Residence (art. 4)
A person resident in both countries — Iceland’s six-month or domicile test, Portugal’s 183 days or habitual home — is treaty-resident where the permanent home is, then where personal and economic relations are closer, then where they habitually live, then by nationality, then by agreement between the two administrations.
- 15 % on dividends, 10 % for a company holding 25 % for two years; 10 % on interest and royalties
- Pensions taxable only in the residence state; public-service pensions in the paying state
- Property taxed where it stands; other gains where the seller lives
- Credit in both countries (art. 23)
Income by income
| Income | Taxed in | Source ceiling |
|---|---|---|
| Employment (art. 15) | where the work is done; residence state only if under 183 days and paid by a non-resident employer without a permanent establishment | — |
| Business profits (art. 7) | residence state unless a permanent establishment exists in the other | — |
| Dividends (art. 10) | both; source limited | 15 %, or 10 % for a company holding 25 % of the payer for two years |
| Interest (art. 11) | both; source limited | 10 % |
| Royalties (art. 12) | both; source limited | 10 % |
| Rents and gains on property (art. 6, 13) | where the property is | — |
| Gains on shares and other assets (art. 13) | residence state only | — |
| Pensions for past employment (art. 18) | residence state only | — |
| Public-service salaries and pensions (art. 19) | the paying state, unless the recipient is resident and national of the other | — |
| Other income (art. 21) | residence state | — |
Pensions in practice
An Icelander resident in Portugal declares Icelandic pension-fund payments and the state pension from Tryggingastofnun in Portugal at the progressive rates after the 4 587 € deduction; Iceland stops withholding on a Portuguese residence certificate. A pension for service to the Icelandic state or a municipality stays Icelandic and is exempt in Portugal with progression — unless the pensioner holds Portuguese nationality and lives here, in which case Portugal taxes it.
Relief (art. 23)
Both states credit: Portugal deducts the Icelandic tax paid on income the treaty lets Iceland tax, up to the Portuguese tax on that income and up to the treaty rate (IRS Code, art. 81.º); Iceland credits Portuguese tax on Portuguese-source income of its residents.
Using the treaty
Residence certificate
Portugal: online at Finanças. Iceland: from Skatturinn for Portuguese-source income of an Icelandic resident.
Reduced withholding
Portugal: Modelo 21-RFI to the payer. Iceland: application for treaty relief with Skatturinn (form RSK 5.42) for dividends, interest and pensions.
Declare at home
Portuguese annex J with each Icelandic item and the Icelandic tax within the treaty rate.
Disputes
Mutual agreement procedure through the residence state's competent authority.
We obtain the certificates, file the treaty forms on the Portuguese side and compute the credit in the return. Ask about your case.
Questions
Are Icelandic pension-fund lump sums covered by article 18?
Payments "in consequence of past employment" are, whether periodic or not; Portugal taxes them as pension income with the capital component excluded where contributions were already taxed — mandatory Icelandic contributions were deductible, so the exclusion is small.
I keep a flat in Reykjavík and let it. Who taxes the rent?
Iceland first (art. 6), at its capital-income rate on rent with the 25 % allowance; then Portugal at 25 % or the progressive rates, with credit for the Icelandic tax.
Does the treaty shorten anything for share gains?
Gains on shares are taxable only where the seller lives: an Icelander resident in Portugal pays 28 % here (less after two, five or eight years for listed securities) and nothing in Iceland, which has no exit or extended-liability rule for former residents.
Sources and official references
- Diário da República — Convention between Portugal and Iceland (Res. AR 16/2002; Aviso 48/2002; in force 11.4.2002, effects from 1.1.2003): art. 4, 10, 11, 12, 13, 15, 18, 19, 21, 23 — checked 18.9.2026
- Autoridade Tributária — treaty table 2026: Iceland (dividends 10 % m) / 15 %, interest 10 %, royalties 10 %) — checked 18.9.2026
- Skatturinn — dividends to non-resident companies: 20 % withholding, reduced under conventions — checked 18.9.2026
- Código do IRS, artigo 81.º — foreign tax credit within the treaty limits — checked 18.9.2026