Finland terminated its tax treaty with Portugal on 14 June 2018. As Portugal did not approve the new tax treaty by the end of November, there will be no tax treaty in force between Finland and Portugal from 1 January 2019 onwards.
The main reason for terminating the tax treaty related to the personal income taxation of Finnish pensioners in Portugal.
However, the absence of the tax treaty will have a major effect on companies carrying on business between Finland and Portugal. The most significant changes include:
In practice, the tax burden of Finnish companies may increase significantly, if they receive payments from Portugal e.g. for management services or for project deliveries. Further, Portuguese companies carrying on business in Finland may become subject to Finnish corporate income taxation even if they carry on the activities only for a short period.
We recommend companies carrying on business between Finland and Portugal to review their transactions and agreements in place, as well as seek advice on whether the changes affect their business going forward.