Ana sent a €1,000 invoice to a company client. When the payment arrived, it was €770. No bank error. No mistake. It was retenção na fonte — withholding tax — and Ana had no idea what it meant.
If you have ever been confused by the gap between what you invoiced and what you received, this article is for you.
What withholding tax is
Withholding tax (retenção na fonte) is a mechanism by which your client — when it is a company — retains a percentage of the invoice amount and pays it directly to the state as an advance on your IRS.
Instead of paying all your income tax in one go when you file your annual declaration, you pay it in instalments throughout the year, as you issue invoices. The company does the paperwork for you.
The essential point: it is not lost money. It is your tax, paid early. When you file your annual IRS declaration, that withheld amount is credited — and if more was withheld than you actually owe, you receive the difference back as a refund.
The rate and when it applies
The withholding tax rate for resident independent workers is 23% (Article 101 of the CIRS).
But withholding only applies when the client is a company or public entity. If you work for a private individual, there is no withholding — you receive the full invoice amount.
| Client type | Withholding |
|---|---|
| Portuguese company | Yes — 23% |
| Public entity | Yes — 23% |
| Private individual | No |
| Foreign company | Generally no |
Concrete example:
- Sofia does a design project for a company and invoices €1,000
- The company withholds 23% = €230
- Sofia receives €770
- The €230 goes to the tax authority in Sofia’s name, as an IRS advance payment
What you declare on your IRS
Important: on your annual IRS declaration, 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. The result can be a smaller final bill — or even a refund.
How it appears on the invoice
When you issue an invoice (recibo verde), there is a specific field to indicate whether withholding applies and at what rate. The invoice clearly shows:
- Value of services
- Withholding tax (amount retained)
- Amount payable (net amount)
Always keep the supporting documents. Companies are required to send you an annual statement of total withheld amounts — you will need this document for your IRS declaration.
You can request an exemption
If you use organised accounting (contabilidade organizada), you can apply for an exemption from withholding through the Finance Portal. In that case, you receive the full invoice amount and manage your own IRS payments.
The advantage: better monthly cash flow. The trade-off: you need to be disciplined about setting aside the tax money — because the bill arrives in July.
Is 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 is better if you:
- Are disciplined about setting aside tax money
- Need better monthly liquidity
- Use organised accounting
✅ In summary
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Withholding tax is an IRS advance payment — the company retains 23% of your invoice and pays it to the state on your behalf. It is not lost money: it is credited in your annual declaration and can result in a refund.
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It only applies to company clients — private individuals always pay the full invoice amount, with no withholding.
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With FIZ invoices with withholding are calculated and recorded automatically — with amounts organised and ready for your annual IRS declaration.
