Portugal continues to attract thousands of expats each year, retirees, remote workers, and investors drawn by the country’s safety, affordability, and EU access. But before moving, understanding what taxes expats pay in Portugal is essential. The Portuguese tax system rewards compliance and transparency. It is modern, digital, and supported by clear residency rules. While Madeira offers lower regional rates, the principles of taxation are uniform nationwide. Here are the nine key rules and practical tips every foreign resident should know.
1. Tax Residency Defines Your Tax Scope
Your tax residency status depends on whether you are taxed on worldwide or Portuguese income. You are considered a tax resident if you:
- Spend more than 183 days in Portugal in 12 months, or
- Maintain a habitual residence on December 31 of that year.
Residents pay tax on global income. Non-residents pay tax only on Portuguese-sourced income, usually at a flat 25% rate. Residency also determines access to Portugal’s progressive tax brackets and personal deductions.
2. Personal Income Tax (IRS) Rates for 2025
Residents in Portugal are taxed under a progressive IRS system ranging from 14.5% to 48%, with an additional solidarity surcharge for high incomes.
Tax is usually withheld at source and adjusted through the annual return filed between April 1 and June 30 each year for retirees and employees. Madeira applies lower regional income tax brackets than mainland Portugal, reducing effective taxation. This advantage particularly benefits retirees and high-income residents relocating to the island.
3. What Non-Residents Pay
Non-residents are taxed at a flat 25% on income from Portuguese sources, such as rent, local employment, or consultancy work.
Capital gains from the sale of Portuguese property are taxed at 28%, while dividends, royalties, and interest are generally taxed at 25%, subject to treaty reductions.
If your home country has a double taxation treaty with Portugal, you may receive credits or exemptions to avoid paying tax twice.
4. Property Taxes for Homeowners
Expats buying or owning property in Portugal must pay Municipal Property Tax (IMI) annually.
- Urban property rates: 0.3% to 0.45% of the official tax value (VPT).
- Rural property rate: 0.8%.
There is also an Additional Municipal Property Tax (AIMI), a form of wealth tax, on total property values exceeding €600,000 (individual) or €1.2 million (couples).
Buyers pay Property Transfer Tax (IMT), which ranges between 1% and 8%, plus Stamp Duty of 0.8% of the purchase price.
Property taxes are deductible for rental income calculations and must be declared in the annual return.
5. Capital Gains on Real Estate and Investments
If you sell real estate in Portugal, 50% of the gain (difference between selling and acquisition price) is taxed at your marginal IRS rate.
However, the gain can be exempt if reinvested, by a tax resident, in another main home in Portugal or within the EU/EEA within 36 months.
Capital gains from shares or cryptoassets are taxed at 28% for residents unless certain exemptions apply to crypto.
6. Stamp Duty and Inheritance
Portugal does not impose a formal inheritance or gift tax. Instead, Stamp Duty (Imposto do Selo) is at 10% on Portuguese-based assets such as property, cars, or artwork.
Spouses, children, and parents are fully exempt, making Portugal one of Europe’s most favourable jurisdictions for family wealth transfer.
If the asset is located outside Portugal, no Portuguese Stamp Duty applies.
7. Deductions and Tax Credits You Can Claim
Portugal’s IRS allows significant “deduções à coleta”, deductions that reduce tax owed. These are available to residents and expats taxed under the regular regime.
According to Montepio’s 2025 rules:
- Health expenses: 15% of eligible costs, up to €1,000 per household.
- Education: 30% of qualified education expenses, up to €800, or €1,000 for students living more than 50 km away or studying in Madeira or the interior.
- Rents: 15% of rent for permanent residence, up to €600, or €900 for lower incomes.
- General family expenses: 35% of receipts (water, electricity, groceries, telecoms) up to €250 per person or €500 per couple.
- Elderly care: 25% of nursing home or home-care expenses, capped at €403.75.
- Charitable donations: 25% of amounts donated, unlimited for public or religious institutions, otherwise capped at 15% of tax owed.
Madeira residents benefit from the same national deduction framework while enjoying regionally reduced tax brackets.
8. Social Security and Pension Income
Retirees who relocate to Portugal must contribute to social security only if they engage in self-employment or new economic activity.
Unless a special regime applies, private or foreign pensions are taxed as regular income. The former Non-Habitual Resident (NHR) program, now replaced by the IFICI (NHR 2.0) regime, allows certain professionals and pensioners to benefit from reduced or exempt taxation during their first ten years in Portugal.
Residents of Madeira remain eligible for these benefits under regional administration.
9. Filing Deadlines and Practical Tips
- Tax year: January 1 to December 31.
- IRS filing period: April 1 to June 30.
- Payment deadline: August 31.
- Late filing penalty: €200 to €2,500.
All residents must file annual returns online through the Portal das Finanças. Couples may opt for joint filing to balance income levels and maximise deductions.
Expats should maintain digital copies of invoices (faturas) for all deductible expenses. The e-Fatura system automatically records eligible receipts for health, education, and rent deductions.
Why Madeira Is a Smart Choice for Expats
Beyond lower income tax rates, Madeira offers a safe, stable, and cosmopolitan environment with complete EU legal protection.
The island’s regional IRS reductions, mild climate, and healthcare quality are ideal for retirees seeking comfort and compliance. Combined with local expertise in tax representation, Madeira ensures a seamless relocation for foreign residents.
Professional Support for Expats in Portugal
Understanding what taxes expats pay in Portugal is the first step toward efficient financial planning. Proper registration, documentation, and timely filing prevent costly errors.
With over 30 years of experience advising international clients, Madeira Corporate Services (MCS) assists with tax registration, fiscal representation, property taxation, and retirement planning.
Please feel free to reach out if you would like professional assistance with your tax or relocation matters in Portugal or Madeira.
The founding of Madeira Corporate Services dates back to 1996. MCS started as a corporate service provider in the Madeira International Business Center and rapidly became a leading management company… Read more
