Selling to Portugal - how to fill in MOD. 21 RFI

Discussions
#1

I thought the US IRS’s 8 page W-8BEN-E monstrosity would take some beating but this from Portugal is a contender. If I don’t fill it in correctly (in triplicate) and get it signed by ‘tax authorities’ they will deduct 25% witholding tax.

MOD. 21-RFI

http://info.portaldasfinancas.gov.pt/NR/rdonlyres/6002B253-E9C3-4933-874C-1CB961169848/0/rfi-21%20(2008).pdf

Anyone have a clue

  • How to fill this out (for a UK based organisation not an individual)?
  • If its necessary for product sales? (looks like its for to dividends and personal services would need reference to documentation showing that)

HMRC (our IRS) hasn’t a damn clue what its all about, accountant neither, Small Business Federation has never heard of it. Payment processor is ‘huh?’. Even mighty Google has very little.

Grrr - I thought avoiding this sort of nonsense was one of the benefits of being in the EU! Any future sales to Portugal will get a +25% ‘administration fee’ added right from the get go.

#2

Why do you think you should fill that form out?
I’m not a tax person, but I’m pretty sure you would need to submit this form only if you own a business in Portugal and want to avoid the profits from that business being taxed in Portugal.
You certainly do not need this for a simple sale.

#3

Not quite - the customer is saying I have to fill that out to avoid them having to take 25% off payment for withholding tax as per Portuguese law.

The US does much the same with their W-9 / W-8BEN-E form.

Found a small amount of official info on this that I’ll post soon as I’ve ran it all down.

#4

This is a good reason to use a payment provider like FastSpring. The customer is essentially purchasing from FastSpring and they do all the forms. Unless of course you are doing a few large deals as opposed to many small sales when doing it yourself makes sense.

#5

In my opinion, your Portuguese customer is mistakenly confusing domestic tax laws with imports.

Here in Spain, there is a similar concept. We need to withhold part of the payment to freelancers, and pay it to the government. The freelancer claims that withheld amount towards their income tax liability. I believe this is firmly in the “why use a simple solution when a difficult solution suffices”.

However this is ONLY for Spanish companies/freelancers paying Spanish freelancers. I’m quite certain that in the Spanish case, as well as in your Portuguese case, the requirement for withholding a portion of the payment is completely irrelevant to you as a UK business. I believe your customer doesn’t realise that this law only affects domestic invoicing.

If you want to be certain, find a forum for ex-pats living in Portugal. Accountants specialising in ex-pat affairs frequent those forums, and one will certainly be able to clarify your situation. I realise you are not asking as an ex-pat, but I recommend this solution from experience. This forum looks adequate: http://www.expatsportugal.com/forum/viewforum.php?f=2&sid=f37feea585fe6321edfa069a347cac4f

#6

Got to the bottom of this - it would only be valid if I were performing services (e.g. consulting) and actually present in Portugal.

It doesn’t apply to product sales and customer has finally accepted this.

(as an aside - software product sales are classed as “services” in EU vat law for some reason only know to them - all adds to the confusion)

Just as with the US W-8BEN-E, misunderstandings on the customer end and lack of clear guidance may mean a customer insists on these forms so I’ll be very wary of accepting PO’s from Portuguese companies in future without either confirming that they don’t want this form (which is a nightmare to fill in, in triplicate and get stamped and approved by own countries ‘tax authorities’) or add an appropriate admin fee.

2 Likes
#7

Morning everyone! Regarding the infamous RFI-21: If you sell goods or provide services to a Portuguese company, sole trader or any other business vehicule existant in Portugal, according to portuguese law, your profit is deemed as having been obtain in Portugal even if you have never step foot in Portugal! As such it will be subject to a 25% witholding tax. In order to avoid this you should fill in the RFI-21 form which, altough bureaucratic, is pretty straight forward to fill in, and have it signed by HMRC. That form is a statement that shows that the one that is earning the funds, be it a company or an individual, is effectively a resident in the UK and that it/he is the ultimate beneficiary owner of said funds. In cases in which that form is not filled in time and the 25% witholding tax has already taken place, one should fill in forms RFI-22, RFI-23 or RFI-24, alternatively and depending on the type of income, which should also be signed by HMRC, present it to the portuguese tax authorities and claim a refund.

#8

(Usual disclaimer about me not being a tax lawyer etc)

I am not sure thats quite correct - I think some Portuguese companies may think that but :-
a) It shouldn’t apply to intra EU sales - free movement and customs union and all that and EU laws in most areas trump national laws.
b) Even if outside EU my understanding is that if its sales of a product rather than services / royalties / dividends and etc then I don’t think its classed as derived in Portugal so not caught by withholding tax.

Certainly I’ve made a couple of dozen sales to Portugese companies over a decade and only once been asked for it.

The one that did (huge multi-national with local Portugese division) did ask for it but when I pushed back with reason b) they replied with “I have checked with our tax services and you are correct. We will proceed to pay the full amount.” and did indeed pay the full amount without the RFI-21 being filled in.

They could have had it all wrong of course! Do you have any links to guidance from official or reputable sources you can link to? (I accept that I’ve nothing to back by own stance up!)

#9

Hi Rhino,
I used to share your view and believe the same about being in the EU, free circulation, customs union and all that.
However @Andre_Moreira is right.
This link may help to clarify the issue: (apparently I can’t share a link because I’m a new user, but please go to the European commission website and type double taxation in the search box, you will find a very useful article there dated 16 of August 2017 and titled: Double Taxation - European Commission)
Hope it helps understanding the matter
Cheers

#10

This link - https://ec.europa.eu/taxation_customs/frequently-asked-questions/citizens-web-site-faq/double-taxation_en

#11

Does a USA Based company also need to do the Mod.21 RFI?

#12

Same question as Peter. We are a non-resident company selling digital services into Portugal. One of our customers as also asked us to fill out MOD 21 RFI. This is a bit confusing.

#13

Does FastSpring handle this specific Portuguese situation?

Anyone know how to add this to FastSpring’s product page?

#14

@Paul1970 my recommendation is to ask Fastpring directly.

They are the merchant of record when they sell to Portugal, so you won’t have anything to do with this.

#15

The link provided above (not originally by Rhino) is aimed at citizens, not businesses. It’s quite likely a difference between B2B transactions and residents/salaries.

So, the question still stands unfortunately.

1 Like