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Portuguese agency deducts taxes even with VAT ID
Thread poster: Sprachfuchs

Sprachfuchs  Identity Verified
Germany
Local time: 17:20
Member (2010)
English to German
+ ...
Jul 6, 2011

Hello,

I've worked for an agency that is located in Portugal. I only did one small jobs for them but then decided to not work for them any longer as the rates are very low. After 60 days they finally paid me but deducted their tax of 21.5%.

As I pointed out that I do have a VAT ID they're telling me that I have to sign a Mod 21 Form that must be filled and certified by my local tax authorities.

I have never heard of that and I'm not seeing the point in doing so. Weeks later they even asked me for my passport number to keep their database updated!

I didn't charge them the taxes of my country, so why did they? Did anyone have the same problem or know a official site that I can send them to show them that they're wrong?


Thanks in advance!


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Teresa Borges
Portugal
Local time: 16:20
Member (2007)
English to Portuguese
+ ...
Yes Jul 6, 2011

I had the same problem last year with a Portuguese editorial company and this problem has been discussed here more than once. As far as I know it has nothing to do with VAT but with an international convention for the avoidance of double taxation signed between Portugal and Germany (and many other countries, Belgium included). You have to complete a form (Model 21 - RFI - Claim for total or partial exemption from withholding tax), available on the Internet http://info.portaldasfinancas.gov.pt/pt/apoio_contribuinte/modelos_formularios/double_tax_conventions/), and send it to the German fiscal authorities.

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Kirsten Bodart  Identity Verified
United Kingdom
Local time: 17:20
Dutch to English
+ ...
They are right Jul 6, 2011

If you earn in Portugal (the agency is so you are), you are liable for income tax (21.5%). However, you can be exempted by filling in and signing this form.

We have worked for a Portuguese agency, only a small job, but my PM sent me such a form straight away. It didn't help much, though, (to do with our work in Luxembourg and residence in Germany) so we decided to pay the tax and avoid working in Portugal for great amounts of money.

The Portuguese government even has the form in English, so no problem there either.

They should have informed you about this, though.


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Sprachfuchs  Identity Verified
Germany
Local time: 17:20
Member (2010)
English to German
+ ...
TOPIC STARTER
... Jul 6, 2011

They did, but I only filled it out and sent it by mail and as there was no answer from them it seemed ok to me.

Thanks for your help!


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Teresa Borges
Portugal
Local time: 16:20
Member (2007)
English to Portuguese
+ ...
On the same subject Jul 6, 2011

"1. The network of Double Taxation Conventions in respect of taxes on income (and in some cases on capital) comprises presently the Conventions concluded by Portugal with the following countries: Austria, Belgium, Brazil, Bulgaria, Czech Republic, Finland, France, Germany, Ireland, Italy, Mozambique, Norway, Poland,South Korea, Spain, Switzerland, the United Kingdom, the United States of America and Venezuela. A Convention with Denmark had also been in force until 31st December 1994. Portugal has also concluded within the scope of the European Union the so-called Arbitration Convention (Convention 90/436/EEC) on the elimination of double taxation in connection with the adjustment of profits of associated enterprises.
Expected to come briefly into force are the Conventions already concluded or signed, awaiting for the competent constitutional requirements for approval and entry into force to be fulfilled, in relation to the following countries: Algeria, Greece, Hungary, India, Pakistan, People's Republic of China and Ukrania.
There are negotiations presently in course with different countries with a view to the conclusion of tax Conventions with the following countries, inter alia: Cape Verde, Canada, China, India, Malta, Mauritius, Morocco, Romania, Singapore, South Africa and Tunisia."

http://www.gesbanha.pt/fisc/ptxsist/sis_fisc11.htm


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Teresa Borges
Portugal
Local time: 16:20
Member (2007)
English to Portuguese
+ ...
... Jul 6, 2011

Was the form stamped by the German fiscal authorities?

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Sprachfuchs  Identity Verified
Germany
Local time: 17:20
Member (2010)
English to German
+ ...
TOPIC STARTER
... Jul 6, 2011

No.... :-$

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Kirsten Bodart  Identity Verified
United Kingdom
Local time: 17:20
Dutch to English
+ ...
... Jul 6, 2011

I though it had to be stamped.

But more to the point: did you check they received it? If the Portuguese post is as good as the Belgian one, they are liable to have lost it and the Portuguese agency is not aware of any ill they may have committed as they just received nothing. It mostly gets to the border alright and then gets lost or something. Always check.

Maybe contact them and see whether they received it. Otherwise, for future purposes, get another one, fill it in, have it certified by the tax office and then send it by e-mail too.


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Teresa Borges
Portugal
Local time: 16:20
Member (2007)
English to Portuguese
+ ...
That is the problem! Jul 6, 2011

The form after being signed by you has to be stamped by the fiscal authorities to be of any validity...

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Michael Wetzel  Identity Verified
Germany
Local time: 17:20
German to English
Is this really so or a situation created by incompetent agencies? Jul 6, 2011

Hello,
This obviously seems to be a widespread practice, but is it an accurate reflection of the real legal situation in Portugal?

Has anyone questioned this and had the agencies back down?

Your invoice has the address of your business and also provides a VAT number, which demonstrates that your business is registered in Germany. Unless you have been hired as an employee, your work is not being done in Portugal: It is being done in Germany and has nothing to do with Portuguese income tax.

I suppose that it's possible that the Portuguese tax officials do not accept the address on an invoice or even a verified VAT number as proof that a company/ freelancer is located outside of Portugal, but that seems unlikely.

I would guess (and hope) that this is a matter of agencies either saving money by hiring cheap, incompetent tax consultants or not hiring any at all and then misunderstanding the regulations. Theoretically, they could also be pocketing the money: How can they pay taxes for someone who is neither registered as a resident nor as a non-resdident employee? Or do they send the withheld money back after they receive their tax return?

Sincerely,
Michael Wetzel


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Laurent KRAULAND  Identity Verified
France
Local time: 17:20
French to German
+ ...
Incompetent agencies Jul 6, 2011

If such agencies are incompetent, it is less because of the fiscal complexities than because of the fact they are unable to discuss such matters beforehand.

I for one would not start working for agencies located in EU countries who apply European laws differently from all other countries.


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Sandra Baptista  Identity Verified
Portugal
Local time: 16:20
Member (2005)
English to Portuguese
+ ...
... Jul 6, 2011

It does not make sense indeed. The tax withhold should only be applied if you work in Portugal for a Portuguese company, because it will then be deducted from the income tax you pay in Portugal. It is like paying income tax in advance. If you are in Germany, how can you deduct this income tax already paid? What will the Portuguese company do with it? Return it to the German authorities so they can deduct it from your income tax in Germany? I don't think so...

Some years ago I was working based on another EU country and did a job for a Portuguese company and they did not deduct that tax from my invoice.


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Tomás Cano Binder, BA, CT  Identity Verified
Spain
Local time: 17:20
Member (2005)
English to Spanish
+ ...
Terrified of Portuguese tax authorities? Jul 6, 2011

Michael Wetzel wrote:
I suppose that it's possible that the Portuguese tax officials do not accept the address on an invoice or even a verified VAT number as proof that a company/ freelancer is located outside of Portugal, but that seems unlikely.

To me it is more plausible that such Portuguese agencies are terrified of Portuguese tax officials and prefer to unlawfully retain an amount than having to spend time explaining things to the authorities.

In any case, this situation is completely crazy. I sincerely hope Spain does not become as bananas as Portugal in tax matters.


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Kirsten Bodart  Identity Verified
United Kingdom
Local time: 17:20
Dutch to English
+ ...
Services and residence Jul 6, 2011

Services in translation as far as I know are considered to have been rendered in the country where the agency is resident, not where the translator is physically. If the latter moves the whole time, it does not signify.

In most countries your income is taxable because you are resident, wherever that income is gained (e.g. Germany); in some countries the income gained in that particular country alone is taxable, even if you live abroad. This applies to Portugal and Luxembourg evidently. If I work for a Luxembourgish agency, I am taxable there for whatever I do in Luxemourg (teaching and translation), although I am living in Germany. The same applies to Portugal (apparently). You can be exempted from this tax (which is probably less advantageous in Luxembourg's case) by filling in this form and thus pay all your tax in your country of residence. To avoid trouble with the home tax office, most people then open a bank account in Portugal/Luxembourg. Although Germany, Belgium and France have a special agreement, as probably has Spain with Portugal because of the sheer amount of frontier workers.

However, as you have already paid income tax, your country of residence may not tax you again, as long as you can prove you have paid your tax, although whether they believe it, is another matter.

From the other side, it is easy to avoid paying tax in such countries as they can't care less about what goes into your bank account as long as it comes from outside their country (= not taxable). That is how most drug barons do their money laudring.

[Edited at 2011-07-06 18:50 GMT]


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Laurent KRAULAND  Identity Verified
France
Local time: 17:20
French to German
+ ...
On second thoughts... Jul 6, 2011

it is ridiculous or a nice try at retaining money.

Transactions between professionals are ALWAYS to be understood in amounts ex VAT, so how can anybody deduct taxes on an amount that is already tax-free?


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Portuguese agency deducts taxes even with VAT ID

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