Portugal: Constructing your tax obligations

Where a UK construction company sends workers to Portuguese construction sites, it is important to determine whether the company may create a permanent establishment in Portugal.

Helen Cowley Cassons

By Helen Cowley, tax partner at Cassons, part of the Baldwins Group

If such a taxable presence is created, business profits of the permanent establishment will be subject to Portuguese corporation tax. This typically occurs when construction projects continue for more than 12 months.

Portuguese payroll obligations however, can arise in a shorter timeframe because these obligations typically arise after employees have been on site for only 183 days in a calendar year. If that happens, the UK company will need to register for Portuguese payroll.

Under EC regulations, social security contributions (for example National Insurance contributions in the UK) are only payable in a single member state at any time. It may be possible to make an  application to claim ‘detachment’ so that the employee continues to be covered by the home country, the UK, for a period of up to two years. This essentially allows a continuation of UK NI contributions for the period of detachment instead of paying Portuguese social security taxes.

With employers’ social security taxes being around 10 per cent higher in Portugal, this could result in a significant cost saving for the company.

The social security position post-Brexit remains to be confirmed.

In an ‘ideal world’ one would hope for a new agreement to be reached before March 29 next year. However, in light of the current uncertainty surrounding trade negotiations, the historic social security reciprocal agreement with Portugal may revert. If you’re considering sending workers to Portugal, it’s essential you seek tax advice in both the UK and Portugal.