Withholding Tax
Retenção na Fonte
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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).
If you're freelancing in Portugal and you've just invoiced your first Portuguese client, you might be surprised when the payment arrives lighter than expected. That's withholding tax, called retenção na fonte in Portuguese, and it catches a lot of expat freelancers off guard.
How it works
When a Portuguese company pays you for services, they don't send you the full amount. They deduct a percentage and pay it directly to the tax authority (Autoridade Tributária) on your behalf. It's a prepayment of your annual income tax (IRS), not an extra charge.
Since 1 January 2025, the standard rate is 23%: reduced from 25% by the 2025 State Budget (OE2025, Lei 45-A/2024, Art. 101.º nº1 CIRS). For a 1,000-euro invoice at that rate:
- You receive 770 euros from the client
- The client sends 230 euros to the tax authority
- At year-end, that 230 euros is credited against your IRS bill
Workers can opt to retain the higher 25% rate on a per-invoice basis when issuing their Recibo Verde on Portal das Finanças, useful if you'd prefer a larger prepayment to reduce a potential year-end tax bill. But 23% is the default. Source: OCC on OE2025.
The rates
| Rate | Applies to |
|---|---|
| 23% | Most service activities (standard since 2025) |
| 25% | Optional: worker can request this rate instead |
| 16.5% | Intellectual property, royalties |
| 11.5% | Certain regulated professions |
Your rate depends on your activity code and the current year's tax legislation.
Only Portuguese clients withhold
This is the key detail that confuses many expat freelancers: withholding tax only applies when your client is a Portuguese entity. A company in Berlin, Amsterdam, or New York pays you the full invoice amount. No deduction, no withholding.
The obligation sits with the payer, not with you. Portuguese businesses are legally required to withhold, it's their compliance duty, not yours.
Exemptions you should know about
You don't always have to deal with withholding:
- First year of activity: new freelancers can claim an exemption when they register their activity at Finanças
- Below the income threshold: if you earned less than €15,000 in the previous year, you qualify for an exemption (Art. 101-B CIRS)
In both cases, you need to tell your client and mark the exemption on your Recibo Verde or invoice with the relevant legal article. If you forget, the client will withhold anyway.
Year-end reconciliation
Everything balances out when you file your annual IRS return. The total withholdings from all your Portuguese clients are summed up and subtracted from your tax liability. Overpaid? You get a refund. Underpaid? You pay the difference. It's essentially a forced instalment plan for your income tax, managed by your clients throughout the year.
For the full Portuguese-language breakdown, see the retenção na fonte entry.
Frequently asked questions
What is withholding tax for freelancers in Portugal?
When a Portuguese business pays a freelancer for services, the business withholds a percentage of the payment and sends it to the tax authority as a prepayment of the freelancer's income tax (IRS). The freelancer receives less than the invoice amount, but the withheld amount is credited against their annual tax bill.
How much withholding tax will my Portuguese client deduct?
Since 1 January 2025, the standard rate is 23% for most service activities, reduced from 25% by the 2025 State Budget (OE2025, Lei 45-A/2024). Workers can opt to retain the higher 25% rate on a per-invoice basis if they prefer, but 23% is now the default. Lower rates apply in some cases: 16.5% for intellectual property income and 11.5% for certain regulated professions. The exact rate depends on your activity code (CAE/CIRS) and current legislation.
Do I pay withholding tax when invoicing foreign clients?
No. Withholding tax (retenção na fonte) only applies when the payer is a Portuguese entity. Foreign clients pay the full invoice amount. You settle your income tax through your annual IRS return.
Can I be exempt from withholding tax in Portugal?
Yes. You're exempt in your first year of activity, and you can also be exempt if your income in the previous year was below €15,000 (Art. 101-B CIRS). You must inform your client about the exemption and cite the relevant article on your invoice.
Is withholding tax an extra tax on top of my income tax?
No. It's not an additional tax, it's a prepayment of your annual income tax (IRS), collected in instalments by your clients throughout the year. When you file your annual return, the withheld amounts are credited against your total tax liability. If too much was withheld, you get a refund.
Related terms
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.
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.