A “new normal” is emerging and remote working will, for many people, be their default working arrangement. This paradigm shift entails several complex issues, as the Portuguese law and authorities may not accompany the pace of change of business and technology.
The spread of COVID-19 has forced governments to restrict international travel. As a result of these restrictions, many employees are unable to perform their activities in their country of employment and are performing their duties in Portugal, without being residents for tax purposes.
From the tax perspective, the Portuguese Tax Authorities remain (almost) silent, even though remote working already has a wider use and should remain so in the postCOVID-19 era. The topic is quite relevant as, similarly to most tax systems, under Portuguese domestic tax law, an individual should be deemed a resident for tax purposes in Portugal, especially if he/she is physically present in Portugal for more than 183 days per each twelve-month period. Thus, if employees reach this threshold, they may be subject to Personal Income Tax (“PIT”) on a worldwide basis. Despite the remarks made by the OECD on this matter during the widespread lockdown, according to which “if a tax treaty is applicable, the person would not be a resident of that country for the purposes of the tax treaty”, we see it as highly unlikely that the Portuguese Tax Authorities would allow for an individual who spends more than 183 days in Portugal to be treated as a non-resident individual for PIT purposes.
On the other side of the coin, the employer entities may be faced with permanent establishment risks resulting from the activities performed by their employees abroad (if they do not only perform ancillary activities).
As regards social security, under Portuguese domestic law and EU Regulations, the relevant criterion to define where social security contributions should be paid is the place where the work is carried out. Therefore, individuals working in Portugal should be subject to Portuguese social security contributions, regardless of their country of residence. This means that, in the situations in which the employer does not have any presence in Portugal, practical payroll problems could arise, as the payment of the social security contributions must be ensured by the employer. Fortunately, for the time being, the pandemic has not increased any administrative burden for foreign entities with employees working in Portugal during the lockdown, as the Portuguese Social Security Authorities have issued guidelines exceptionally determining that travel restrictions resulting from the pandemic should not imply any change in the applicable social security framework.
Nonetheless, in the post-COVID-19 era and if remote working continues to increase, there will be challenging times ahead: as we stand right now, the social security legislation of the Country where the activity is performed shall prevail, which means that employers will either prepare to engage payroll services in the Country where their employees are performing their activity or delegate them to the local social security obligations. The alternative would be to establish a new rule, according to which the legislation of the Country where the employer is located should prevail over the legislation of the country where the activity is carried out. That might be a less burdensome alternative for employers but could also be less attractive to employees, who typically prefer to pay social security in the Country where they live, work and are more likely to retire. In any case, the “new normal” that COVID-19 has brought requires a thorough reassessment of these matters.
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