Taxes in Portugal: A Comprehensive Guide for Expats

Portugal, the Westernmost European country famed for its welcoming population, vibrant culture, and stunning landscapes, has become a highly sought-after destination for expats seeking a high quality of life and affordable cost of living.

With its temperate climate and picturesque beaches, particularly in regions like the Algarve, it’s no wonder Portugal is a popular choice. However, once you have made the big move and the reality of navigating taxes in Portugal sinks in, you may experience some difficulties. Especially if you’re unfamiliar with its intricacies.

In this expert guide, we’ll cover everything you need to know about the Portuguese tax system, from understanding tax liabilities to how to register for paying taxes and managing property taxes easily. With the right knowledge and preparation, you can make living in Portugal an effortless and fulfilling experience.

An Overview of The Portuguese Tax System

Just like most countries across the globe, Portuguese tax laws require annual income tax returns from Portuguese citizens and foreign residents who live in Portugal for 183 days or more a year. Taxable income in Portugal includes but is not limited to, employment income from a Portuguese company, worldwide income, self employment income, foreign pension income, investment income, and corporate income tax.

In the sections below, we will expand on everything you need to know about the Portuguese tax system tax laws, tax liability, tax rates, double taxation treaties and more encompassing tax residence in Portugal.

Who is liable to pay taxes in Portugal?

In Portugal, tax liability is determined primarily by residency status. If you spend 183 or more days in Portugal during a calendar year, you are usually considered a tax resident. Additionally, having a permanent residence in Portugal by the end of the tax year or being part of a household with a Portuguese tax resident as its head can also establish tax residency. Furthermore, working for a Portuguese entity also makes you liable for taxes in Portugal.

Taxes on Goods and Services

Also referred to as consumption tax, Value Added Tax (VAT) is a crucial component of the Portuguese tax system that applies to sales and services transactions. Consumers pay VAT when purchasing goods or services, with the seller or service provider collecting and remitting the VAT to the Tax and Customs Authority (AT). Businesses operating in Portugal with a turnover exceeding €10,000 on taxable goods and services are mandated to pay VAT. The VAT system, known as Imposto Sobre o Valor Agregado (IVA), has been in place since 1986 and is taxed in three chargeable bands: the reduced rate, the intermediate rate, and the standard rate. The 2024 standard VAT rate currently stands at 23 percent.

Personal income tax (IRS) rates in Portugal

Portuguese residents and non-residents who earn income in Portugal are liable for paying personal income tax (IRS) each Portuguese tax year. Tax deductions on income taxes in Portugal are automatically deducted from monthly pay slips, although tax residents still need to complete a tax return annually. Individual income tax is determined by the taxable income earned, excluding legal deductions such as health insurance, and the corresponding tax rate. The table below showcases current percentages of each taxable income bracket. 

According to the Portuguese Tax Authorities the tax rates on income tax in 2024 ranges between 13.25 percent to 48 percent. It is important to note that Portugal has signed a double tax treaties with countries that include Australia, Saudi Arabia, and the UK. You can learn more about filing taxes and the Portuguese tax system from the official tax authority website.

Self-employed income tax in Portugal

For self-employed foreign residents in Portugal, taxes on income are assessed as annual personal earnings instead of corporate tax. This means that sole traders, freelancers, digital nomads, and entrepreneurs running businesses outside of Portugal will be liable for Portuguese individual income tax (IRS).

According to the relevant Portuguese tax year, these tax payments are usually due between the 10th and 20th of the month following the relevant month. These federal taxes are calculated based on the taxpayer’s economic situation and household.

Foreign citizens earning income in Portugal may qualify for a specific tax regime as non-habitual residents, provided they have not had tax obligations in the country in the previous five years. Under this regime, individuals are taxed under IRS as non-habitual residents for a period of 10 consecutive years starting from the year of registration as a resident in Portugal.

Inheritance Tax

In Portugal, inheritance tax operates in a highly favorable manner for direct family members, as they are not subject to any inheritance tax obligations. However, there is a 10 percent Stamp Duty fee, known as Imposto do Selo, imposed on Portuguese assets when inheriting or gifting an estate to legitimate heirs, such as spouses, children, grandchildren, parents, and grandparents. The Stamp Duty only applies to assets Portuguese assets and does not extend to assets held in other countries.

Corporate Tax

Here, we will explore the realm of Portuguese corporate tax. Based on their business income, businesses are expected to pay business taxes set at a fixed rate of 21 percent on all taxable earnings on mainland Portugal. If your business profits exceed €1.5 million, you will be charged an additional levy local municipalities charge of up to 1.5 percent. In the autonomous regions of Madeira and Azores, tax rate is 14.7 percent.

Small businesses and medium-sized enterprises receive a reduced corporate tax rate of 17 percent on their initial €15,000 in taxable profits. Moreover, small enterprises and independent proprietors with annual turnovers beneath €200,000 benefit from a simplified tax regimen. The Portuguese corporate tax return period falls between 16 April and 16 May each year.

Addressing the Portuguese (NHR) Tax System in Portugal

Introduced in 2009, Portugal’s Non-Habitual Residency (NHR) tax scheme offered tax benefits to foreign residents. Under the NHR program, individuals not officially registered as tax residents in Portugal and applied for NHR status benefitted from either tax exemptions or a flat 20 percent tax rate on their foreign-sourced income for a ten-year period. However, on 29 November 2023, the Portuguese Parliament approved the State Budget for 2024 which ended the Non-Habitual Resident Regime (NHR).

Despite the NHR ending, you could still hold an eligibility ticket for the tax regime’s transitional phase if you have a promissory or employment contract or have a residence visa or permit which was valid until December 2023. You can register for the NHR transitional phase which is expected to run from 2024 until 2033 through the Portuguese Tax and Customs Authority (AT) as well as a number of other government agencies. Read the Global Citizen Solutions’, Is the NHR Ending guide to find out more about the current state of the NHR tax system.

Taxes in Portugal for US Citizens

The US requires all US residents, regardless of where they live, to report their global income to the IRS. It is suggested that you investigate the Foreign Earned Income Exclusion, as you may be eligible for an exclusion that might save you money especially since Portugal has tax treaties with a several countries that protects foreign residents from double taxation. If you do not earn a foreign income US citizens will be required to pay taxes on their American earnings in the United States as well as their Portuguese profits in Portugal. If you are an American living in Portugal as an expat but still earning the same income from your home country, you must submit tax returns in both the United States and Portugal.

How to Register for Taxes in Portugal

To register for taxes in Portugal, begin by acquiring your NIF (Número de Identificação Fiscal) number, which serves as your tax identification number. You can apply online through the designated Portuguese government website or by visiting a Finanças office in person. Once you have your NIF, you will then need to fill out a form indicating your commencement of tax activity and submit it to your local tax office, accessible through the Portuguese Tax Agency’s online portal (Portal das Finanças). This guide, How to get a NIF (Tax Identification Number) Portugal: A Guide for Expats, by our residency and citizenship division, Global Citizen Solutions, will help you understand the process better.

Tax obligations in Portugal follow the calendar year, running from January 1st to December 31st, with tax return dates typically falling between April and June of the subsequent year. Your tax return can be completed conveniently either online via the Portuguese Tax Authorities’ website or by utilizing printed forms and submitting them to your local tax authority office in person. Although it is not a strict requirement, it is advised that you work with a tax professional who can guide you through the process and help you avoid double taxation or other unforeseen complications that could arise during the tax return process in a foreign country.

How to file your income tax return in Portugal

Submitting your tax return in Portugal is a straightforward process that can be done online or in person with the correct physical tax forms, or with the help of a tax professional acting as your fiscal representative. Here’s a step-by-step guide to help you navigate through submitting your tax return efficiently and ensuring compliance with tax regulations.

Steps to submit your tax return in Portugal

• Gather all relevant documents required for your tax return
• Access the Finances Portal of the Portuguese government if you’re filing online
• Log in using your NIF (tax identification number) and password
• Navigate to the file return section, review the pre-filled statement, and make any necessary changes
• Click on simulate to obtain a provisional calculation of your tax liability
• Review the payment or rebate information provided
• Submit your tax return by clicking file

Taxes due during property purchase

The following taxes are those that you will need to pay at the time of purchasing when investing in Portugal real estate:

Property Purchase Tax (IMT)

The Imposto Municipal Sobre as Transmissões Onerosas de Imóveis (IMT), or Municipal Tax on Onerous Transmissions of Real Estate, is the Property Purchase Tax applied to the purchase price of the property. This tax ranges from 0-10 percent. The 0-8 percent range depends on the price, location, property type, and use of the property – whether it will be your permanent or secondary residence. The fixed rate of 10 percent applies in cases where the buyer has connections with territories that benefit from more favorable taxation schemes, known as blacklisted jurisdictions.

Stamp Duty

The Imposto do Selo (Stamp Duty) is one of the oldest state taxes in Portugal. The property buyer must pay Stamp Duty on title deeds, contracts, bank mortgages, and loans. The Stamp Duty amount you pay when you buy a home depends on the property’s worth and the rate for purchasing a property in Portugal is 0.8 percent of the value of the business or the value of the property. The rate is levied on whichever value is higher. If the property is donated, the Stamp Duty rate will be 10 percent of the value of the business or the value of the property.

Annual taxes due after property purchase

Below, we will share more about the property taxes you will need to pay annually after purchasing property in Portugal.

Property Tax in Portugal (IMI)

One significant local tax to note is the Imposto Municipal sobre Imóveis (IMI), also known as the Municipal Property Tax or Immovable Property Tax. Similar to council tax in other countries, this is an annual tax that property owners in Portugal are required to pay.

The IMI is levied on the Property Tax Value (VPT), not on the purchase price of the property, and the rates are determined by the municipality where the property is located. For urban properties, the IMI Tax ranges from 0.3 to 0.45 percent of the VPT. However, it can also reach 0.5 percent in some instances. The IMI rate applied for rustic buildings is 0.8 percent. The tax revenue contributes towards the upkeep of public amenities such as waste management and street maintenance.

The tax authority communicates IMI amounts and payment procedures to taxpayers by 30 April of each tax year. Payment methods are flexible, with options for single or multiple installments depending on the tax amount owed. Missing payment deadlines may incur interest or fines, underscoring the importance of timely compliance.

Additional to Municipal Property Tax (AIMI)

Tax residents owning properties exceeding €600,000 are liable for additional taxes under Additional to Municipal Property Tax (AIMI). This tax is charged on real estate assets owned by Portuguese residents who own properties with a high Tax Asset Value (VPT) and can be calculated as follows:

• 0.7 percent tax on owning property valued between €600,001 and €1 million
• 1 percent tax on property valued between €1mil and €2 million
• 1.5 percent tax on property if its total value is above €2 million

Tax on rental income

Income originating from housing rentals is taxed at 25 percent, while in all other situations, the tax rate is 28 percent. Income will be taxed at a rate of 25 percent or 28 percent, depending on the purpose for which the contract is intended. Note that rates sometimes undergo small changes, but the rate will always end up between this range of values.

Also, it is important to bear in mind that the 25 percent tax rate is applied to long-term rental income from 2023 (for the entire year of 2023) and not just from income received, following the Mais Habitação law passed in October 2023.

Our article, Property Taxes in Portugal 2024: An Overview, will give you a complete understanding of property tax purposes and obligations.

Capital Gains Tax in Portugal

Capital gains from property sales are taxable profits earned from selling a property, necessitating disclosure in the tax return for the year of purchase alongside the acquisition price. Any property improvements or maintenance, such as installing a heating system, must be declared with corresponding invoices to factor into the capital gains assessment. It’s essential to provide documentation detailing the work done and associated expenses for accurate tax assessment.

Capital Gains Tax is levied differently for Portuguese residents and non-residents who sell property in Portugal. For Portuguese residents, the tax on capital gains is only levied on 50 percent of their whole capital gain. For residents taxation comes into effect when real estate profits are added to yearly income. The rate may range from 14.5 percent to 48 percent, depending on the income tax scale rates as well as your earnings. Non-residents are taxed at a rate of 28 percent and on the full amount of the capital gain from the property sale. You can discover more in our Capital Gains Tax Portugal guide.

Tax Advice in Portugal

When making capital investments, property investments with interest in earning rental income, or selling a property resulting in you having to pay capital gains tax, seeking professional advice from a tax professional, real estate lawyer, or buyer’s agent will make all the difference to navigating the process. The professional assistance of a tax practitioner with simpler tax liabilities in Portugal, such as understanding consumption tax and navigating tax on interest income or dividend income, is also a valuable asset. Deciding to work with a professional will give you the benefit of peace of mind about the intricacies involved in moving to Portugal.

Goldcrest: How Our Expertise Can Help

Goldcrest is a local buyer’s agent based in Lisbon that provides insightful real estate expertise and strategic advice. From sourcing to property acquisition, we offer a tailor-made service for our clients, assisting them in identifying outstanding investment opportunities in some of Portugal’s finest locations, from relocation to investment projects. Book a complimentary call with us today to discuss potential investment opportunities in Portugal.