Working in Portugal: issues for UK employers to consider

Employment rights

Permanent workers based in Portugal will be normally entitled to the benefit of Portuguese employment law, regardless of whether they have an English law contract or a contract that is expressly subject to Portuguese law. In exceptional cases, where it appears from the circumstances as a whole that the contract is more closely connected with a country other than Portugal, the law of such country may apply, displacing Portuguese employment law.

Many of the protections conferred by Portuguese law will be familiar to UK employers, since they derive from EU law – for example the laws on discrimination and working time.  However the elements of employment protection that derive solely from Portuguese local law are different, and in some important respects more generous to a worker than the corresponding rights under UK law. Notably, the Portuguese rules that apply to the termination of employment agreements are particularly rigid.

Assuming Portuguese law applies to the working relationship, it is unlikely that the worker would be able to bring proceedings in an English employment tribunal as the Portuguese employment courts will have jurisdiction in the event of a dispute.  However there may be some circumstances where such a claim may be possible – for example if the remote worker is a UK national, or there are additional factors connecting the employment to Britain, other than the mere fact of the employer being based in the UK.

Tax and social security

If the worker engaged is resident in Portugal, they will be subject to Portuguese individual income tax and social security contributions on their earnings, even though these are derived from a UK employer.  Income tax is payable at progressive rates of up to 48% (additionally, taxable income in excess of € 80,000 is subject to an additional rate of 2.5%, while taxable income in excess of € 250,000 is subject to a tax rate of 5%).  Employer and employee social security contributions are currently 23. 75% and 11% respectively.

Under the Portuguese tax special regime applicable to non-habitual residents, workers eligible for such regime can benefit from a special 20% flat rate on employment income sourced in Portuguese territory arising from high added-value activities of scientific, artistic or technical nature, for a period of 10 consecutive years.

The UK employer is therefore advised to appoint a payroll agent in Portugal to facilitate the appropriate deductions from the worker’s salary and to perform the respective payments to the Portuguese Tax Authorities and Social Security as well as to fulfil the relevant reporting obligations to the Portuguese Authorities.

Assuming the worker is not conducting any business on behalf of the employer in Portugal, and is simply working from home, the engagement of a sole remote worker is not likely to amount to the creation of a permanent establishment to tax purposes, which would trigger an obligation for the UK employer to pay Portuguese corporate income tax on the income it derives from any operations in Portugal, as well as having potential liabilities in relation to the Portuguese equivalent of VAT.

If the worker is moving from the UK, there is a possibility that for a least the first tax year, they may need be liable for tax in both jurisdictions.  Any adverse impact for the worker would however be alleviated by the UK/Portugal double taxation treaty (though it is necessary to apply in advance for treaty treatment to avoid the need to pay double tax up front).  The same may apply to social security contributions, though there are some exceptions for temporary employment arrangements (known as the “detached worker” provisions) under the UK/EU Trade and Cooperation Agreement, which would avoid the need for social security contributions to be paid in both the UK and Portugal.

Company law considerations

The arrangement envisaged above (ie the appointment of a single home-based worker) is not likely to result in a requirement for the UK employer to register with the Portuguese authorities as an overseas corporate entity.

However the position may be different if the worker is conducting any business on behalf of the employer in Portugal, if more than one worker is involved, or if any office or other facilities were to be made available for them to use.

Immigration

Provided the worker is EU national, there will be no requirement to obtain a visa or work permit.

However if the worker is a UK national they would need to comply with Portuguese immigration rules, unless they were already resident in Portugal as at 31 December 2020.  The UK/EU Trade and Cooperation Agreement does not

contain any provisions to facilitate new remote working arrangements of the kind envisaged by UK nationals.

Family regrouping, and performing specific job positions, are among the cases where a UK national may obtain a visa or work permit.

Further information

This is document is a very brief summary of complex legal provisions.  Specific advice should always be sought, based on your organisation’s precise situation.

For advice on Portuguese law please contact Porfírio Moreira, Corporate & Employment partner at Cardigos.