs) Portugal has struck with many countries. These treaties determine which country gets to tax what income types. If you're a tax resident in Portugal and earn income elsewhere, a DTA can save you from shelling out taxes in both countries.
To benefit from DTAs, you'll need a digital tax residency certificate from AT. Prove your Portuguese tax residency and leap into DTA savings! You can nab this certificate through the Finance Portal using your NIF (Tax Identification Number).
Foreign tax credits are next on the list. If you've already paid taxes on foreign income, you can claim those credits in Portugal to offset the Portuguese tax due on the same income. Unfortunately, any unused credits can't be carried forward or refunded.
Finally, brush up on your tax laws in Portugal and your home country. This includes knowing the tax rates, types of income covered by DTAs, and special incentives such as the Tax Incentive Scheme for Scientific Research and Innovation (IFICI).
Et voilà! Earning income from abroad and staying tax-savvy? A path laid out by the wise ones at AT and a gaggle of tax specialists!
In light of the strategies discussed to avoid double taxation, if you own a business or property in Portugal and also have investments abroad, you can claim foreign tax credits in Portugal to offset the Portuguese tax due on the same income. Additionally, to benefit from Double Taxation Agreements (DTAs) Portugal has with various countries, ensure you obtain a digital tax residency certificate from the Federal Revenue Service (AT), which can be done through the Finance Portal using your NIF (Tax Identification Number).
