Introduction
Portugal has long been considered an attractive destination for individuals seeking favourable tax conditions. However, recent changes to the tax regime have prompted many to question whether Portugal remains a tax-friendly country. In this comprehensive guide, we will dissect the tax brackets in Portugal, providing valuable insights into the rates, exemptions, and regulations individuals need to navigate.
Understanding Portuguese Income Tax
Income tax in Portugal is levied on residents based on their worldwide earnings, including employment income, pensions, and rental income. On the other hand, non-residents are only subject to taxation on income derived from Portuguese sources. It is essential to grasp the scale rates of income tax and the recent amendments made for 2024.
Portugal changed the income tax scale rates for the fiscal year 2024. The rates for the lower income bands have been reduced, while the income bands have been adjusted to account for inflation. As a result, residents can expect a more favourable tax environment.
Portugal Tax Brackets for 2024
To gain a better understanding of the income tax rates in Portugal for residents, we present the following table:
| Taxable Income (EUR) | Tax Rate (%) | Deductible Amount (EUR) |
|---|---|---|
| 0 – 7,703 | 13.25 | 0 |
| 7,703 – 11,623 | 18.0 | 365.89 |
| 11,623 – 16,472 | 23.0 | 947.04 |
| 16,472 – 21,321 | 26.0 | 1,441.14 |
| 21,321 – 27,146 | 32.75 | 2,880.47 |
| 27,146 – 39,791 | 37.0 | 4,034.17 |
| 39,791 – 51,997 | 43.5 | 6,620.43 |
| 51,997 – 81,199 | 45.0 | 7,400.21 |
| 81,199 and above | 48.0 | 9,836.45 |
Note: The taxable income is divided by two for married taxpayers and those in de facto marriages who opt for joint taxation.
Investment Income Taxation
Investment income in Portugal is subject to a flat rate of 28%. This category includes interest income and income from capital investments such as shares, securities, and bonds. However, residents can choose the scale income tax rates if it proves more advantageous.
It is important to note that if a bank account or investment is held in a jurisdiction classified as a ‘tax haven’ by Portuguese authorities, the income is subject to a higher tax rate of 35%. This classification encompasses locations such as Gibraltar and Guernsey.
Capital Gains Taxation in Portugal
Portuguese residents who sell property anywhere in the world are subject to capital gains tax. Half the gain is added to their annual income and taxed at the applicable income tax rate. However, there are exceptions to this rule.
No capital gains tax is imposed if the sale involves a main home and the proceeds are reinvested in a new primary home in Portugal or elsewhere in the European Union or European Economic Area. This exemption also extends to retirees or residents over 65 who reinvest in an eligible insurance contract or pension fund within six months of the sale.
Non-residents who own Portuguese property are also subject to capital gains tax. However, recent changes have reduced the taxable amount to 50% of the gain, and the tax is calculated using the income tax scale rates, aligning it with the treatment of residents.
As outlined earlier, capital gains derived from selling shares, securities, and bonds are taxed as investment income.
The Non-Habitual Residence (NHR) Program
The non-habitual residence program, a popular scheme benefiting foreign nationals residing in Portugal, closed to new applicants on December 31, 2023. However, individuals who initiated their residence visa application in 2023 and secured property, employment, or school placements are exempt from this restriction.
Existing NHR status holders will continue to enjoy the program’s tax advantages until the end of their 10-year term. Subsequently, they become liable for Portuguese tax on their worldwide income and gains at standard rates, which can reach up to 48% for income tax and 28% for investment income. Additionally, 50% of any property gain will be subject to taxation.
To maximize the benefits of NHR and optimize their tax situation, individuals should consider restructuring their assets well before the program’s expiration. Seeking specialized advice and meticulous planning can yield significant tax savings, regardless of whether to remain in Portugal or relocate elsewhere.
Tax Regime for Skilled Professionals
In place of the NHR program, Portugal has introduced a new regime targeting skilled professionals employed or self-employed in specific fields, such as higher education, scientific research, technology, and startups. To qualify, individuals must not have been residents of Portugal in the five years preceding their application, and the regime will remain in effect for ten years.
Qualified individuals under this regime benefit from a flat tax rate of 20% on their employment or self-employment income. Furthermore, foreign income, including employment, rent, and dividends, is exempt from Portuguese taxation.
High-Value Property Taxation
Portugal’s Adicional Imposto Municipal Sobre Imóveis (AIMI) is a limited form of wealth tax that applies to high-value Portuguese properties, regardless of residence status. However, liability only arises when an individual’s stake in Portuguese properties exceeds €600,000. For joint owners, the threshold is €1.2 million.
The rates for AIMI vary based on property value, with rates of 0.7% for individuals and 0.4% for companies. Properties valued over €1 million are subject to a rate of 1%, while any value exceeding €2 million is taxed at 1.5%. It is worth noting that most companies are not eligible for the allowance.
Stamp Duty on Inheritances
Portugal’s stamp duty, akin to inheritance tax, offers a favourable tax treatment compared to neighbouring countries and the UK. The fixed rate for stamp duty is 10%, and it applies solely to Portuguese property and assets inherited or gifted outside of the direct family.
However, it is crucial to be aware of Portugal’s “forced heirship” succession law, which automatically allocates portions of an estate according to the bloodline, regardless of written wishes. Individuals should take appropriate action to protect their estate and ensure their intentions are respected to avoid potential complications.
Moreover, UK expatriates should review their domicile status to determine any potential implications for UK inheritance tax.
Tax Planning for Portugal
In conclusion, Portugal continues to offer a tax-friendly environment for residents and non-residents (especially when comparing tax brackets in Portugal with the cost of living). However, given the recent changes in the tax regime, it is crucial to seek specialized advice to ensure optimal tax planning. Regularly reviewing your financial arrangements and seeking personalized guidance can help you make the most of the opportunities available and secure financial peace of mind in Portugal.
At Madeira Corporate Services, we have a team of experienced advisors who provide comprehensive tax advisory services for individuals considering or already living in Portugal. With our deep knowledge of the local tax landscape and our commitment to ensuring tax efficiency, we can assist you in structuring your assets and wealth to minimize exposure to tax brackets in Portugal. Contact us today to discuss your specific needs and embark on a journey towards a more secure financial future in Portugal.
Disclaimer: The information provided in this article is for informational purposes only and should not be considered legal or tax advice. Please consult a qualified professional for specific guidance tailored to your circumstances.
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