Being a high-income earner in Portugal has a special difficulty in negotiating a complicated tax scene to guarantee you maximize the tax deductions. This extensive manual will explore Portugal’s complex personal income tax (PIT) landscape. We will look at the several tax credits, allowances, and special rules that can assist reduce your tax burden and save more of your earned income.
Portuguese Resident Income Tax Rates
For resident taxpayers in 2024 Portugal uses a progressive income tax system with rates ranging from 13.25% to 48%. Married taxpayers and those in de facto marriages who choose joint taxation split the taxable income in half, therefore possibly lowering the effective rate.
Taxpayers whose taxable income exceeds EUR 80,000 and EUR 250,000 respectively have an extra 2.5% to 5% solidarity rate. High income people who want to properly prepare their tax strategy must be aware of these subtleties.
Resident Tax Deductions and Incentives
Portugal provides a whole range of tax credits and incentives meant to drastically lower the tax load on wealthy incomes. Among the salient credits and deductions are:
Dependents and Ascendents
Provided they do not get income higher than the minimum pension, residents can claim a fixed amount of EUR 600 and EUR 525 per dependant and ascendant residing in the same property accordingly. For dependants under three years of age and in single-parent homes, these figures are even higher.
Personal Spending in Homes
Up to a limit of EUR 250 per taxpayer (EUR 500 for joint returns), residents can deduct 35% of household expenses for services or items purchased in different sectors. For single-parent homes, this limit is raised to 45%; the global limit is EUR 335.
Medical Costs
Up to a limit of EUR 1,000 residents can claim a 15% tax credit on non-reimbursed health expenses exempt from VAT or subject to a 6% VAT rate.
VAT on Certain Services
Residents can claim a 15% VAT tax credit for services including vehicle repair, lodging, restaurants, hairdressers, and veterinary bills (with a 35% credit for veterinary drugs). Sporting and leisure activities qualify for a 30% credit.
Public Transit and Subscriptions
For monthly public transportation passes, tickets, subscriptions to periodical publications—including digital ones—residents can receive a 100% tax credit on VAT paid.
Alimony and Gift-giving
Subject to appropriate restrictions, residents may claim a 20% tax credit on alimony payments and a 25% credit on gifts to some organizations.
College Costs
Up to a limit of EUR 800 each family member aged 25 or younger attending a recognised educational institution more than 50km from the permanent residence can claim a 30% tax credit on education expenses.
Property Taxes
Subject to certain restrictions, residents can claim a 15% tax credit on interest from loans taken out before 31 December 2011 and on rents for urban buildings and autonomous fractions used as permanent residence.
Expenses of a Retirement Home
Up to a worldwide limit of EUR 403.75, residents of retirement homes may claim a 25% tax credit on expenditures paid.
Strategies for Retirement Savings
Subject to age-based restrictions, residents can seek a 20% tax credit on contributions to individual retirement savings plans (Plano Poupança Reforma – PPR).
Deduction for Disability
Provided they had benefited from the disability deduction for at least five years and maintain a disability equal to or higher than 20%, persons with disabilities can claim a deduction ranging from 2 to 0.5 times the social support index (IAS) during the four years following the review or reassessment of their disability.
Residential Worker Costs
Subject to specific requirements, residents may claim a 5% tax credit on the yearly expenses paid for the remuneration of domestic workers, up to a maximum of EUR 200.
Limit to the credit sum.
The taxpayer’s taxable income level determines the limit on the overall sum of tax credits that may be claimed. This limit is raised by 5% for every dependant not subject to PIT for families including three or more dependants.
Tax deductions for high-income earners and non-habitual residents’ (NHR) regime
Recently repealed, beginning January 1, 2024, the Non-Habitual Residents (NHR) regime provides advantageous tax status for those who become tax residents in Portugal. Still, the government covers those who already registered as NHR on January 1, 2024, or those who fulfilled the registration requirements by December 31, 2023. Subject to specific criteria, those who become tax residents in Portugal until December 31, 2024, could potentially be eligible under the scheme.
Non-habitual residents under the NHR system pay a flat rate of 20% on work income ( Category A) and self-employment income ( Category B) from highly valuable-added activities of a scientific, artistic, or technical nature. Foreign-source income including property income, interest, and dividends qualifies for a tax exemption (with advancement) provided particular criteria are satisfied. Pensions from abroad as well as other payments from pension funds and other retirement plans are subject to a flat tax rate of 10%.
Still, NHR status holders are not entitled to the following tax deductions.
NHR 2.0 Tax Incentive Scheme for Scientific Research and Innovation (RFCI)
The Tax Incentive Scheme for Scientific Research and Innovation (IFICI) is a new tax incentive scheme for research and innovation that the 2024 State Budget presented. Those who become Portuguese tax residents in a particular year, have not qualified as tax residents in Portugal in the past five years, and do not gain or profit from the NHR regime or the former resident regime apply under this regime. In addition to an exemption on foreign-sourced employment income, business and professional income, investment income, rental income, and capital gains, qualified individuals can profit from a special 20% tax rate on net employment income ( Category A) and business and professional income ( Category B) from the activities identified in the relevant legislation.
Still, given the absence of ministerial laws, applying for the regime is not easy.
Finally regarding tax deductions for high earners
Being a high-income earner in Portugal might make negotiating the complicated tax terrain difficult. Still, you can drastically reduce your tax load and keep more of your hard-earned money by using the several tax credits, allowances, and special regimes at hand. Staying current and aggressively designing your tax plan can help you to guarantee your financial situation in Portugal and release major tax savings.
This article on “tax deductions for high-income earners” provides general informative material only; it is not meant to be legal advise. Laws and legal processes fluctuate, hence even if every effort has been taken to guarantee the truth of the material, the particulars of any case can differ greatly. Therefore, before acting, readers are encouraged to get advice specifically fit to their situation from a certified expert or attorney in Portugal. This article does not establish an attorney-client relationship among the publisher, the writers, or the reader. Based on the content of this article, the writers and publishers are not liable for any actions either done or not taken.
Laurinda holds a Diploma in Business Administration from the South African Institute of Administration and Commerce… Read more
