Double Taxation Treaties
A simple guide to foreign income
Published on 30 September 2025
Do you receive income from another country and are not sure where you should pay tax?
This is one of the most common questions among expatriates, investors and people who work or invest internationally.
Without specific rules, the same income could be taxed twice — once in the country where it was earned and again in Portugal. To avoid this, Portugal has signed Double Taxation Treaties (DTTs) with many countries.
These treaties establish which country may tax each type of income and, when both countries may exercise that right, set out mechanisms to prevent taxpayers from paying tax twice on the same income.
In this article I explain, in simple terms:
- what Double Taxation Treaties are;
- how they work in practice;
- what the most commonly used expressions mean;
- how they apply to interest, dividends and royalties;
- why it is important to prove tax residency;
- how they may affect those benefiting from the Non-Habitual Resident (NHR) regime.
Note
What are Double Taxation Treaties?
Double Taxation Treaties are agreements between two countries designed to prevent the same income from being taxed twice.
These treaties are particularly important for those who:
- work abroad;
- receive income from international investments;
- hold assets outside their country of residence;
- carry out activities in more than one country.
Rather than each country applying its own rules independently, the treaty determines which state has the right to tax each category of income.
In some cases, only one country may tax the income. In others, both countries may do so, but the treaty provides mechanisms to eliminate or reduce double taxation.
How do these treaties work?
When looking at a Double Taxation Treaty, we frequently come across three key expressions. Understanding the meaning of each is essential to knowing where a given income should be taxed.
| Expression used in the treaty | What it means |
|---|---|
| Only in the country of residence | Only the country where the taxpayer is a tax resident may tax that income. |
| Only in the source country | Only the country where the income was earned or paid may exercise the right to tax. |
| In both countries | Both countries may tax the income, but the treaty provides mechanisms to prevent the taxpayer from bearing double taxation on the same income. |
These expressions are used in different articles of the treaty and vary according to the type of income involved.
When income can be taxed in both countries
Not all income is taxed exclusively in a single country.
Some income, such as interest, dividends and royalties, can be taxed both in the source country and in the country of residence.
In these cases, the treaty typically sets a maximum tax rate that the source country may charge.
The country of residence then applies its own tax rules, taking into account the mechanisms provided to avoid double taxation.
Worked example
Imagine you receive dividends from a company located in a country with which Portugal has signed a Double Taxation Treaty.
- In Portugal, this income is taxed at a rate of 28%.
- In the source country, withholding tax of 15% was applied.
In this case, Portugal only taxes the remaining 13%.
However, imagine the source country withheld 30%. Even though 30% was paid, Portugal only recognises the limit set out in the treaty, for example 15%.
In practice:
- Portugal still taxes the remaining 13%.
- The 15% paid above the limit set out in the treaty is no longer recoverable.
Important
What happens when the tax withheld exceeds the treaty limit?
One of the most common mistakes is assuming that any tax paid abroad will automatically be deducted in Portugal.
In reality, that is not always the case.
When a Double Taxation Treaty sets a maximum rate for taxation in the source country, Portugal only recognises that limit for the purposes of eliminating double taxation.
If the other country withheld tax above what the treaty allows, that excess may not be recoverable.
That is why it is important to ensure the treaty is applied correctly from the moment the income is paid.
Example
This is one of the reasons why it is worth confirming in advance which treaty applies and what limits it sets out.
What if the income can only be taxed in Portugal?
Not all income can be taxed in both countries.
There are situations where the treaty determines that certain income is taxable only in the country of tax residence.
In these cases, any tax paid in the other country may not be recognised in Portugal.
Example
Imagine you make a capital gain on the sale of shares and the treaty establishes that this income is taxable only in Portugal. If the other country charges tax on that capital gain, that amount may not be accepted as a tax credit in Portugal.
This is another example of why it is important to know the rules of the applicable treaty in advance.
Why is it important to prove tax residency?
Double Taxation Treaties are not applied automatically in every situation.
To benefit from the treaty's rules, you will normally need to prove where you are tax resident.
Otherwise, you may be treated as a tax resident in the other country and lose the benefits provided by the treaty.
In most cases, this proof is provided through a tax residency certificate issued by the Portuguese Tax Authority (Autoridade Tributária).
This document allows you to demonstrate to foreign tax authorities which country you are considered resident in for tax purposes and facilitates the application of the treaty's rules.
What is the relationship between Double Taxation Treaties and the Non-Habitual Resident regime?
For those benefiting from the Non-Habitual Resident (NHR) regime, Double Taxation Treaties can have an even more significant impact.
Depending on the type of income and how the treaty interacts with the Non-Habitual Resident regime, an exemption may apply in Portugal, even if the income was not actually taxed in the source state.
Each situation must be assessed individually, taking into account:
- the type of income;
- the applicable treaty;
- the specific rules of the Non-Habitual Resident regime.
For this reason, it is not advisable to assume that the same rule applies to all types of income or to all countries.
In summary
Double Taxation Treaties help prevent the same income from being taxed twice, but their application always depends on the rules set out in the treaty signed between the two countries.
Before declaring income earned abroad, it is worth confirming:
- Which treaty applies.
- Where each type of income should be taxed.
- What the maximum tax limits are.
- Whether a tax residency certificate needs to be provided.
- Whether you are entitled to a tax credit or exemption, depending on the applicable tax framework.
Conclusion
Double Taxation Treaties play a fundamental role for anyone who receives income in more than one country.
Although the aim is to prevent the same income from being taxed twice, how each treaty works always depends on the type of income, the country involved and the rules set out in the agreement between the two states.
In addition, small details, such as the withholding applied in the source country or the presentation of a tax residency certificate, can have a significant impact on the final tax bill.
That is why, before declaring income earned abroad, it is important to confirm that the treaty is being applied correctly.
A prior analysis can prevent mistakes, avoid double taxation and ensure you benefit from the rules set out in the applicable treaty.
Do you have income from abroad?
If you receive income from another country or plan to invest internationally, it is important to understand how the Double Taxation Treaty applies to your situation.
In an individual consultation we can help you to:
- Identify which treaty applies.
- Confirm where each type of income should be taxed.
- Assess whether you are entitled to a tax credit or exemption.
- Ensure your IRS tax return correctly reflects international taxation.
Get in touch to check whether a Consulting session makes sense for you, and avoid paying more tax than necessary.
Chat on WhatsAppFrequently asked questions
What is a Double Taxation Treaty?
It is an agreement between two countries that determines where certain income should be taxed, preventing the same income from being taxed twice.
Do I always have to pay tax in both countries?
No. It depends on the type of income and the rules set out in the applicable treaty. In some cases only one country may tax the income. In others, both countries may do so, but mechanisms exist to avoid double taxation.
How do I know if Portugal has a Double Taxation Treaty with another country?
Portugal has signed treaties with many countries. Before assessing the taxation of income obtained abroad, it is important to confirm whether an applicable treaty exists between Portugal and that state.
Do I need to provide a tax residency certificate?
In many situations, yes. A tax residency certificate allows you to prove to the other country's tax authorities where you are resident for tax purposes and facilitates the application of the treaty's rules.
What happens if the other country withheld more tax than the treaty allows?
Portugal only recognises the maximum limit set out in the treaty. Tax paid above that limit may not be accepted for the purposes of eliminating double taxation.
Do Double Taxation Treaties apply automatically?
Not always. To benefit from the treaty's rules, certain formalities may need to be met, such as proving tax residency to the other country's authorities.