Want to know more about taxes in Portugal? Keep reading.
The Westernmost European nation Portugal has become a very sought-after location for foreigners looking for a reasonably cheap cost of living and a high quality of living. Portugal’s mild temperature, gorgeous beaches, and friendly population make sense why someone wishing to begin a new chapter overseas would choose it. But negotiating the complexities of the Portuguese tax code can be intimidating, particularly for those unfamiliar with its subtleties.
In this all-inclusive article, we will explore the nuances of the Portuguese tax scene, thereby arming you with the skills and knowledge required to efficiently handle your tax liabilities. From knowing residence rules and income tax obligations to negotiating the complexity of property taxes and capital gains, this article will be your reliable friend in guaranteeing a seamless and compliant tax experience as an expat in Portugal.
Portuguese Tax System: An Overview
Like other nations, the Portuguese tax system calls for annual income tax reports from Portuguese nationals and international residents who live there for 183 days or more. In Portugal, taxable income includes employment income from a Portuguese company, international income, self-employment income, overseas pension income, investment returns, and corporate profits.
We will examine the several elements of this complex system—residential requirements, consumption taxes, personal income tax rates, self-employment taxation, inheritance tax, and corporation tax obligations—to offer a whole picture of the Portuguese tax scene. By the end of this article, you will be well-versed in the important tax issues and rules you will have to negotiate as an expat living in Portugal.
Clarifying Tax Residency in Portugal
Your residency position is the main determinant of your tax liability in Portugal. Generally speaking, you will be considered a Portuguese tax resident if you spend 183 or more days in the nation during a calendar year. Still, various more factors can also prove tax residence, including:
- Living permanently in Portugal as of December 31st, the tax year
- Oversaw a household including a Portuguese tax resident.
- Working for a Portuguese company, wherever you live
- Participating in a crew on an aircraft, boat, or ship owned by a Portuguese company
Your tax residency status must be precisely determined since it will define your tax liability and the relevant tax rates. Navigating this process and guaranteeing conformity with Portuguese tax rules can be greatly benefited from the direction of a skilled tax professional.
Portuguese personal income tax (IRS) rates
Portuguese citizens and non-residents who income within the nation are liable for paying personal income tax, sometimes referred to as Imposto sobre o Rendimento das Pessoas Singulares (IRS). Individual taxable income determines this tax; lawful deductions and the matching tax rate are excluded.
Portugal’s present personal income tax rates range from 13.25% to 48%; the particular rate varies based on the income level of the individual. Portugal negotiated double taxation accords with Australia, Saudi Arabia, and the United Kingdom among other nations. This might assist reduce the possibility of paying taxes twice on the same income.
For expats, knowing Portugal’s income tax rates and ranges is absolutely vital since it directly affects their financial planning and tax liabilities. Ensuring compliance and maximizing your tax plan depend much on the direction of a tax professional.
Portuguese Self-employment Taxes
Income taxes are calculated for self-employed foreign nationals living in Portugal based on annual personal income rather than business tax. Sole traders, freelancers, digital nomads, and entrepreneurs conducting companies outside of Portugal will thus be responsible for Portuguese individual income tax (IRS).
Usually due between the 10th and 20th of the month after the pertinent period, these tax payments are computed depending on the household and financial circumstances of the individual. Foreign nationals making income in Portugal could also be eligible for a certain tax regime as non-habitual residents, provided they have not paid taxes in Portugal during the past five years.
Especially for individuals new to the system, negotiating the self-employment tax terrain in Portugal can be challenging. As a self-employed expat living in Portugal, consulting a certified tax professional will help you make sure you follow all pertinent rules and maximize your tax plan.
Portugal Inheritance Tax
The inheritance tax method of the Portuguese tax system is among its most favorable features. Unlike many other nations, Portugal does not levy inheritance tax on immediate descendants—that is, spouses, children, grandchildren, parents, and grandparents.
Portuguese assets are subject to a 10% Stamp Duty tax, or Imposto do Selo, however, when an estate is passed on to qualified heirs. Maintaining your UK residence will nonetheless make you liable for UK inheritance tax on your worldwide fortune.
For expats particularly with family members or possessions, Portugal’s advantageous inheritance tax policy might be a major benefit. Knowing the particular rules and criteria will help to guarantee a seamless and quick distribution of money to loved ones.
Corporate Tax Portugal
Portuguese companies liable to corporate tax on their taxable income. Although local towns charge an additional penalty of up to 1.5% should the company profits surpass €1.5 million, mainland Portugal’s normal corporate tax rate is 21%.
Madeira, though, has reduced business tax rates.
The Non-Habitual Resident (NHR) Tax Regime: Towards End
Portugal’s Non-Habitual Resident (NHR) tax system used to provide foreign citizens major tax advantages until recently. Designed for those who had not been Portuguese tax residents in the past five years, the NHR program offered tax exemptions or a flat 20% tax rate on foreign-sourced income when first launched in 2009.
But the Portuguese Parliament passed the State Budget 2024 in November 2023, therefore discontinuating the NHR program. Notwithstanding this change, a transitional phase is still in effect and anyone who had a promissory or employment contract, a valid resident visa or permit until December 2023 could still be qualified for the NNHR’s tax advantages.
Those who are thinking about moving to Portugal should keep updated on the present situation of the NHR government and any possible transitional policies still under use. See a tax specialist to assist you maximize potential tax savings during this transition period.
Getting registered for Portuguese taxes
Expats starting the tax registration process in Portugal must have a Número de Identificação Fiscal (NIF) tax identification number. One can accomplish this by personally visiting an office of Finanças.
Once your NIF is known, you have to complete a form stating the start of your tax activity and send it to your local tax office using the Portuguese Tax AAgency’s internet portal (Portal das Finanças).
Tax requirements in Portugal follow the calendar year, from January 1st to December 31st; tax return dates usually fall between April and June of the next year. Although it’s not a strict need, it’s strongly advised that you engage with a tax specialist who can assist you through the procedure and help you avoid any possible risks or issues.
Portuguese Income Tax Return Filing
Foreigners living in Portugal have to be familiar with submitting yearly income tax forms. The good news is that you may conveniently complete this online using the Portuguese Tax A Authorities website or by personally delivering printed forms to your local tax authority office.
Ensuring a seamless and compliant tax filing process depends on you compiling all the pertinent records needed for your tax return—income statements, receipts, and other supporting data. Once everything is ready, log in using your NIF and password on the Portuguese government’s Finances Portal and travel to the file return part.
From there, you can check the pre-filled statement, adjust any required information, and run through your tax obligation. Clicking the “file” button will allow you to enter your tax return following review of the payment or refund details.
Although you might manage the tax return procedure on your own, consulting a tax professional will ensure compliance and help you negotiate the complexities of the Portuguese tax system, therefore reducing any possible problems even if it is possible to do the process alone.
Portuguese Property Taxes
Investing in real estate in Portugal will cause foreign purchasers to pay the same taxes as their Portuguese counterparts. Two basic groups of taxes exist: annual taxes paid following the acquisition of the property and those owed at the time of purchase.
The tax paid to the purchase price of the property is the Imposto Municipal Sobre as Transmissões Onerosas (IMT), sometimes known as Municipal Tax on Onerous Transmissions of Real Estate. The property price, location, kind, and intended use will all affect the rate—which might run from 0 to 10%.
Stamp Duty: Various legal documents—including title deeds, contracts, bank mortgages, and loans—are taxed under the Imposto do Selo (Stamp Duty). Whichever is higher—the Stamp Duty rate for property transactions is 0.8% of the business’s or the property’s value.
Property Tax (IMI): Portugal’s Imposto Municipal sobre Imóveis (MSI), or Municipal Property Tax, is an annual tax due by property owners there. Based on the Property Tax Value (VPT), not the purchase price, this tax is calculated; the rates are set by the municipality where the property is situated. The IMI Tax for urban premises falls between 0.3% and 0.45% of the VPT, maybe reaching 0.5% in extreme cases. The IMI rate for rustic buildings is 0.8%.
Apart from Municipal Property Tax (AIMI), tax payers of properties valued more than €600,000 are subject for the Additional to Municipal Property Tax. Calculation of this tax follows:
- 0.7% on homes falling between €600,001 and €1 million.
- 1% on dwellings worth €1 million to €2 million.
- 1.5% on homes worth more than €2 million.
- Tax on Rent Income: Housing rentals are taxed at 25%. Following the Mais Habitação law implemented in October 2023, the 25% tax rate covers long-term rental revenue from 2023 forward.
Expats managing their current assets or investing in real estate must first understand the several property taxes in Portugal. Consulting a real estate specialist or a tax professional will allow you to maximize your tax plan and guarantee compliance.
Capital Gains Tax
Sales of Portuguese real estate generate capital gains regarded as taxable profits. This suggests their disclosure on the year of the sale and acquire price on the tax return. Any costs paid for maintenance or property enhancements—such as heating system installation—must also be reported together with the relevant invoices to help to determine the capital gains evaluation.
Residents and non-residents of Portugal have different capital gains tax treatment. Depending on their income tax scale and overall income, Portuguese residents pay the tax on just 50% of the total capital gain—between 14.5% and 48%.
Especially for foreigners not familiar with the local laws, negotiating the complexity of capital gains tax in Portugal can be intimidating. Consulting a real estate specialist or a tax professional will allow you to reduce your tax load and guarantee that you follow all the rules.
Portugal’s Value of Tax Advice
Seeking competent assistance from a tax specialist, real estate lawyer, or agent can make all the difference when making major financial decisions like capital investments, property acquisitions, or real estate transactions likely to result in capital gains tax.
These professionals can offer priceless advice on knowing consumption tax, negotiating tax on interest income or dividend income, and guaranteeing adherence to Portugal’s several tax laws. Their knowledge can help you steer clear of mistakes, reduce tax load, and guarantee seamless, quick procedures.
Even for relatively simple tax obligations, such personal income or local taxes, working with a tax professional can provide you comfort and peace of mind knowing your affairs are being handled properly. Expats who might not be familiar with the complexities of the Portuguese tax system may especially benefit from this.
At last
Navigating the tax scene as an expatriate in Portugal can be challenging. Still, you may maximize the chances and advantages the Portuguese tax system presents with the right information and preparation.
As an expat living in Portugal, you may guarantee a seamless and compliant experience by keeping educated on the most recent tax rules, consulting experienced professionals, and actively managing your tax issues. Remember, you may maximize your tax status and totally enjoy the advantages of this energetic and friendly nation with the correct plans and help.
This page about “taxes in Portugal” provides basic informative material only; it is not meant to be legal advise. Although every effort has been taken to guarantee the authenticity of the material, laws and legal procedures are subject to change and the details of every case can differ greatly concerning taxes in Portugal. For advice specifically fit for their situation, readers are therefore urged to see a certified expert or attorney in Portugal before acting. This article does not establish an attorney-client relationship among the publisher, the writers, or the reader. Based on the content of this article about taxes in Portugal, the writers and publishers are not liable for any actions either taken or not taken.
Laurinda holds a Diploma in Business Administration from the South African Institute of Administration and Commerce… Read more
