The Tax System in Portugal: A Guide for Expats

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Introduction

Are you considering moving to Portugal and would like to know more about the country’s tax regime? No worries, we’ll provide you with all that you need to understand about tax in Portugal. Praised for its quality of life and excellent weather, Portugal also has a very generous tax system, which is one of the reasons why Portugal has quickly become a very popular destination for expats from different countries.

Discover how taxes in Portugal work, including federal and local taxes for employees and businesses as well as tax rates in this article.

The tax system in Portugal

If you’re moving to Portugal soon, or are already in the country, this means that you’ll need to know more about the tax system as a foreigner to understand how to register yourself as a taxpayer.

Becoming a taxpayer starts by registering yourself as a taxpayer and obtaining your NIF (Número de Identificação Fiscal) number. You can check this Step-By-Step Guide, and also request your NIF online from here.

Then comes the next step of completing this form and submitting it to your local tax office, which you can find on the Portuguese Tax Authority’s online portal (Portal das Finanças).

The Portuguese tax year follows the calendar by starting on the 1 of January and ending on the 31 of December.

The Portuguese tax year runs from 1 January to 31 December, with returns submitted between April and June of the following year. Returns can be completed online via the Portuguese Tax Authorities’ website or via printed forms. Note that late return payments will amount to penalties ranging from €200 to €2,500. If you happen to have business activity in the country, then getting assistance from a bookkeeper or an accountant is advised.

In the following section, we will provide you with information about the tax categories in Portugal and how the system works.

Federal taxes in Portugal

Federal taxes are simply the taxes you pay on your earnings as an employed or self-employed worker in Portugal, corporate tax and VAT for businesses, capital gains tax on sales of property and other assets, and inheritance taxes on estates.

Local taxes in Portugal

In Portugal, there are some local taxes along with the federal ones. The most common one of the local taxes as an owner of a property is the IMI (Imposto Municipal Sobre Imóveis) – Portugal’s equivalent of council tax.

This tax rate differs according to each different municipality; each municipality assembles this tax according to the area where you’re house is.

The property tax funds the Portuguese municipalities and it is used to maintain public infrastructures. You are liable to pay the IMI tax when you own the property on the last day of the respective tax year.

Residents with homes valued at more than €600,000 need to pay IMI at an additional level. This is known as AIMI, which many consider being Portugal’s equivalent of a wealth tax.

Taxes on goods and services in Portugal

Established businesses in Portugal with a turnover of more than €10,000 on taxable goods and services must pay VAT.

VAT in Portugal (Imposto Sobre o Valor Agregado, or IVA for short) was established in 1986, and comes with three chargeable bands:

Reduced rate: 6% on mainland Portugal, 4% on the island of the Azores, and 5% on the island of Madeira for goods and services in List I of the Value Added Tax Code (e.g., meat, fruit, vegetables, cereal), books, newspapers, medicines, transport, and hotel accommodation.
Intermediate rate: 13% in mainland Portugal, 9% on the island of the Azores, and 12% on the island of Madeira on food and drink goods and services List II of the Value Added Tax Code.
Standard rate: 23% in mainland Portugal, 18% on the island of the Azores, and 22% on the island of Madeira for all remaining taxable goods and services.

For more information, please refer to Article 18 of the Value Added Tax (VAT) Code.

Who has to pay tax in Portugal?

So, how do you know if you’re considered a taxpayer in Portugal or not?

Your tax liability as an expat depends on your residency status, which is defined by how much time you spend living and working in Portugal each year.

The simplest approach is that if you are in Portugal for 183 or more days in a single calendar year, you will typically be classed as a Portuguese tax resident. However, a number of other factors may also see you deemed as a tax resident:

You have a permanent residence in Portugal on December 31st in that tax year.
If the head of your household is a tax resident in Portugal.
If you are part of the crew on a ship, yacht, or aircraft, which is owned by a Portuguese entity.
If you work for the Portuguese state, regardless of the country you work in.

The Portuguese (NHR) tax system for foreigners

If you’re an expat living in Portugal, the good news is you can take advantage of the Non-Habitual Residency (NHR) tax system in Portugal.

The Portugal NHR tax regime (non-habitual resident) is a successful scheme offering attractive tax breaks for foreign residents, talented individuals, and investors. Introduced in 2009, it offers many tax benefits to its recipients such as a special personal income tax treatment over a 10-year period; tax exemption on almost all foreign source income; a 20% flat rate for certain Portuguese source incomes (from specific professions and from self-employment) — as opposed to normal Portuguese income tax rates of up to 48%; tax exemption for gifts or inheritance to direct family members, no wealth tax, and free remittance of funds to Portugal.

In order to qualify for the NHR regime, applicants must have the right to reside in Portugal either by being an EU/EEA/Swiss citizen or through visa schemes such as the Portugal Golden Visa and not have been a Portuguese tax resident in the five years prior to taking up residence in Portugal.

For more details, here is our explained video for the Non-Habitual Resident Tax Regime (NHR)

The Portugal Golden Visa Program

The Portugal Golden Visa Program, also known as the Residence Permit Program is a five-year residency-by-investment scheme for non-EU nationals. It’s part of Portugal’s immigration move to welcome investors into the country. Since its inception in 2012, thousands of families have successfully relocated to Portugal and benefitted from this program, that has become one of the most successful of its kind over the years.

Portugal awards Golden Visas to foreigners who purchase property worth more than €500,000 in the country. Note that since 1 January 2022, residential properties must be located in designated interior areas of the country, although, for commercial properties, there are no location restrictions. This enables investors to obtain residency in Portugal and travel freely within the European Union.

Sounds interesting? Check out our Portugal Golden Visa: A Complete Step-by-Step Guide 2022 for more details.

You can also learn more about the designated interior areas that are eligible for the Golden Visa residential route to residency in our article here. Note that the autonomous islands of Madeira and the Azores are also still eligible.

Personal income tax (IRS) rates in Portugal

Personal income tax (IRS) applies to the income of the residents in Portuguese territory and non-residents who earn income in Portugal.

Most of the time tax is deducted automatically from pay slips, but it is still mandatory to complete an annual tax return. The tax is determined with reference to the income earned, the corresponding rate is applied according to the relevant band and taking the deductions laid down by law into account (e.g. education or health expenditure).

IRS is calculated individually, but couples and civil partnerships can opt to file jointly. In this case, tax is charged on the total revenue of the persons in the household.

Portugal’s rates for individuals for 2022 are as follows:

Portuguese income tax bands	Portuguese tax rate
up to €7,116	14.5%
€7,117–€10,736	23%
€10,737-€15,216	26.5%
€15,217-€19,696	28.5%
€19,676-€25,076	35%
€25,076-€36,757	37%
€36,758-€48,033	43.5%
€48,034-€75,009	45%
€75,010+	48%

You also need to be aware that Portuguese income taxes apply to earnings in the following six categories:

Employment income
Self-employment income
Investment income
Rental income from properties let in Portugal
Capital gains from selling properties, assets, or shares
Pensions in Portugal, including private pension plans

Get more detailed information about retirement and pensions in Portugal

How to file your income tax return in Portugal

The Portuguese tax year runs from 1 January to 31 December, with returns submitted the following spring. Returns can be completed online or via a paper form. Penalties for late returns fall between €200 to €2,500.

You can submit your annual tax return statement online if you have access to the Finances Portal. Or on one of the submission’s support locations:

Finances reception desks, which provide this service.
Citizen Spaces, which provide this service.
Parish councils, which provide this service.

* In certain locations, you must schedule the service.

Self-employed income tax in Portugal

Sole traders, freelancers, and people who run unincorporated businesses in Portugal will have their income assessed as personal earnings, and pay Portuguese income tax rather than a corporate tax. Read our partner’s Step-By-Step Guide as a Freelancer in Portugal.

Taxes on property and wealth in Portugal

Capital Gains Tax in Portugal is charged on the sale of property or other assets at a rate of 28% for individuals and 25% for companies and non-residents. Residents pay taxes on only 50% of their gains.

Exemptions apply for residents selling their primary home and buying another property in Portugal or elsewhere in the EU, and those selling a property they bought before 1989.

Property tax (IMI)

In Portugal, you need to pay a property tax Imposto Municipal Sobre Imóveis (IMI) as an owner of a property. Rates are set according to each municipality according to the area where you have your house.

IMI varies from around 0.3% to 0.45% of the value of a home in urban areas. In rural areas, a rate of 0.8% applies. You can find out the IMI rates for 2022 in each area on SAPO’s website (in Portuguese).

Homeowners in urban areas with properties worth less than €125,000 can benefit from a three-year exemption on IMI, as long as they live in the property themselves.

You can get a further deduction of around €20 for each dependant, and exemptions also exist for people with low incomes or those with energy-efficient homes.

Property wealth tax (AIMI)

Another post-purchase property tax is the Adicional Imposto Municipal Sobre Imóveis (AIMI), a relatively new tax that is infamously referred to as the Portuguese Wealth Tax as it affects those with a total real estate worth above 600,000 euros.

There are three levels of AIMI Tax in Portugal:

Tax of 0.7% on property valued between €600,000 and €1 mi;
Tax of 1% on property valued between €1 mi and €2 mi;
Tax of 1.5% if the total value exceeds €2 million.

Tax on rental income

If you decide after you have purchased your property that you wish to let it out, then you will be taxed on any profits you make from rental income. Net rental income is taxed at a flat rate of 15%.

When declaring your rental income to the Portuguese tax authorities, deductions for fire insurance are allowed (as it is compulsory for all rental properties) alongside value expenses deductions such as the IMI, costs associated with obtaining an energy certificate, and condominium fees, if applicable.

We’d like to direct you to a very detailed article on the subject here: Property Taxes to consider during the purchase process.

Inheritance tax in Portugal

Portugal has a very favorable inheritance tax as there is no inheritance tax applied to direct family members. However, there is a 10% stamp duty “Imposto do Selo” on Portuguese assets while inheriting or gifting an estate to a spouse or children to exempt it from inheritance tax.

To help reduce the burden paid by expats, Portugal has double taxation treaties with more than 60 countries, including Germany, Hong Kong, and the United Kingdom.

Company taxes in Portugal

In Portugal, if you own a company/business, you will pay the Corporate Tax at a flat rate of 21% on any taxable profits. Local municipality surcharges of up to 1.5% apply, as do additional charges on profits of more than €1.5 million.

Small- and medium-sized companies can pay a reduced corporate tax rate of 17% on their first €15,000 of taxable profit.

Small businesses and sole traders with an annual turnover of less than €200,000 can choose to pay business taxes through a simplified regime, through which they pay tax on their turnover rather than their profit.

The deadline for completing Portuguese corporate tax returns is between 16 April and 16 May each year.

Tax advice in Portugal

Filling out a tax return and dealing with the complex topic of taxes on your own can be a little bit confusing and complicated, especially if you are self-employed or managing your own business as a non-EU resident in Portugal. With this stated, you will probably need help or at least advice from an accountant or tax expert.

With the help of your tax expert, you will be able to get your tax and social security issued and be sure that you’re going in the right direction during your residency.

We have inserted some useful links for you inside this article and you can also check the following useful sources:

Frequently asked questions about tax in Portugal for expats

Do I need to pay tax in Portugal as an expat?

As an expat, you are considered a Portuguese taxpayer if you reside more than 183 days in a single calendar year in Portugal or if you have a permanent residence in Portugal.

Can I benefit from tax exemptions as a foreigner?

Thanks to the Non-Habitual Resident tax regime (NHR), foreigners can benefit from a special personal income tax treatment over a ten-year period, with tax exemption on almost all foreign source income.

Does Portugal have an inheritance tax?

Portuguese does not apply any inheritance tax on direct family members; however, it imposes a 10% ‘stamp duty on Portuguese assets inherited or gifted outside of the direct family.

Does Portugal tax worldwide income?

Residents in Portugal are taxed on their worldwide income at progressive rates. Non-residents will only be taxed on incomes earned in Portugal (typically at a flat rate of 20%).