You can owe tax in a country you never incorporated in
One salesperson closing deals, one warehouse holding stock for delivery, one project that ran two months longer than planned. Each is a named category in article 5 of the Portuguese corporate tax code, and none of them requires a company, an office lease or a decision by anyone at head office. The tests are specific and checkable. Most of them are also shorter than people assume.
Portugal legislated the new rule and blocked it in its treaties
This is the part we did not expect to find, and it explains why advice on this subject contradicts itself so often.
Lei 75-B/2020 rewrote article 5.º(6), and since 2021 a permanent establishment arises where a person habitually plays a determining role leading to the conclusion of contracts by the enterprise, routinely and without substantial modification. The commissionnaire structure and the no-signing-authority defence both stopped working, domestically.
Wide, and deliberately soThe Multilateral Instrument was the mechanism for pushing that same test into existing tax treaties. Portugal’s deposited position reserves the right for the entirety of article 12 not to apply to its covered tax agreements. So the treaties largely kept the pre-BEPS wording, which requires authority to conclude contracts in the name of the enterprise.
Narrow, and also deliberateA company resident in a treaty country generally gets the narrower agency test its treaty contains, because a treaty limits what Portugal may tax. A company resident somewhere with no Portuguese treaty gets article 5.º(6)(b) in full. Identical salespeople, identical conduct, different liability.
Residence decides which rulebook appliesThe reservation is to the MLI, not to bilateral negotiation. A particular treaty may have been renegotiated with the newer wording, and some treaties contain service-PE clauses the OECD model has never had. The reservation tells you the default, not your answer.
The default is not the answerWhat are you actually doing in the country?
Pick the activity and the verdict names the article, the threshold and what a treaty does to it. The day slider only matters for the three tests that count days, and it says so when it does not.
1Which of these best describes what your company does in Portugal?
2Is your company resident in a country with a Portuguese tax treaty?
Counted cumulatively, not consecutively. Separate visits and separate projects add together.
Answer both questions and the verdict appears here, naming the paragraph of article 5.º it rests on. The second question changes the answer more than people expect, for the reason set out above.
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Indicative, not advice. The branches follow article 5.º of the Código do IRC in its current wording and Portugal’s deposited position under the Multilateral Instrument. Real cases turn on facts this tool does not ask about, and the treaty layer is specific to your country. This narrows the question; it does not answer it.
Three thresholds shorter than the model treaty
The OECD model is the reference point most foreign advisers carry in their heads. Portuguese domestic law departs from it in three places, all downward.
| Activity | OECD model | Portuguese domestic law | Where it bites |
|---|---|---|---|
| Construction site | 12 months | 6 months, art. 5.º(3)(a) | Projects of seven to eleven months |
| Services and consultancy | No such clause | 183 days / 12 months, art. 5.º(3)(c) | Fly-in-fly-out delivery teams |
| Resource installations | Covered by the 12-month site rule | 90 days, art. 5.º(3)(b) | Short survey and prospecting work |
| Stock held for delivery | Option A removes it | Always a PE, art. 5.º(6)(c) | Third-party fulfilment centres |
Domestic thresholds apply in full where no treaty covers the company. Where a treaty applies, the treaty’s own definition generally governs, because a treaty restricts Portugal’s taxing rights rather than creating them.
The construction line is the one that costs real money, because projects slip. Article 5.º(4) is unforgiving about it: the clock starts with preparatory works, runs per site, and temporary interruptions are expressly irrelevant. A job quoted at five months that stops for the summer and finishes in month eight has been a permanent establishment since month seven, whatever the contract says.
“Preparatory or auxiliary” is narrower than it reads
- Facilities used solely to store or display goods
- Stock held solely for storage, display, or processing by another enterprise
- A fixed place kept solely to purchase goods or collect information
- Any other genuinely preparatory or auxiliary activity, and combinations of the above
- Paragraph 8 opens with a reservation for paragraph 3 — construction, resources and services are never auxiliary
- Article 5.º(9): complementary activities forming a cohesive business operation, by you or a closely related enterprise, at one place or several
- Article 5.º(10): closely related means control, or more than 50% of votes and value, directly or indirectly, including via a common parent
- Article 5.º(6)(c): stock for delivery is caught whatever else is true
The anti-fragmentation rule in paragraph 9 is the one that ends a whole category of planning. Splitting an operation so that each piece looks auxiliary — a storage company here, a marketing company there — is exactly what it was written to catch. It looks at the combination of activities across related enterprises and separate locations, and asks whether the whole is preparatory. Usually it is not, because if it were, nobody would have built it.
What actually happens next
A permanent establishment is registered with the tax authority, obtains a Portuguese tax number and enters the system as a non-resident taxpayer with an establishment here. Registering late is a smaller problem than being found unregistered.
An annual Modelo 22 corporate tax return, accounting records that support the result, and the usual ancillary obligations. The establishment is taxed on the profit attributable to it, not on the group’s worldwide result.
Once existence is accepted, the fight moves to how much profit belongs here, on arm’s-length terms for the functions performed and risks borne. This is where most assessments are actually decided, and where contemporaneous documentation is worth more than argument.
A permanent establishment does not answer your employment or VAT position, which run on their own rules. People often discover all three at once, which is why the bill feels larger than the tax.
What we cannot tell you
No Portuguese article names home working. It falls back to the general test, and the answer turns on facts that reasonable people weigh differently: whether the company requires it, pays for it, has other premises, and how central the role is. Anyone selling you certainty here is selling you something else.
Facts, not a rulePortugal has a large treaty network and the articles are not uniform. Some contain service-PE clauses, some do not; construction thresholds vary; a few have been renegotiated since BEPS. The only way to know is to read the one that covers you.
Read yours, not a summary of all of themArticle 5.º(7) requires the agent to act in the ordinary course of their own business and bear the entrepreneurial risk. Whether a distributor who sells only your products and carries no inventory risk clears that bar is a judgement, and it is the judgement most commonly made optimistically.
The risk test, not the labelWhich is the whole of the 183-day and six-month questions, and which you can establish from travel records today. Most businesses that cross these lines do so without ever counting.
Count before someone else does- CIRC, artigo 5.º — permanent establishment, in the wording of Lei 75-B/2020. Paragraph 1 (fixed installation); paragraph 2 (management, branch, office, factory, workshop, extraction sites); paragraph 3 (construction over six months; resource installations over ninety days; services including consultancy over 183 days in twelve months); paragraph 4 (counted per site, from preparatory works, interruptions irrelevant); paragraph 5 (subcontractors); paragraph 6 (agency, including the determining-role test and stock held for delivery); paragraph 7 (independent agent bearing entrepreneurial risk); paragraph 8 (preparatory and auxiliary exclusions); paragraph 9 (anti-fragmentation); paragraph 10 (closely related, the 50% test).
- Lei n.º 75-B/2020, de 31 de dezembro — the amendment that brought the BEPS Action 7 tests into article 5.º.
- Portugal’s position under the Multilateral Instrument, deposited with the OECD — reserving the right for the entirety of article 12, on commissionnaire arrangements and similar strategies, not to apply to its covered tax agreements.
What companies ask when the letter arrives
What is a permanent establishment?
A taxable presence in a country where you have not incorporated anything. Portuguese law defines it in article 5 of the corporate tax code as a fixed installation through which a commercial, industrial or agricultural activity is carried on — and then adds several categories that need no fixed installation at all, including a 183-day service test and a dependent-agent test. Once you have one, the profit attributable to it is taxed in Portugal.
Can one employee create a permanent establishment?
Yes, and it is the most common way it happens. Not usually because of where they sit, but because of what they do. If that person habitually plays a determining role in concluding contracts that the company then signs routinely and without substantial modification, article 5(6)(b) creates a permanent establishment — regardless of whether they have formal signing authority.
Does a home office create a permanent establishment?
Sometimes, and nobody can give you a clean rule. There is no article naming home working, so it falls back to the general test of a fixed installation at the enterprise’s disposal. An employee choosing to work from home with an office available elsewhere usually does not create one. A company with no other premises that requires home working, contributes to the cost and uses the address is on much weaker ground.
How long can a construction project run before it becomes taxable?
Six months under Portuguese domestic law — article 5(3)(a) — which is half the twelve months most tax treaties use. The clock runs per site, starts with preparatory works, and temporary interruptions do not reset it. A subcontractor who works on the site for more than six months has its own permanent establishment there.
What is the 183-day service rule?
Article 5(3)(c) creates a permanent establishment where an enterprise provides services, expressly including consultancy, through its own employees or people it contracts, for periods totalling more than 183 days in any twelve months beginning or ending in the tax period. There is no premises requirement and no agent. It is the provision foreign consultancies most often discover too late.
Does a warehouse create one?
Not if it is used solely to store or display goods — that is excluded by article 5(8). But two rules narrow the escape sharply. Article 5(6)(c) makes a stock held for delivery on the enterprise’s behalf a permanent establishment outright, even with no contracts involved. And article 5(9), the anti-fragmentation rule, switches off the exception where the enterprise or a closely related one carries on complementary activities forming a cohesive business operation.
Does a tax treaty protect me?
Often, because a treaty can restrict Portugal’s taxing rights but not extend them. Where your treaty has a narrower PE definition than Portuguese domestic law — a twelve-month construction threshold, no service PE clause, the older agency wording — the treaty governs. Which is why the same activity can be taxable for a company in one country and not for an identical company next door.
Did BEPS change the agency rules in Portugal?
In domestic law yes, in the treaties no, and that split is the most useful thing on this page. Lei 75-B/2020 wrote the BEPS Action 7 determining-role test into article 5(6)(b) with effect from 2021. But Portugal reserved the entirety of article 12 of the Multilateral Instrument, so the same change was not pushed into its tax treaties. A treaty-resident company often still faces the older, narrower test.
Tell us what your people do here, and where they are from
Those two facts decide most of it. We will read the treaty that actually covers you, count the days properly, and tell you whether you have an establishment, are close to having one, or have had one for a while. If it is the last of those, the conversation is about voluntary regularisation, which is a considerably better position than being found.