Portugal provides for the following mechanisms for eliminating double taxation on income taxed at source in a foreign country:
a) Application of double taxation treaties (over 70 treaties signed by Portugal);
b) Unilateral tax credit for international economic double taxation, namely income tax paid abroad by the entity residing outside of Portuguese territory on profits/reserves distributed to the Portuguese company, provided that:
- the Portuguese company holds, directly or indirectly, a participation that is no less than 5% of the shareholder capital or the voting rights of the entity that distributes the profits/reserves; or
- this participation has been owned by the Portuguese company uninterruptedly for the 2 years preceding distribution, i.e. maintained during the time necessary to complete such a period;
- the associated entity does not reside in a tax haven.
c) Unilateral tax credit for international legal double taxation, applicable when the taxable amount includes income obtained abroad and income tax has been paid abroad on such income.
This tax credit shall be determined according to the country, taking into account the total income from each country, with the exception of income attributable to permanent establishments located outside Portugal, the deduction of which is calculated individually.
The deduction provided for can be made within the 5 taxation periods that follow.