A foreign company doing construction or installation work in Portugal for more than six months can become tax-liable there through a permanent establishment.
What it means
A permanent establishment is a tax concept. It means a foreign company's presence in Portugal becomes significant enough that Portugal can tax the profits linked to that presence, even though the company is not based there. For construction and installation work, Portuguese domestic law sets a default threshold: a site running for more than six months.
When it applies
The six-month clock runs from the first real activity on the site. This can include preparatory work, such as mobilisation or setting out measurements, and not only the main construction work. Short pauses in the work do not stop the clock. Each site is counted on its own, and a subcontractor on the same site is assessed separately from the main contractor.
How it works
A tax treaty between Portugal and the company's home country can set a different threshold, and where one exists, it takes precedence over the six-month domestic rule. Some treaties use a longer period, others use different conditions. Whether a specific project actually crosses the threshold always depends on the facts and the relevant treaty, so this needs checking case by case.
What to watch out for
It is easy to assume six months is a fixed, universal rule. It is only the domestic default, and a treaty can change the outcome for a given company. Once a site is treated as a permanent establishment, the way payments to the company are taxed also changes, so it is worth checking the position before the six-month mark, not after.
Six months is the domestic default. A tax treaty between Portugal and the company's home country can set a different threshold and comes first when one applies.