Portugal-United States: what you really need to know

Portugal and the United States have had a Double Taxation Convention in place since 1996. The objective is simple and essential for those who live in one country and receive income from the other: to avoid paying tax twice for the same income.

This agreement sets out clear rules on how they are taxed:

• U.S. Pensions (Social Security, 401(k), IRA, Private Funds)

• Wages and income from work

• Dividends, interest and royalties

• Business income

• Real estate and capital gains located in the USA

⚖️ How the treaty avoids paying tax twice

The Convention uses two main mechanisms:

1️⃣ Tax Credit

Portugal allows you to deduct the tax paid in the USA from the IRS due in Portugal.

2️⃣ Exemption with progressivity

Some income is exempt in Portugal, but influences the rate applicable to the remaining income.

📌 Practical examples

✔ American pensions

• Social Security: Taxed exclusively in the US.

• 401(k), IRA, and private pensions: can be taxed in the U.S.; Portugal recognizes this tax.

✔ Salaries

If the work is performed in the U.S., the tax may be due there. Portugal avoids double taxation through tax credit.

✔ Dividends, interest and royalties

The treaty limits the withholding tax applied by the US, reducing the anticipated tax burden.

✔ Real Estate in the USA

Exclusive taxation in the USA. Portugal applies exemption progressively.

⚠️ Important Note

Every tax situation has nuances — residence, type of income, source of funds — so this text is informative and not a substitute for expert advice.