In September 2025, Portugal and the United Kingdom signed a revised tax treaty to modernise cross-border taxation and improve legal certainty.
A New Chapter in UK-Portugal Tax Relations
The question many ask is how the UK-Portugal tax treaty affects individuals and businesses. The new agreement, signed in September 2025, replaces the post-Brexit framework and updates rules for both residents and companies operating between the two countries.
Its main objective is to prevent double taxation and strengthen transparency through a new information-exchange protocol. For British retirees, investors, and companies with interests in Portugal, the treaty provides greater clarity and predictability.
Avoiding Double Taxation: The Credit Method
Both countries apply the credit method to eliminate double taxation. This means that if tax is paid in one country, a credit can be claimed in the other.
For example, a British resident earning Portuguese rental income may deduct the Portuguese tax paid when declaring income in the UK. Likewise, a UK pensioner living in Portugal can avoid being taxed twice on the same income stream.
The treaty defines tax residence using clear “tie-breaker” criteria such as permanent home, centre of vital interests, habitual abode, and nationality. These rules ensure that each taxpayer is treated as resident in only one country for treaty purposes.
Benefits for British Expats in Portugal
British citizens who become tax residents in Portugal are taxed on their worldwide income. Tax rates are progressive, ranging from 13.25% to 48%, depending on total earnings.
However, under the UK-Portugal tax treaty, pensions, employment income, and investment returns can be relieved from double taxation through credits or exemptions. The treaty, therefore, supports long-term planning for retirees and professionals moving to Portugal.
Portugal continues to offer attractive residence options, including the D7 visa for retirees, the Digital Nomad visa, and the Golden Visa for investors. Spending more than 183 days per year in Portugal usually establishes tax residency.
Investor Advantages and Corporate Taxation
For British companies and investors, the treaty reinforces Portugal’s appeal as a gateway to the EU market. It provides clear rules on dividends, interest, and royalties, reducing withholding tax exposure.
Corporate tax in mainland Portugal is 20%, but reduced rates apply in the Autonomous Regions of Madeira and the Azores. Notwithstanding this, companies licensed under the Madeira International Business Centre (MIBC) regime benefit from a 5% corporate tax rate on qualifying income, provided substance requirements are met.
This preferential framework, combined with the UK-Portugal tax treaty, supports efficient group structuring, holding activities, and investment management across jurisdictions.
Exchange of Information and Compliance
Alongside the new treaty, Portugal and the UK signed an agreement for the exchange of privileged or confidential information. This strengthens cooperation between tax authorities, allowing faster verification of records and dispute resolution.
Furthermore, for international businesses and mobile professionals, this ensures higher compliance standards and reduced risk of inconsistent assessments. The exchange framework aligns both countries with OECD and EU transparency principles.
Broader Portuguese Tax Context
Portugal remains an attractive jurisdiction for both expats and investors. There is no general wealth tax, and the inheritance tax does not apply to direct family transfers. Property taxation remains municipal, with moderate IMI rates ranging from 0.3% to 0.45% for urban assets.
Therefore, individuals relocating to Madeira or the Portuguese mainland benefit from a stable fiscal environment, supported by an extensive network of double tax treaties and consistent administrative practice.
Conclusion
Given the above, the 2025 update to the UK-Portugal tax treaty marks a significant improvement in cross-border tax coordination. It ensures that individuals and companies avoid double taxation, strengthens transparency, and reinforces Portugal’s position as a trusted destination for British residents and investors.
Key Takeaways
Updated framework: The UK and Portugal signed a new double taxation treaty in September 2025.Double taxation relief: The credit method prevents income from being taxed twice.
- Expats benefit from pensions, salaries, and investment income, receiving protection and tax clarity.
- Investor appeal: The treaty, combined with Madeira’s 5% corporate tax rate, enhances Portugal’s competitiveness.
Planning to relocate or invest in Madeira?
Madeira Corporate Services assists UK nationals and international investors with tax planning, compliance, and structuring under Portuguese law. Our team ensures complete alignment with the UK-Portugal Double Taxation Treaty and local regulations.
Please feel free to contact us for personalised advice on tax residence, treaty relief, and corporate planning.
This article is for informational purposes only and does not constitute legal or tax advice. It reflects the legislation and treaty framework available at the time of writing and may be subject to change. Professional advice should always be sought before making decisions involving taxation or international residency. Madeira Corporate Services accepts no responsibility for losses resulting from reliance on this information.
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