New Portugal and the United Kingdom Double Taxation Agreement and Tax Information Exchange Agreement
Portugal-UK Double Taxation & Tax Information Exchange Agreements
As of 1 January 2026, a new tax framework governs cross-border relations between Portugal and the United Kingdom. Replacing the 1968 treaty, the new Double Taxation Convention and Tax Information Exchange Agreement introduce modernised rules on dividends, capital gains, interest and other income streams, significantly impacting individuals and corporate groups with cross-border exposure.
As of 1 January 2026, the new Double Taxation Convention (DTC) and the Agreement on the Exchange of Tax Information between Portugal and the United Kingdom have officially entered into force.
This new legal framework, ratified in late 2025, replaces the outdated 1968 treaty. For investors, companies, and residents with cross-border interests, 2026 marks the beginning of a modernized era characterized by greater legal certainty and enhanced tax efficiency.
Below, we highlight the most critical technical developments that individuals and corporate groups must consider for the 2026 tax year.
Key Changes Now in Effect
Persons covered
Under the previous convention, the opening provisions merely established that the agreement applied to residents of one or both Contracting States.
The new Convention introduces an additional clarification, expressly stating that nothing in the Convention prevents a Contracting State from taxing its own residents, except where specific treaty benefits are expressly granted.
Dividends
Two significant changes were introduced in relation to dividends.
- Full Exemption: Dividends paid to a parent company (holding at least 10% of the capital for an uninterrupted period of one year) are now exempt from withholding tax in the source state.
- General Rate: In all other cases, the general withholding tax rate has been reduced from 15% to 10%.
Income related to immovable property and capital gains
A specific provision was introduced to address situations involving investment vehicles exempt from taxation in one State where dividends are effectively funded by income derived from real estate property.
In addition, with respect to capital gains, the new Convention introduces a robust "look-through" rule to address the indirect transfer of real estate.
CapitalGains derived by a resident of one Contracting State from the alienation of in a company resident in the other State may be taxed in that other State where, at any time during the 365 days preceding the alienation, if more than 50% of the value derives, directly or indirectly, from property situated in that other State.
Interest
Interest arising in a Contracting State may not be taxed at a rate exceeding 5% of the gross amount of the interest where the beneficial owner is a bank resident in the other Contracting State. Under the previous Convention, the applicable rate was 10%.
Furthermore, interest paid by a Contracting State is taxable exclusively in the other Contracting State where the beneficial owner is a governmental entity, including political or administrative subdivisions, local authorities or the central bank of that other State.
Royalties
The 5% withholding tax rate on royalties is maintained. However, the new Convention now expressly refers to the beneficial owner of the royalties, rather than merely the resident, aligning the provision with modern treaty standards.
In addition, income derived from the use of industrial, commercial or scientific equipment has been expressly excluded from the definition of royalties.
Independent personal services
In line with the changes introduced to the OECD Model Convention, the specific article governing independent personal services has been eliminated. Income of this nature now falls under the general rules applicable to business profits.
Other income and trusts payments
While the general rule remains that income not expressly covered by the Convention is taxable only in the State of residence of the beneficial owner, a specific exception was introduced in respect of trust-related income.
This applies where payments are made by trustees or personal representatives administering estates who are resident in the United Kingdom to a resident of Portugal.
Final remarks and conclusions
This insight provides a general overview of the main changes introduced by the new Double Taxation Agreement between Portugal and the United Kingdom. While the Convention introduces greater clarity and modernisation, its practical application depends on the specific facts of each case, including the nature of the income, the residence status of the parties involved and the underlying legal and economic structure.
Accordingly, the application of the new treaty rules should always be assessed on a case-by-case basis, particularly in cross-border situations involving complex income streams or holding structures.
At LVP Advogados, we regularly assist individuals and companies in analysing cross-border income, applying double taxation agreements and structuring international activities in compliance with domestic and international tax rules. This insight does not replace individualised legal or tax advice, which remains essential in an increasingly complex international tax environment.
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