Most guides to the Portugal–United States treaty list three numbers — 15%, 10%, 10% — and stop. Article 17 of the same treaty decides who is allowed to use them, and a great many Portuguese companies with foreign owners are not. One category is excluded by name.
Work down the gate below in order. The first test you pass is the one you rely on, and the rate board underneath rewrites itself the moment the gate closes.
Article 17(6) denies the benefits of the Convention to any person entitled to the income tax benefits of the “tax-free zones (zonas francas) of Madeira and Santa Maria Island”, and to benefits similar to them introduced afterwards.
Read that against the way Madeira is usually sold. A licensed company pays 5% corporate tax and then receives US royalties withheld at 30% rather than 10%, or US dividends at 30% rather than 15%. On a business whose revenue comes from American customers, that is a far larger number than the corporate saving, and it is not fixable by paperwork, because the exclusion is not a documentation failure.
If a meaningful share of your income is US-source and passive — licensing, royalties, interest, dividends from a US subsidiary — the Madeira free-zone licence and the United States treaty are alternatives. Choose one. An ordinary Portuguese company, mainland or Madeira, sits inside the treaty and can claim 10% where the free-zone company pays 30%.
Note the boundary carefully, because it is narrower than people assume in the other direction too. An ordinary company established in Madeira, paying the standing regional rate of 13.3% without any licence, is not caught by paragraph 6. The exclusion attaches to entitlement to the free-zone benefits, not to the island. We set out the difference between those two things in the piece on the licensing deadline.
The Protocol preserves each State’s right to tax its own residents, and the United States’ right to tax its citizens, as though the Convention had never entered into force. That is the saving clause, and it is why a US citizen living in Lisbon does not escape US filing by pointing at the treaty.
What removes the double tax is not the treaty’s allocation rules but the ordinary machinery: the foreign tax credit, or the foreign earned income exclusion, chosen deliberately rather than by default. The two interact badly if picked at random, and the right answer depends on Portuguese effective rates, which for a company owner are usually low enough to change the arithmetic. Social security is dealt with separately, by the totalisation agreement, which decides which system you pay into rather than splitting it.
Treaty relief is claimed in advance, in both directions, by different means.
The reduced dividend rate under this treaty is not the familiar one-year, ten-percent test. It requires a company holding at least 25% of the capital directly, for an uninterrupted two years before the payment. Below either threshold the rate is 15%.
Companies distribute in their first or second year, claim 5% because that is the number in the summary table they read, and create an underpayment that surfaces later with interest. If the two years are not complete, wait or accept 15% — and note that a corporate shareholder may reach zero by an entirely different route, through the domestic exemption rather than the treaty, which we cover in the piece on getting dividends out.
In roughly the order we encounter it: a free-zone company assuming treaty rates it is excluded from; a W-8BEN-E filed with the LOB line left blank or ticked at random; a 5% dividend claim in year one; a US customer treated as a permanent establishment risk when it is not, or a US salesperson creating one when everybody assumed it was not; and a 21-RFI requested the week of payment instead of the month before.
None of these is a clever planning question. All of them are expensive.
We work out which limb of Article 17 your structure reaches, whether the active trade or business route covers the income you care about, and what the answer costs if it is no. If the honest conclusion is that a Madeira licence and your US revenue do not belong together, you will hear that from us first rather than from a withholding agent.
Have the gate checked