Payroll + Pensions – New withholding model Portugal

WHAT IS IT? WHAT IS ITS PURPOSE?

• The Government has recently approved (see here) a new withholding tax model for income from employment and pensions paid to resident taxpayers.

• Contrary to the previous model – which followed the logic of single rate brackets applicable to the totality of the monthly income (holiday and Christmas subsidies being considered as autonomous months) – the new model follows a logic of marginal rates.

• The idea is (i) to bring the withholding tax closer to the IRS effectively due at the end and (ii) to avoid that increases in the gross monthly remuneration correspond to decreases in the net monthly remuneration.

HOW DOES IT APPLY?

• The calculation formula is simple*:
  (Monthly remuneration x maximum marginal rate) – Portion to be deducted – (Additional portion to be deducted per child x number of children)
  

• Let’s look at an example for a monthly salary of €2,500 of a married worker, two holders, with two children:

• The same example in the old model would give the following withholding tax:

*This value cannot be less than zero.

FROM WHEN DOES IT APPLY? HOW SHOULD I PREPARE MYSELF?

• The new withholding tax model applies to income from dependent employment and pensions paid or made available to resident taxpayers from 1 July 2023.

• As the new model uses the same information regarding the worker’s family situation as the previous model, companies do not need to collect new data, but only need to confirm that they have updated it and that the payroll software used will be duly updated to comply with this new withholding model from 1 July 2023.

• The other reporting obligations (namely the monthly submission of the DMR) remain unchanged.

ARE THERE ANY NEW SPECIAL RULES I SHOULD BE AWARE OF?

• Yes, there are (at least) two special withholding tax regimes that are worth noting:

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