If you own a business in Portugal, you may receive payment notices listing the government contributions due from your business. If you’ve ever wondered what each of these are, why the amounts change, or what it’s related to, this guide explains it all in plain English.
Use the links below to jump straight to the section you need, or read through from the start if you’d like the full picture.
In Portugal, when a company pays an employee’s salary, it is required by law to withhold a portion of that salary and pay it directly to the Portuguese Tax Authority (AT) on the employee’s behalf. This is called IRS withholding (retenção na fonte).
Think of it like this: instead of your employee receiving their full gross salary and then paying tax themselves at the end of the year, you deduct the tax upfront and send it to the government each month. Your employee receives their net (after-tax) pay.
The amount you see on your payment notice is the total IRS withheld from all your employees’ salaries that month.
Several things can cause this figure to change:
Social Security in Portugal is a contribution that funds things like sick pay, parental leave, unemployment benefits, and pensions. When you have employees, both you (the employer) and your employee contribute — and as the employer, you collect both amounts and send them together in a single monthly payment.
Here’s how it breaks down for most standard employment contracts:
The amount on your payment notice is this combined total — the employee’s 11% plus the company’s 23.75%.
The reasons are the same as for IRS withholding:
Withholding tax on supplier payments works similarly to payroll IRS — instead of the supplier receiving their full invoice amount and paying their own tax later, you deduct the tax upfront and pay it to the Tax Authority on their behalf.
This means:
The two most common situations you’ll encounter are:
Commercial rent — If your company rents office or commercial space from a private landlord, you are required to withhold tax from your monthly rent payment. For example, if your rent is €1,000 and the withholding rate is 25%, you pay your landlord €750 and send €250 to the Tax Authority.
Green receipt workers (recibos verdes) — When you pay an independent contractor or freelancer who issues recibos verdes (the Portuguese self-employment invoice system), you are generally required to withhold tax from their payment, typically at a rate of 25%.
This money was never yours to keep — it was always the supplier’s tax, deducted from what you owed them before you paid. You are simply acting as a collection agent for the Tax Authority. The payment notice you receive is the government asking you to forward that withheld amount.
If you’ve noticed that your IRS, Social Security, or Withholding Tax payments aren’t the same every month, that’s completely normal. These aren’t fixed fees — they’re calculated based on what actually happened that month in your business.
Here’s a summary of the most common reasons things change:
Your workforce changed
Adding a new employee increases both your IRS and Social Security payments. An employee leaving reduces them.
An employee was on sick or unpaid leave
Sick leave and unpaid leave reduce (or eliminate) the salary paid that month, which means less IRS withheld and lower Social Security contributions.
It’s the month you paid holiday or Christmas bonuses
Portuguese law requires employers to pay a holiday bonus (subsídio de férias) and a Christmas bonus (subsídio de Natal) each year. These are paid separately from the regular monthly salary, and both IRS and Social Security are calculated on them. This means you’ll typically see higher payments in the months these bonuses are paid — often around June and November or December.
An employee’s salary or personal situation changed
A pay rise, or a change in an employee’s personal circumstances (such as having a child), can affect the withholding rate applied to their salary.
You made a new payment to a landlord or green receipt supplier
Withholding tax only appears when you make a qualifying payment — if you didn’t pay rent or a freelancer that month, there’s nothing to withhold. Equally, paying a new supplier or landlord will increase this amount.
A payment amount changed
If your rent increased, or you paid a contractor more or less than usual, the withheld amount changes with it.
In short: these payments are a reflection of your business activity. They’re not set in stone, and fluctuations are expected. If you ever see an amount that surprises you, feel free to reach out and we’ll walk you through it.