Introduction:
For digital nomads in Portugal, understanding labour, social security, and tax regulations is essential. These professionals often encounter unique challenges due to employment contracts with foreign entities and their tax status within Portugal.
In addition, many digital nomads have questions about whether they are required to register with and contribute to the Portuguese social security system.
Continuing FiO Legal's series on Digital Nomads, this informative article provides an overview of these key legal areas and their impact on the lives of digital nomads residing in Portugal.
Labour Law Considerations
As we discussed in Part I of this series, digital nomads residing in Portugal shall maintain employment contracts with companies based outside the country. As a result, the contractual terms of these agreements typically follow the labour laws of the employer’s jurisdiction. This scenario, while common for digital nomads, can create challenges in understanding the extent of Portuguese labour guarantees and their applicability to foreign-based contracts.
Indeed, Portuguese labour law contains provisions aimed at safeguarding employees within its borders, regardless of the employer’s location. This means that certain Portuguese employment rights may still apply if they offer more favourable conditions than those provided by the foreign jurisdiction. This means that certain Portuguese employment rights may still apply if they are more favourable than those outlined in the foreign jurisdiction. For reference, let us explore some of these protections in greater detail.
Equal Treatment and Non-Discrimination
Portuguese labour law enforces strict standards on equality and non-discrimination, ensuring that all employees within its territory, including those working remotely for foreign-based employers, are treated fairly. These protections cover all areas of employment, including recruitment, compensation, benefits, and workplace conditions, without discrimination based on gender, race, age, disability, or other protected characteristics. In cases where a digital nomad’s contract includes discriminatory terms not recognized under Portuguese law, Portuguese standards may override these provisions to provide enhanced protection.
Job Security and Protection Against Unfair Dismissal
Portuguese labour laws afford employees significant protections against unfair dismissal, requiring valid grounds and adherence to due process for terminations. Although employment contracts often default to the jurisdiction of the employer, digital nomads working long-term from Portugal may benefit from Portuguese standards for job security where these are more favourable. These protections can include rights to severance payments and access to legal recourse in cases of arbitrary dismissal, ensuring lawful and fair termination procedures.
Working Hours, Rest Periods, and Overtime Regulations
Portuguese labour law stipulates maximum working hours—typically capped at 40 hours per week—and mandates minimum daily and weekly rest periods. Employees are entitled to a minimum of 11 consecutive hours of rest each day and one full day off per week, typically Sunday. In instances where foreign jurisdiction standards are less stringent, Portuguese law may prevail, helping to prevent excessive workloads. Moreover, overtime is strictly regulated, with compensation requirements that may be higher than those in the employer’s jurisdiction.
Paid Leave and Holiday Entitlements
Portugal mandates generous paid leave, including a minimum of 22 working days of annual leave, excluding public holidays. If a digital nomad’s home country or employer provides fewer vacation days, the employee may be eligible for Portugal’s more favourable leave standards.
Minimum Wage and Overtime Compensation
Portugal enforces a national minimum wage, which may exceed wage rates in certain foreign jurisdictions. If the wage stipulated by the employer’s jurisdiction is lower than Portugal’s minimum, the Portuguese wage standard may apply, ensuring fair pay for digital nomads based in the country.
Health and Safety Protections
Portuguese labour law requires employers to uphold health and safety standards to safeguard employees, including those working remotely. Employers are required to provide a safe working conditions, extending to digital nomads working from home or co-working spaces in Portugal. If health and safety provisions are absent in a digital nomad’s contract, Portuguese health and safety regulations may apply, obligating the employer to take reasonable steps to ensure a safe work environment.
Social Security
Social security legislation generally aligns with the Member State where the employee performs substantial work. For digital nomads residing in Portugal, social security obligations apply if a substantial part of the work is performed within Portuguese borders.
In most cross-border situations, social security contributions are based on the law of the country of residence when specific criteria are met, including:
Substantial Activity: At least 25% of the work is conducted in the country of residence.
Remuneration: At least 25% of income is earned within the country of residence.
Thus, digital nomads residing and primarily working in Portugal may be subject to Portuguese social security contributions.
For Self-Employed Individuals
Upon registration as a self-employed taxpayer in Portugal, information is automatically forwarded to Portuguese Social Security authorities. After an initial exemption year, self-employed individuals are required to make social security contributions and submit quarterly earnings declarations.
The social security obligations for self-employed workers include:
Contribution Payments
Quarterly Declarations: Reporting income derived from professional activities.
Annual Activity Declaration: Submitted as Annex SS within the annual tax return.
Each quarter, self-employed individuals must report:
Total income from goods production and sales.
Total income from services provided.
Any other income considered relevant for social security purposes.
In January, even if no tax liability applies, self-employed individuals must declare income earned in the previous calendar year. Those with relevant income based on taxable earnings (under the Organized Accounting Regime) are exempt from quarterly declarations.
For Employees and Subordinate Workers
Portuguese social security laws apply if a significant portion of work is performed in Portugal. In cross-border arrangements, social security laws of the employee’s residence state generally apply, unless less than 50% of the work is conducted there. In such cases, provisions for cross-border telework within EU agreements may apply.
Under the Framework Agreement, if approved, cross-border telework social security coverage may be extended for up to three years, with renewal options. This framework, however, does not apply to employees working in multiple states or to self-employed individuals.
Final remarks:
Navigating Portuguese labour, tax, and social security regulations can be complex for digital nomads. FiO Legal is here to provide clarity and assistance to ensure compliance and support a smooth integration process in Portugal.
Whether you require guidance on contract structuring, tax planning, or social security compliance, FiO Legal is committed to helping digital nomads achieve their professional goals while making the most of their time in Portugal.
