Retenção na Fonte: How Withholding Works on a Recibo Verde

When I issued my first recibo verde to a Portuguese company, I received less than I had invoiced. They had deducted 25%, which was the legal rate at the time, and paid the rest directly to the tax authority on my behalf. Nobody had told me that was how it worked.

The mechanism is called retenção na fonte, which translates literally as "retention at source." The part that surprises most expat freelancers: it only applies to clients that keep organised accounting in Portugal, which in practice means Portuguese companies. A client abroad normally pays your full invoice.

A Lisbon agency owes you €2,000 for a project. You issue the recibo verde, the agency pays, and €1,540 lands in your account. The other €460 went to the tax authority (AT), and it went there in your name.

That €460 is retenção na fonte, withholding tax. The agency took 23% of the invoice, which is €2,000 × 0.23, and paid it to AT as an advance on the IRS you will owe when you file your annual IRS return (Modelo 3). This example assumes you are exempt from VAT under Art. 53, so there is no VAT line to complicate the sum.

Who withholds, and who does not

Withholding is something your client does, not something you do. Your client withholds if it keeps, or must keep, organised accounting (contabilidade organizada), which every Portuguese company does. If your activity is specifically listed in the Art. 151 CIRS table (consultants, IT specialists, designers, translators and many other independent professions), the rate is 23%. Other services, including the table's catch-all code 1519 ("other service providers"), are withheld at 11.5%.

A client outside Portugal normally does not withhold. A German startup, a UK agency or a US company pays the full invoice, because only payers that keep organised accounting in Portugal must withhold. The exception is a foreign company with a Portuguese branch that keeps its accounts here.

So two freelancers on identical rates can have very different bank statements. One bills a Lisbon company and has 23% of each fee taken out before it arrives. The other bills a Stockholm company and receives every euro. Both owe the same kind of IRS at the end of the year. Only one of them has had tax taken out of each invoice.

The standard rate: 23%

The standard rate is 23% since 1 January 2025, when the State Budget (Lei 45-A/2024) cut it from 25%. Article 101 CIRS is the source.

You can also ask for more. Art. 98.º n.º 6 CIRS lets you give your client a written declaration asking it to withhold at any whole-number rate above the legal one, such as 25%. This is not a right to keep the pre-2025 rate; it is a general option, and the client does the withholding. Some freelancers do this on purpose: a bigger advance means a smaller bill in the summer, which suits people who would rather not see a lump sum.

Other kinds of income have their own rates. Income from intellectual property you created yourself (author's rights) is withheld at 16.5%.

When your client should not withhold

Under Art. 101-B CIRS you can tell a client not to withhold if you expect your income this year to stay below €15,000 and last year's was also below it. This applies in your first year too, on the same test. Once you reach €15,000 in the year, withholding restarts from the following month.

It is not automatic. You select the exemption on the recibo verde, which then carries the mention «Sem retenção, nos termos do n.º 1 do artigo 101.º-B do Código do IRS.», and you tell the client. If you forget, the client withholds, and is right to.

The figure is the same number as the Art. 53 VAT threshold, but the two are separate rules with separate conditions. Qualifying for one does not mean you have claimed the other. Being exempt from withholding also does not make your income tax-free. It only means the tax is not taken by your client.

How it settles at year end

The withholding is a flat percentage of what you invoice. Your IRS is not. Under the simplified regime, AT taxes only part of your Art. 151 service income (75% for most freelancers, after the coefficient), and that taxable slice goes through progressive brackets. The two figures rarely match.

When you file your Modelo 3, AT works out the IRS on the whole year and subtracts everything that was withheld. Two outcomes:

• You were over-withheld. Say your Portuguese clients paid you €30,000 and withheld €6,900. If your IRS comes to €5,200, you get €1,700 back.
• You were under-withheld. Say you earned €20,000 from a Portuguese client, with €4,600 withheld, and €30,000 from a foreign client, with nothing withheld. Your IRS is calculated on all €50,000, but only the Portuguese part had tax taken. Expect a balance to pay.

The second case is the one that surprises people. Foreign income is taxed in Portugal for a Portuguese tax resident, and no client withholds any of it during the year. Put money aside as it arrives, not at filing time.

Withheld amounts are reported in the self-employment annex (Anexo B, Quadro 6) when you file. Before submitting, check that the total matches what your recibos verdes show.

What to do on your next invoice

1. Look at the withholding line. It should show the rate you expect and the amount deducted.
2. Decide whether to ask for more. If you would rather overpay slightly than owe in the summer, give the client a written declaration asking for a higher whole-number rate.
3. Claim the exemption if it applies. If this year's income and last year's both stay under the threshold, select it on the receipt and tell the client.
4. Treat foreign invoices as untaxed. Move a share to a separate account when they are paid.