Withholding tax (“retenção na fonte”) is a tax mechanism where part of the tax (usually IRS – personal income tax) is withheld by the payer at the time the income is paid and remitted directly to the Portuguese Tax Authority (Autoridade Tributária – AT) on behalf of the person who receives the income.
It works as an advance payment of the annual IRS and can apply to several types of income: self-employment income, rental income, investment income, etc.
Who is required to withhold tax?
Under Article 101(1) of the CIRS, entities are required to withhold tax when they make payments of covered income to individual taxpayers, namely:
Entities established in Portugal with organized accounting (“contabilidade organizada”),
Whenever they pay income that falls under withholding rules to a natural person, within the scope of Portuguese tax law.
When does withholding apply to self-employed workers?
Withholding tax applies when all of the following conditions are met:
The supplier is classified as a self-employed worker (Category B);
The activity performed is listed in the table of Article 151 of the CIRS (e.g., lawyers, architects, doctors, consultants, designers, etc.);
The client is a company or ENI with organized accounting in Portugal;
The supplier does not have an active exemption from withholding (“dispensa de retenção”).
What are the withholding tax rates? (CIRS Article 101(1))
Type of income | Rate | Notes |
Category B (commercial/industrial), Category E (capital income), and capital gains (Category G) | 16.5% | Commercial income, interest, dividends, sale of assets |
Professional activities listed in the table of Article 151 (Category B) | 25% | Liberal professions: lawyers, doctors, designers, psychologists, trainers, etc. |
Other Category B activities not included above | 11.5% | e.g., transport, agriculture, local accommodation, retail trade |
High value-added activities carried out by Non-Habitual Residents (RNH/NHR) | 20% | Only for residents with NHR status + qualifying activity under an applicable ordinance |
Category F — rental income | 25% | Renting urban/rural property, commercial or residential |
Practical example (Category B)
Invoice amount: €1,000
Activity: included in the Article 151 table
Withholding rate: 25%
Amount withheld: €250
Net amount paid to the supplier: €750
The €250 is paid to the AT by the payer by the 20th day of the following month.
When and how does the payer remit the withheld tax?
The client/company that withholds has these obligations:
Pay the withheld tax to the AT by the 20th of the month following the payment date;
Report the payment via the Monthly Remuneration Statement (DMR) or the applicable reporting model;
Act as a tax withholding agent (“substituto tributário”), i.e., they withhold and remit tax on behalf of the supplier.
What happens to the withheld amount?
The withheld tax is not lost: it is an advance payment of IRS.
When you file your annual IRS return (Modelo 3):
If too much was withheld → you receive a refund;
If too little was withheld → you pay the difference.
When can you be exempt from withholding tax?
Under Article 101-B of the CIRS, an exemption from withholding may apply if all of the following are true:
The activity is included in the Article 151 table;
The self-employed worker has no employees;
The previous year’s gross annual income was below €14,500 in 2024 and below €15,000 in 2025;
An exemption request was submitted via the Portal das Finanças.
In these cases, the invoice must include the statement:
“Exempt from withholding tax under Article 101-B(1) of the CIRS”
The supplier then receives the full amount, with no withholding.
Conclusion
Withholding tax, under Articles 98 to 101-B of the CIRS, is a tax obligation designed to prepay part of the income tax due.
Portuguese companies/entities with organized accounting must act as withholding agents and withhold/report correctly.
The withholding rate depends on the type of income and the activity performed.
The withheld amount is accounted for in the annual IRS return.
Exemption is possible, but it requires legal eligibility and a formal request.