You issued an invoice for €1,000 and the client company transferred €770. What happened to the other €230?
You didn’t make a mistake. It’s withholding tax (retenção na fonte) — and once you understand it, you’ll see you didn’t lose that money.
What is withholding tax?
Withholding tax is a mechanism by which the client company retains part of your fee and pays it directly to the tax authority (AT), on your behalf, as an advance on your IRS.
Here’s how it works:
- You issue an invoice for €1,000
- The company withholds 23% = €230
- Transfers €770 to you
- Pays the €230 to the tax authority on your behalf
Those €230 are a payment on account of your IRS — not an extra tax. They’re an advance on what you’ll owe at year-end.
When it applies and what rate
Withholding tax applies when:
- Your client is a company (legal entity with organised accounting)
- You provided services classified under Category B (independent work income)
If your client is an individual — there’s no withholding tax. You receive the full amount.
| Client type | Withholding |
|---|---|
| Portuguese company | Yes |
| Public entity | Yes |
| Private individual | No |
| Foreign company | Generally no |
Rates vary depending on your activity type (Article 101 of the IRS Code):
- 23% — professional activities listed in the Article 151 table (consultants, programmers, designers, trainers, engineers, etc.)
- 11.5% — other service provision not included in that table
What happens at year-end
In the annual IRS return, the tax authority calculates how much tax you owe based on your total income.
It then deducts what was already withheld throughout the year.
Example:
- Annual income: €30,000 (with 23% withholding applied)
- IRS calculated: €5,000
- Withholding paid during the year: €6,900 (23% × €30,000)
- Tax authority refunds: €1,900 (withholding exceeded calculated tax)
If the withheld amounts exceed the calculated tax — the tax authority refunds you the difference.
What you declare on your IRS
Important: on your annual IRS return, you declare the full amount you invoiced — not the net amount you received.
- Amount invoiced: €1,000
- Amount received: €770
- What you declare on IRS: €1,000
The €230 withheld appears as “tax already paid” and is deducted from what you owe. Companies are required to send you, by the end of January, an annual statement of the total withheld — you need this document to confirm the figures on your IRS return.
How it appears on the recibo verde
On your recibo verde, you must indicate that the amount is subject to withholding. The standard wording:
“Sujeito a retenção na fonte à taxa de 23%” (Subject to withholding tax at 23%)
The recibo verde system (on Portal das Finanças or via FIZ) handles this automatically when you select the right option.
When there’s NO withholding
There are situations where withholding doesn’t apply:
- Individual clients — never withhold
- Businesses without organised accounting — aren’t required to withhold (but most companies have it)
- Threshold waiver — if you expect to invoice under €15,000 this year and you didn’t reach that amount last year either, you can waive the withholding (Article 101.º-B of the CIRS): just pick the mention “Sem retenção, nos termos do n.º 1 do artigo 101.º-B do CIRS” when issuing the recibo. The waiver is optional and ends the month after you reach €15,000
Always confirm with your client whether they apply withholding — it’s their obligation, not yours, but worth checking.
What if the company didn’t withhold?
It happens: you issued the invoice, but the company transferred the full amount without withholding the 23%. Withholding is the client’s obligation, not yours — but the income is still yours and you must always declare it.
In practice, it’s no drama:
- On your IRS, you still declare the full invoiced amount — whether or not anything was withheld.
- If nothing was withheld during the year, you simply have no advance payments to deduct — you’ll pay the tax on your annual return (or through payments on account, if applicable).
- The key thing: set aside the tax portion as you get paid, so July doesn’t catch you off guard.
In other words, the company not withholding doesn’t hurt you — it just means the tax all falls due at year-end, instead of being paid in instalments.
Withholding: better or worse?
It depends on your profile:
Withholding works well if you:
- Prefer not to think about IRS throughout the year
- Tend to spend everything that comes in
- Want to avoid surprises at annual declaration time
Exemption from withholding is better if you:
- Are disciplined about setting aside tax money
- Need better monthly liquidity
- Expect to invoice under €15,000 this year and didn’t reach that amount last year (the Article 101.º-B conditions — you invoke the waiver via the mention on the recibo itself)
✅ In summary
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Withholding tax is not a loss — it’s an advance on your IRS. The client withholds 23% (for Article 151 activities) and pays it to the tax authority on your behalf. In the annual IRS return, that amount is deducted from what you owe — and if it exceeds the calculated tax, you get the difference back.
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It applies when the client is a company. Individual clients always pay the full invoice amount.
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With FIZ the recibo verde already includes the withholding indication automatically — and at year-end you have the total withheld consolidated, ready to reconcile with your IRS return.
