Retenção na Fonte
Withholding Tax
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Income tax withheld at the source by Portuguese businesses when they pay a solo entrepreneur for services, the client keeps a percentage (23% standard since 2025) and sends it directly to the tax authority.
Retenção na fonte translates literally to "retention at the source", the tax is retained before it reaches you. If you're a trabalhador independente invoicing a Portuguese company, that company doesn't pay you the full invoice amount. It holds back a slice for income tax (IRS) and sends it to the Autoridade Tributária on your behalf.
This isn't an extra tax. It's a prepayment of your annual income tax, collected in instalments throughout the year instead of in one lump sum.
How the rates work
Since 1 January 2025, the standard rate is 23%: reduced from 25% by the 2025 State Budget (OE2025). If you invoice a Portuguese client 1,000 euros for consulting work, the client pays you 770 euros and sends 230 euros to the tax authority.
Workers can opt to retain the 25% rate on a per-invoice basis. If you'd prefer a larger prepayment to reduce a potential year-end tax bill, you can request this when issuing your Recibo Verde on Portal das Finanças. But 23% is the default, and for most freelancers it's the right choice.
Other rates exist for specific income types:
- 16.5% for intellectual property (royalties, licensing)
- 11.5% for certain regulated professions (architects, doctors, engineers, and others listed in the IRS code)
These rates are set by law and can change with annual budget legislation, so verify the current table each year. Source: OCC on OE2025.
When you're exempt
Two common exemptions exist:
- First year of activity: you can claim an exemption from withholding when you open your activity. Some freelancers qualify for an extension into the second year as well.
- Below the income threshold: if your gross income in the previous year was below €15,000, you're exempt from withholding for the current year (Art. 101-B CIRS).
In both cases, you must explicitly inform your client. Mark the exemption on your Recibo Verde or invoice, citing the relevant article of the IRS code. If you don't, the client will withhold by default, they're legally required to.
Foreign clients: no withholding
Retenção na fonte only applies when the payer is a Portuguese entity. Foreign clients pay the full invoice amount. You handle your income tax obligations through your annual IRS return instead.
This is one reason freelancers who work exclusively with foreign clients sometimes forget about withholding entirely, until they land a Portuguese client and suddenly receive less than expected.
The annual reconciliation
At tax time, all the amounts withheld throughout the year are credited against your total IRS liability. If the withholdings exceed what you owe, you get a refund. If they fall short, you pay the difference. Think of it as forced savings toward your tax bill, managed by your clients on your behalf.
Frequently asked questions
What is retenção na fonte?
Retenção na fonte means 'withholding at the source.' When a Portuguese business pays a solo entrepreneur for services, the business withholds a percentage of the payment as income tax (IRS) and sends it directly to the tax authority. The freelancer receives less than the invoiced amount, but the withheld amount counts as tax already paid when filing the annual IRS return.
What is the standard withholding rate for freelancers?
Since 1 January 2025, the standard rate is 23% for most services, reduced from 25% by the 2025 State Budget (OE2025, Lei 45-A/2024, Art. 101.º nº1 CIRS). Workers can opt to retain the higher 25% rate on a per-invoice basis if they prefer, but 23% is now the default. Other rates apply in specific cases: 16.5% for intellectual property income, and 11.5% for certain regulated professions listed in the IRS code. These rates can change with annual budget laws, so check the current year's table.
Can I avoid retenção na fonte?
Yes, in two situations. First, in your first year of activity (and sometimes the second), you can claim an exemption. Second, if your income in the previous year was below €15,000, you're exempt from withholding. In both cases, you must inform your client so they don't withhold.
Do foreign clients withhold retenção na fonte?
No. Only Portuguese entities (businesses and public bodies) are obligated to withhold. When you invoice a client in Germany, France, or any other country, they pay you the full amount. You'll settle your income tax through your annual IRS return instead.
Where do I indicate retenção na fonte on my invoice?
When issuing a Recibo Verde on the Portal das Finanças, there's a specific field asking whether withholding applies and at what rate. In certified invoicing software, you include the withholding rate and amount as a separate line. The invoice total shows the gross amount, and the withholding is deducted to show what the client actually pays you.
Related terms
A percentage of income tax that Portuguese businesses deduct from payments to freelancers and send directly to the tax authority, 23% standard since 2025 (reduced from 25% by OE2025).
Recibo VerdeGreen ReceiptA combined invoice-receipt (fatura-recibo) issued by solo entrepreneurs in Portugal through the Portal das Finanças when they receive payment for services.
Trabalhador IndependenteSelf-Employed WorkerThe Portuguese term for an independent worker or sole entrepreneur, the equivalent of a freelancer or sole trader in other countries.
Regime SimplificadoRegime Simplificado de Tributação · Simplified Tax RegimePortugal's simplified tax regime for solo entrepreneurs and small businesses, where taxable income is calculated using fixed coefficients applied to gross revenue.