The Portugal–Denmark double tax treaty: pensions, dividends, gains, residence

Residence (art. 4)

Denmark’s full liability (a home available, or six months’ stay) and Portugal’s residence (183 days or a habitual home) can overlap; the treaty settles it by permanent home, centre of vital interests, habitual abode and nationality. Giving up the Danish home — sale, or a lease of at least three years — is what moves the permanent home to Portugal in the eyes of both administrations.

• 10 % on dividends, interest and royalties at source
• Pensions: social-security pensions and tax-relieved pensions may be taxed in Denmark; Portugal credits
• Property taxed where it stands; other gains where the seller lives — after the Danish exit tax
• Credit method in both countries (art. 23)

Article 18, read closely

1. Social security payments — folkepension, ATP, disability and similar benefits under Danish legislation — may be taxed in Denmark.
2. Other pensions paid from Denmark to a resident of Portugal are taxable only in Portugal — unless (a) the pensioner’s contributions were deducted from taxable income in Denmark, or (b) the employer’s contributions were not taxed as the pensioner’s income in Denmark. In either case Denmark may tax the pension.
3. A pension arises in Denmark when paid by a pension fund or institution established and tax-recognised there.

Since Danish pension schemes — ratepension, livrente, aldersopsparing paid from deductible or employer contributions — meet (a) or (b), Denmark keeps the right to tax nearly every Danish pension of a Portuguese resident. Portugal taxes the same pension at the progressive rates after the 4 587 € deduction and credits the Danish tax up to the Portuguese tax on that income. The pensioner ends up paying the higher of the two.

Government pensions (art. 19) for public service are taxable only in Denmark.

Dividends, interest, royalties (art. 10–12)

Source tax capped at 10 % on each. Denmark withholds 27 % on dividends and refunds down to 10 % on a claim with a Portuguese residence certificate; Portugal’s 28 % on dividends and interest to a Danish resident falls to 10 % on form Modelo 21-RFI. The residence state taxes in full and credits the 10 %.

Capital gains (art. 13)

Gains on immovable property, and on shares deriving their value mainly from immovable property, are taxable where the property is; other gains only in the residence state. Denmark’s exit tax on shares worth DKK 100 000 or more at departure operates before the treaty: the gain to the departure date is Danish, deferred on request for a move within the EU and collected as the shares are sold; Portugal taxes the gain from the original cost at 28 % on the actual sale and grants no credit for the deferred Danish tax.

Employment and business (art. 5, 7, 15)

Salaries are taxed where the work is done, with the 183-day exception for short assignments paid by a non-resident employer. A Danish company has a permanent establishment in Portugal through a fixed place of business, a building site of more than twelve months or a dependent agent, and is taxed here on the profit attributed to it.

Relief (art. 23)

Both states use the credit method. Portugal deducts the Danish tax on income Denmark may tax, within the Portuguese tax on that income and the treaty limit (IRS Code, art. 81.º). Denmark credits Portuguese tax on Portuguese-source income of its residents.

Using the treaty

Questions