25 Mar

Question we received:

"My employer is in the US and I receive W2 income (employment income) from that employer. Where do I pay tax?"

Answer:

Income tax

One general principle of international taxation is that you are normally taxed on your worldwide income in the country where you live. 

Another general principle is that employment income is sourced where the work is being physically done, unless you only work from a country that you don't live in for a relatively short period of time. The principle is coded into most double taxation treaties that Portugal is a party of.

For people whose employer is based in a country that has a double taxation treaty with Portugal, it is therefore possible to continue to work as an employee, but only if they travel back to the other country for work. Otherwise, if they are working remotely from Portugal, they must pay income tax in Portugal. For that to happen, their employers must register a branch in Portugal.

In many cases, both employer and employee "pretend" that the employment continues from the other country, but both employer and employees doing that are taking a risk of the Portuguese tax authorities looking to tax them. Portugal will in such a case not acknowledge taxes paid in the other country.

Social security 

The general rule of social security is that it is paid in the same place where employment is excercised and the coverage is also in the same place. 

However, some countries have social security agreements with each other, allowing for a concept of "temporary placement". Employees moving to another country for a limit time and can present evidence that this is the case could continue to pay, if an agreement is in place, social security in the other country.


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