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When assessing Company profits, taxation occurs in a two-stage process: first, the Company pays Corporate Income Tax on its profits, then Shareholders pay Individual Income Tax on these distributed profits (now called dividends). This assessment procedure is called “economicdouble taxation. Almost all countries in the EU have adopted one of several methods to eliminate “economic” double taxation-some via the Company, some via the Individual. Regardless of the method, the end result should be the same: dividends reported by the Individual should be after the elimination of any “economic” double taxation.


Subsequently, on “in-bound” dividends (from other EU countries), “international” double taxation (two jurisdictions potentially taxing the same income source twice) is eliminated according to the rules of the respective Double Tax Convention (DTC).

Portuguese taxation of Dividends

Taxpayers with income from Capital (Category E) may be able to choose to aggregate with other income by ticking box 01 (Aggregate) in Table 8A of Annex J of the “IRS” income tax return. If you do not wish to exercise this option, you should select box 02 (Autonomous).

Aggregation of Exempt Income

A potential effect occurs when exempt income must be used to determine the final rate of taxation. Foreign income that is exempt from Portuguese assessment must be included to determine the tax rate for the remaining income. In other words, Portuguese taxation simply takes up where other income leaves off, often referred to as (top-slicing).

Autonomous reporting

When exercising the autonomous reporting option on dividends (codes E10 or E11) paid by a Portuguese resident entity or by another member state of the European Union, dividends are to be declared at 50% of their value as long as they fulfill the requirements and conditions established in Article 2 of Directive 90/435/EEC, of 23 July and paragraph 4 of article 40-A of the IRS Code.

Exception to the Rule

If a Portuguese resident taxpayer receives investment income from abroad that is tax exempt at source, the income becomes exclusively taxable in Portugal, the country of fiscal residency. This means that domestic rules of taxation will apply as long as they are in accordance with the Double Tax Treaty in force. In these circumstances, Portuguese Tax Authority will also apply autonomous assessment to any other income in Category E because Portuguese legislation does not contemplate different forms of taxation (aggregate vs autonomous) within the same income category.