Statutory rate without a valid treaty claim: 30%.
Written for payers. A U.S. citizen living in Portugal is a U.S. person: they give the payer Form W-9, not a W-8, and the treaty rates on this page do not apply to them. For their own return, see IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.
What sets the U.S.-Portugal treaty apart
The 1994 U.S.-Portugal convention, the first income tax treaty between the two countries, keeps source taxation where most U.S. treaties with European countries remove it: 10% on interest and 10% on royalties, with equipment rent and some technical assistance counted as royalties. Interest on bank loans of five years or more is exempt. The lower dividend rate needs a 25% shareholding held directly for an uninterrupted two years, and the rate itself is set by reference to what Portugal charges EU residents, with a 5% floor. A limitation-on-benefits article shuts out companies using the Madeira and Santa Maria Island tax-free zones, and directors' fees follow a rule of their own.
Common payments at a glance
| Payment | What the U.S. payer does | Article |
|---|---|---|
| Interest to a Portuguese lender | 10% | 11(2) |
| Interest on a loan of 5 years or more from a Portuguese bank or other financial institution | No withholding | 11(3)(c) |
| Interest to the Portuguese government or an institution it wholly owns | No withholding | 11(3)(b) |
| Interest based on the profits of the debtor or an associated enterprise | Up to 15%, even on otherwise exempt loans | 11(4) |
| Royalties, including equipment rent and related technical assistance performed in the U.S. | 10% | 13(2), 13(3) |
| Dividend to a Portuguese company holding directly 25% or more for an uninterrupted 2 years | 5% (the EU rate Portugal applies, never below 5%) | 10(3) |
| Other dividends and all RIC dividends | 15%. REIT dividends: 15% only for individuals holding under 25%, otherwise 30% | 10(2), 10(4) |
| Company entitled to Madeira or Santa Maria Island tax-free zone benefits | No treaty benefits | 17(6) |
| Portuguese contractor working in the U.S. | Exempt unless a fixed base is regularly available or 183 days in any 12 months | 15(1) |
| Employee seconded to the U.S. | Exempt only if 183 days or fewer in any 12 months, non-U.S. employer, not borne by a U.S. PE or fixed base | 16(2) |
| Director's fee from a U.S. company | Taxable in the U.S. for services performed outside Portugal, with no threshold | 18 |
| Performer or athlete | Taxable on the whole amount if compensation, including reimbursed expenses, exceeds $10,000 for the year | 19(1) |
| Private pension; U.S. Social Security | Pension exempt; Social Security taxable in the U.S. | 20(1) |
Assumes the payee is the beneficial owner, is resident under the treaty, meets its limitation-on-benefits article and gives a valid W-8BEN, W-8BEN-E or Form 8233. Article references are to the treaty as amended.
Rates on investment and other income
Treaty in effect generally from Jan. 1, 1996. Protocols in effect from: Jan. 1, 1996. IRS country code PO.
| Income | Income code1042-S box 1 | Treaty rate | Article |
|---|---|---|---|
| Interest paid by U.S. obligors, general | 01 | 10%g,jj,z | 11(2) |
| Dividends paid by U.S. corporations, general | 06 | 15%w | 10(2),(3) |
| Dividends qualifying for the direct dividend rate | 07 | 5%w | 10(2),(3) |
| Royalties: industrial, commercial or scientific equipment | 10 | 10% | 13(2) |
| Royalties: know-how and other industrial royalties | 10 | 10% | 13(2) |
| Royalties: patents | 10 | 10% | 13(2) |
| Royalties: motion picture and television copyrights | 11 | 10% | 13(2) |
| Royalties: copyrights (including software, unless the treaty says otherwise) | 12 | 10% | 13(2) |
| Pensions and annuities | 15 | 0% (exempt)f | 20(1)(a) |
| U.S. Social Security benefits (applies to 85% of the payment) | 15 | 30% | 20(1)(b) |
"n/a" means the payment type is not covered by the royalty article: equipment leasing is business profits (no withholding without a permanent establishment) or other income. Superscript letters are the IRS's own conditions, listed at the end of this page. When a treaty rate applies, the Form 1042-S also shows chapter 3 exemption code 04 (exempt under tax treaty) in box 3a and the treaty rate in box 3b.
Pay for personal services performed in the United States
Each row is an exemption the treaty gives, with the limits the IRS lists. All conditions in a row must be met; if any is not, the pay is withheld on at 30% (contractors) or under the wage rules (employees). Services performed entirely outside the United States are foreign-source and need no treaty claim.
| Income code1042-S box 1 | Purpose | Maximum presence in U.S. | Required employer or payer | Maximum amount | Article |
|---|---|---|---|---|---|
| 16 | Scholarship or fellowship grant5,15 | 5 years | Any U.S. or foreign resident | No limit | 23(1) |
| 17 | Independent personal services7 | 182 days | Any contractor | No limit | 15 |
| 18 | Dependent personal services8,17,58 | 183 days | Any foreign resident | No limit | 16 |
| 42 | Public entertainment30 | No limit | Any U.S. or foreign resident | $10,000 p.a. | 19 |
| 19 | Teaching4,42 | 2 years | U.S. educational institution | No limit | 22 |
| 20 | Remittances or allowances | 5 years | Any foreign resident | No limit | 23(1) |
| 20 | Compensation during study or training | 12 consec. mos | Portuguese resident | $8,000 | 23(2) |
| 20 | or: Compensation during study or training | 5 years | Other foreign or U.S. resident | $5,000 p.a. | 23(1) |
| 20 | Compensation while gaining experience2 | 12 consec. mos | Portuguese resident | $8,000 | 23(2) |
Exempt pay is still reported on Form 1042-S, with chapter 3 exemption code 04 (exempt under tax treaty) in box 3a and a 0.00 rate in box 3b.
Reading the U.S.-Portugal treaty as a payer
Documents and dates
The convention and its protocol, which forms an integral part of it, were signed in Washington on September 6, 1994. The convention enters into force on the exchange of instruments of ratification and applies to taxes withheld at source on amounts paid or credited from the next January 1 (Art. 30(2)). The IRS tables list the convention and protocol as effective January 1, 1996. A 9-month services permanent establishment rule (Art. 5(4)) applied only for the first five years (Protocol para. 4) and no longer applies.
Limitation on benefits and the tax-free zones
Article 17 grants benefits to individuals, governments, companies regularly traded on a recognized exchange (including Lisbon and Oporto) and their more than 50% subsidiaries, exempt and pension organizations more than half of whose beneficiaries qualify, and persons passing an ownership and base erosion test at 50%. Others qualify item by item through a substantial active business in Portugal (not investment management) or by competent-authority grant.
Article 17(6) overrides all of these: no benefits for any person entitled to income tax benefits under the tax-free zone rules of Madeira and Santa Maria Island. The technical explanation's example: a listed Lisbon bank's wholly owned subsidiary in the Madeira International Business Centre passes the subsidiary test but gets no benefits.
Residence
A resident is a person liable to tax in Portugal by reason of domicile, residence, place of management, place of incorporation or a similar criterion, but not one taxed only on Portuguese-source income (Art. 4(1)). Pass-through entities, estates and trusts are residents only to the extent their income is taxed in Portugal as a resident's (Protocol para. 3(a)); exempt not-for-profit organizations and pension trusts are residents (Protocol para. 3(b)). A dual-resident company the competent authorities do not assign gets no benefits (Art. 4(3)).
Dividends
Portfolio dividends are capped at 15% for a Portuguese beneficial owner (Art. 10(2)). The lower rate requires a company that is the beneficial owner and has owned directly at least 25% of the capital of the payer for an uninterrupted period of 2 years before the payment (Art. 10(3)). For a U.S. payer, the technical explanation says "capital" means voting power. A 10% shareholder, common under other treaties, gets 15% here.
The rate itself is not stated as a number: it was 10% for 1997 through 1999, and after 1999 it is the rate Portugal applies to such dividends paid to residents of EU member states, but never less than 5%. The IRS tables show 5%, the floor. RIC dividends always get 15%. REIT dividends get 15% only for an individual holding less than 25% of the REIT; otherwise the domestic rate applies (Art. 10(4)). The branch profits tax is capped at the dividend rates (Art. 12).
Interest
Interest beneficially owned by a Portuguese resident is capped at 10% (Art. 11(2)) and exempt in three cases (Art. 11(3)):
- the debtor is the U.S. government, a political or administrative subdivision or a local authority;
- the interest is paid to the Portuguese government, a subdivision or local authority, or an institution or organization (including a financial institution) wholly owned by them; or
- it is interest on a long-term loan of 5 years or more granted by a bank or other financial institution resident in Portugal.
Interest determined by reference to the profits of the issuer or an associated enterprise may be taxed at up to 15%, and this applies notwithstanding the exemptions (Art. 11(4)). REMIC excess inclusions are taxed at the domestic rate (Protocol para. 9). The treaty does not restrict exemptions U.S. law already gives, such as for portfolio interest (Protocol para. 1(a)).
Royalties
All royalties are capped at 10% (Art. 13(2)). The definition is wider than in most U.S. treaties: copyrights, including films, tapes and other means of image or sound reproduction; patents, trademarks, designs, models, plans, secret formulas or processes; information concerning industrial, commercial or scientific experience; the use of, or right to use, industrial, commercial or scientific equipment; and technical assistance performed in a Contracting State by a resident of the other where it relates to the application of such a right or property (Art. 13(3)). Sale proceeds contingent on productivity or use are royalties too. Rent for containers used in international traffic is exempt (Protocol para. 11).
Services
A building site, construction, installation or assembly project, supervisory activities on it, or a drilling rig or ship exploring for natural resources becomes a permanent establishment after 6 months (Art. 5(3)). A Portuguese individual's independent services are taxable in the U.S. only if a fixed base is regularly available here or the stay reaches 183 days in any 12-month period beginning or ending in the taxable year, and then only on income attributable to the fixed base or the U.S. work (Art. 15). Employees are exempt only if present no more than 183 days in any such 12-month period, paid by a non-U.S. employer and not borne by a U.S. permanent establishment or fixed base (Art. 16(2)).
Directors' fees paid by a U.S. company to a Portuguese resident may be taxed in the U.S. with no threshold, but only for services performed outside Portugal (Art. 18); the fixed base test is irrelevant. Performers and athletes are taxable once compensation for the year, including reimbursed expenses, exceeds $10,000, and then on the whole amount (Art. 19(1)). Visits substantially supported by Portuguese public funds are exempt (Art. 19(3)).
Pensions and Social Security
Private pensions for past employment and purchased annuities are taxable only in the country of residence (Art. 20(1)(a), (2)). Social Security and other public pensions, which the technical explanation says include Railroad Retirement benefits, may be taxed by the paying country (Art. 20(1)(b)), so U.S. Social Security paid to a Portuguese resident is withheld on.
Teachers, students and other income
A Portuguese teacher or researcher invited by a government, accredited university or recognized research institution, or under an official cultural exchange, who comes solely to teach or research, is exempt in both countries for up to two years, only once, and never in combination with the student article, whether at the same time or one after the other (Art. 22). Students and grant recipients are exempt for up to five years on payments from abroad, grants and up to $5,000 a year of U.S. earnings (Art. 23(1)); an employee of a Portuguese resident gaining experience from another person, or studying, on up to $8,000 over 12 consecutive months (Art. 23(2)). Other income is taxable in the residence country, but the U.S. may also tax it when it arises here (Art. 24); the technical explanation names prizes and awards. Gains on shares are exempt unless they are U.S. real property interests or connected with a U.S. permanent establishment (Art. 14).
Where payers get it wrong
- Applying the parent dividend rate at 10% ownership. The lower rate needs a company owning directly at least 25% of the capital (voting power for a U.S. payer) for an uninterrupted two years before payment.
- Treating all interest the same. The general rate is 10%, but interest on bank loans of five years or more is exempt, while profit-based interest can be taxed at up to 15% even on an exempt loan.
- Treating equipment rent or license-related technical assistance as exempt business profits. Both are royalties under Article 13(3) and are withheld at 10%.
- Granting benefits to a Madeira or Santa Maria Island free-zone company. Article 17(6) denies them even if a listed-company test is met.
- Exempting a Portuguese director's fees for U.S. board meetings. Fees for services performed outside Portugal are U.S.-taxable with no threshold.
The treaty documents
This page was written from the official texts below. Where the treaty text and the IRS tables differ, the treaty text controls, and the difference is noted above.
- Income tax convention and protocol (signed Sept. 6, 1994)
- Treasury technical explanation of the convention and protocol (1994)
All U.S. treaties and technical explanations: IRS, United States income tax treaties A to Z.
How the payee claims these rates
- Individuals claim a reduced rate on interest, dividends, royalties or pensions in Part II of Form W-8BEN: treaty country, article, rate and any conditions. Most claims need a U.S. TIN or a foreign TIN on the form.
- Entities claim in Part III of Form W-8BEN-E, which also asks which limitation-on-benefits test the entity meets (the LOB code finder lists this treaty's tests and their Form 1042-S codes) (the Portugal treaty's LOB provision is Article 17).
- Pay for services performed in the United States by an individual is exempted on Form 8233, not the W-8BEN, one form per tax year and per payer.
- The payer reports the payment on Form 1042-S with the income code shown above and chapter 3 exemption code 04 (exempt or reduced withholding under a tax treaty). From 2026 an exemption code is required whenever less than 30% is withheld.
The rate in a table is the most the United States may withhold under the treaty, not an entitlement. The payee has to be a resident of Portugal under the treaty, the beneficial owner of the income, and (for entities) meet the limitation-on-benefits article, and the payer has to hold a valid certificate before the payment. The IRS tables are a summary: check the article itself when the amount is material.
Questions payers ask
What is the U.S. withholding rate on dividends paid to a resident of Portugal?
15% on dividends generally and 5% on dividends qualifying for the direct dividend rate, under Article 10(2),(3), if the shareholder documents the claim on a W-8BEN or W-8BEN-E. Without a valid claim the rate is 30%.
What is the U.S. withholding rate on royalties paid to a resident of Portugal?
10% on copyright and software royalties (income code 12), 10% on patent royalties and 10% on film and television royalties, under Article 13(2).
What is the U.S. withholding rate on interest paid to a resident of Portugal?
10% under Article 11(2), before considering the Code's own exemptions for portfolio interest and bank deposit interest.
Is a contractor from Portugal working in the United States exempt from U.S. withholding?
Under Article 15, pay for independent personal services is exempt if the contractor is present in the United States for no more than 182 days, subject to the conditions in the article. An individual claims the exemption on Form 8233; without it, withhold 30%.
Do we withhold on a contractor from Portugal who works only outside the United States?
No. Pay for services performed entirely outside the United States is foreign-source income: no withholding and no Form 1042-S. Keep the contractor's W-8BEN or W-8BEN-E on file.
What is the U.S. withholding rate on dividends paid to a Portuguese parent company?
The IRS tables show 5%, the treaty's floor. It applies only to a company that has owned directly at least 25% of the payer's voting power for an uninterrupted two years; other dividends are 15%.
Is equipment rent paid to a Portuguese company subject to U.S. withholding?
Yes. Article 13(3) treats payments for the use of industrial, commercial or scientific equipment as royalties, capped at 10%. Rent for containers used in international traffic is exempt under paragraph 11 of the Protocol.
Is U.S. Social Security paid to a resident of Portugal taxed in the U.S.?
Yes. Article 20(1)(b) lets the paying country tax Social Security and other public pensions, so U.S. withholding applies. Private pensions for past employment are taxable only in Portugal.
The IRS notes behind the figures
Notes to the rates (IRS Table 1)
- f Includes alimony.
- g Exemption or reduced rate does not apply to an excess inclusion for a residual interest in a real estate mortgage investment conduit (REMIC).
- w The rate in column 6 applies to dividends paid by a regulated investment company (RIC) or a real estate investment trust (REIT). However, that rate applies to dividends paid by a REIT only if the beneficial owner of the dividends is an individual holding less than a 10% interest (25% in the case of Portugal, Thailand, and Tunisia) in the REIT.
- z An exemption from tax or a reduced rate of tax may apply to interest that is paid to the government of a Contracting State or a political subdivision or local authority thereof. An exemption or reduced rate may also apply to certain other types of interest, including interest paid to certain banks or other financial institutions, interest derived on loans guaranteed or insured by the government of a Contracting State, and interest arising in connection with commercial credit for goods or services. Please refer to the interest article of the relevant treaty for specific information. Income Tax Treaties
- jj The rate is 15% (10% for Bulgaria and Spain; 30% for Austria, Germany, and Switzerland) for contingent interest that does not qualify as portfolio interest. In general, contingent interest is interest that is determined with reference to (a) receipts, sales, income, profits or other cash flow of the debtor or a related person, (b) any change in the value of any property of the debtor or a related person, or (c) any dividend, partnership distribution, or similar payment made by the debtor or related person. For Sweden and Germany, contingent interest is covered by the dividends article of the treaty.
Notes to the services table (IRS Table 2)
- 2 Applies only if training or experience is received from a person other than alien's employer.
- 4 Does not apply to compensation for research work primarily for private benefit.
- 5 Grant must be from a nonprofit organization. In many cases, the exemption also applies to amounts from either the U.S. or foreign government. For Indonesia and the Netherlands, the exemption also applies if the amount is awarded under a technical assistance program entered into by the United States or the foreign government, or its political subdivisions or local authorities.
- 7 Exemption does not apply to the extent income is attributable to the recipient's fixed U.S. base. For residents of Korea and Norway, the fixed base must be maintained for more than 182 days (for Norway, 30 days in the case of the exploration or exploitation of the seabed and sub-soil and their natural resources); for residents of Morocco, the fixed base must be maintained for more than 89 days.
- 8 Does not apply to fees paid to a director of a U.S. corporation.
- 15 Does not apply to payments from the National Institutes of Health under its Visiting Associate Program and Visiting Scientist Program.
- 17 The exemption does not apply if the employee's compensation is borne by a permanent establishment (or in some cases a fixed base) that the employer has in the United States.
- 30 Exemption does not apply if gross receipts (or compensation for Portugal and Venezuela), including reimbursements, exceed this amount. Income is fully exempt if visit to the United States is substantially supported by public funds of the treaty country or its political subdivisions or local authorities.
- 42 Exemption does not apply if the individual either (a) previously claimed the benefit of this Article, or (b) during the immediately preceding period, claimed the benefit of Article 23. The benefits under Articles 22 and 23 cannot be claimed at the same time.
- 58 Remuneration derived by a resident of a contracting State in respect of an employment as a member of the regular compliment of a ship or aircraft operated in international traffic may only be taxed in that State.
Transcribed from the IRS Tax Treaty Tables. Treaty texts and technical explanations: United States income tax treaties, A to Z.
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