Thinking of moving to Portugal but unfamiliar with the tax system? Look no further. This guide is designed to help you navigate the tax system in Portugal.
Famous for its high quality of life and temperate climate, Portugal also offers a generous tax regime. This has made the country very popular with expats.
The Tax System in Portugal
If you’re moving to (or are already in) Portugal and earning an income, you may have to pay taxes. If you reside in Portugal for 183 days or more a year, you must pay income tax on your worldwide income.
How to register
The process starts by registering yourself as a taxpayer and obtaining your NIF (Número de Identificação Fiscal) number. You can request your NIF online through this website or go to a Finanças and request a NIF in-person.
Once you’ve received your NIF, you’ll need to fill out this form stating that you’re starting a new tax activity and submit it to your local tax office, which you can find on the Portuguese Tax Agency’s online portal (Portal das Finanças).
The Portuguese tax year follows the calendar, starting on 1 January and ending on 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.
Be sure to file your returns on time to avoid potentially hefty penalties ranging from €200 to €2,500. If you happen to be doing business in the country, then hiring an accountant or bookkeeper is recommended.
Local Taxes in Portugal
Before we get into more specific taxes, such as income tax and VAT, there are a few local taxes to be aware of.
The IMI (Imposto Municipal Sobre Imóveis) is Portugal’s equivalent of council tax and is to be paid by property owners. Each municipality sets different rates according to your property’s area. The IMI goes towards maintaining public infrastructures such as bin collections and street cleaning.
If you own property on the last day of the respective tax year, you are liable to pay IMI tax. Residents with homes valued at more than €600,000 need to pay a higher level of IMI known as AIMI. Many consider AIMI as Portugal’s equivalent of a “wealth” tax.
Taxes in Portugal on Goods and Services
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 percent in mainland Portugal, 4 percent in the Azores, and 5 percent in Madeira for the goods and services included in the List I of the Value Added Tax Code. The reduced rate applies to goods such as bread, pasta, milk and dairy products, books, newspapers, and chocolate.
- Intermediate rate: 13 percent in mainland Portugal, 9 percent in the Azores, and 12 percent in Madeira on goods and services included in List II of the Value Added Tax Code. The intermediate rate applies to goods like pickles, wine, musical instruments, and condoms.
- Standard rate: 23 percent in mainland Portugal, 18 percent in the Azores, and 22% in 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? 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.
If you are in Portugal for 183 or more days in a single calendar year, you will typically be considered a Portuguese tax resident.
However, the following may also make you a tax resident:
- You have a permanent residence in Portugal on 31 December of that tax year
- The head of your household is a tax resident in Portugal
- You are crew on a ship, yacht, or aircraft owned by a Portuguese entity
- You work for the Portuguese state, regardless of where you work from
The Portuguese (NHR) Tax System for Foreigners
Portugal’s Non-Habitual Residency (NHR) tax scheme was introduced in 2009 and offers tax benefits to foreign residents.
Under the NHR program, individuals who have not been tax residents in Portugal for the previous five years and who apply for NHR status can benefit from either tax exemptions or a flat 20 percent tax rate on their foreign-sourced income for a ten-year period. This flat rate can apply to Portuguese-sourced income from self-employment or specific professions.
The NHR rates are highly generous compared to regular Portuguese income tax rates of up to 48 percent.
This program makes Portugal an attractive option for digital nomads, retirees, and anyone looking to live and work in a beautiful and welcoming country while keeping more of their income. Whether you’re seeking a change of pace or a new adventure, Portugal’s NHR program is worth exploring.
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. They must not have been a Portuguese tax resident in the five years before taking up residence in Portugal.
For more details, here is our video about 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 incentives to welcome more investors into the country.
The Golden Visa Program has become one of the most successful programs of its kind.
Since its inception in 2012, thousands of families have successfully relocated to Portugal and benefitted from this program.
Portugal awards Golden Visas to foreigners who purchase property worth more than €500,000 in the country. Since 1 January 2022, residential properties must be located in designated interior areas of the country or the autonomous islands of Madeira and the Azores. 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 2023 for more details.
In this article, you can learn more about the designated interior areas eligible for the Golden Visa route to residency.
Personal income tax (IRS) rates in Portugal
Personal income tax (IRS) applies to the incomes of both Portuguese residents and non-residents who earn income in Portugal.
Usually, tax is automatically deducted from pay slips, but you are still obligated to complete an annual tax return. Tax is determined by looking at the taxable income earned and the corresponding tax rate and removing any legal deductions (e.g., education or health-related expenses).
IRS is calculated individually, but couples and civil partnerships can opt to file jointly. In this case, tax is charged on the total taxable income of the persons in the household. Portugal’s rates for individuals for 2023 are as follows, ranging from 14.5 percent to 48 percent:
|Portuguese income tax bands||Portuguese tax rate|
|up to €7,116||14.5%|
Income tax in Portugal applies 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 detailed information about retirement and pensions in Portugal here.
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.
You can submit your annual tax return statement online if you have access to the Finances Portal. You can also submit in person at the following locations*:
- Serviço de Finanças offices
- Citizen Shops (Lojas de Cidadão)
- Parish councils (Câmara Municipal)
* In specific 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. This results in them paying Portuguese income tax rather than corporate tax.
Taxes on Property and Wealth in Portugal
Capital Gains Tax in Portugal applies to the profit made from the sale of any capital asset, including real estate, stocks, and bonds. The tax rate for capital gains in Portugal is 28 percent which applies to both residents and non-residents, and 25 percent for companies.
However, there are certain exemptions and reductions that may apply, such as a reduction of 50 percent for assets held for more than two years or a complete exemption for capital gains made from the sale of a main residence. Exemptions on Capital Gains Tax also apply for residents selling their primary home and buying another property in Portugal or elsewhere in the EU and those selling a property they purchased before 1989.
Property tax in Portugal (IMI)
In Portugal, if you’re a property owner, you must pay a property tax Imposto Municipal Sobre Imóveis (IMI). Rates are set according to each municipality and area where you have your house.
IMI varies from around 0.3 percent to 0.45 percent of the value of a home in urban areas. In rural areas, a rate of 0.8 percent applies. You can find the IMI rates in your area for 2023 on the SAPO 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 in Portugal is the Adicional Imposto Municipal Sobre Imóveis (AIMI). This relatively new tax is infamously referred to as the Portuguese Wealth Tax, as it affects those with a total real estate worth above €600,000.
The tax is calculated on an individual basis, meaning that if a property is jointly owned, then your property will have to be worth over €1.2 mi before it starts owing AIMI.
There are three levels of AIMI Tax in Portugal:
- Tax of 0.7 percent on property valued between €600,000 and €1 mi
- Tax of 1 percent on property valued between €1 mi and €2 mi
- Tax of 1.5 percent if the total value exceeds €2 million
Tax on rental income
If you decide after purchasing your property that you wish to let it out, you will be taxed on any profits you make from rental income. Generally, net rental income is taxed at a flat rate of 28 percent. However, dependent on the specific characteristics of the contract you may be able to benefit from reduced rates or exemptions.
When declaring your rental income to the Portuguese tax authorities, you might be entitled to certain tax deductions. Deductions for fire insurance are allowed (as it is compulsory for all rental properties) alongside value expense deductions such as IMI, costs associated with obtaining an energy certificate, and condominium fees, if applicable.
We recommend reading our article detailing Portugal’s property taxes if you’re considering letting out your property.
Inheritance Taxes in Portugal
Portugal has a very favorable inheritance tax as no inheritance tax is applied to direct family members. However, there is a 10 percent stamp duty (Imposto do Selo) on Portuguese assets while inheriting or gifting an estate to a spouse or children.
Company Taxes in Portugal
In Portugal, if you own a company/business, you must pay Corporate Tax at a flat rate of 21 percent on any taxable profits. Local municipality surcharges of up to 1.5 percent 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 percent on their first €15,000 of taxable profit.
Small businesses and sole traders with an annual turnover of less than €200,000 can 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 a tax return and navigating complex tax-related administrative work can be confusing and complicated. Especially if you are self-employed or managing a business as a non-EU resident in Portugal. It can give you peace of mind to seek help or 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 everything is above board.
The following sources might also be helpful:
- Personal Income Tax (IRS) in Portugal
- Portugal’s Tax Authority
- Portuguese Social Security department
Do I need to pay tax in Portugal as an expat?
As an expat, you are considered a Portuguese taxpayer if you reside in Portugal for more than 183 days in a calendar year or have a permanent residence in Portugal.
Can I benefit from tax exemptions as a foreigner?
Thanks to the Non-Habitual Resident (NHR) tax regime, foreigners can benefit from a unique personal income tax treatment over ten years, with low tax rates or exemptions on almost all foreign source income.
Does Portugal have an inheritance tax?
Portugal does not apply any inheritance tax on direct family members; however, it imposes a 10 percent stamp duty on Portuguese assets inherited or gifted outside the immediate 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).
It’s worth researching Portugal’s double taxation treaties. Portugal has these tax treaties with more than 60 countries, including Germany, Hong Kong, and the United Kingdom.
Does Portugal have a high-income tax?
Portugal’s income tax is proportional to the amount you’re earning and your tax status. If you’re a high earner in Portugal, income taxes can reach over 40 percent.
However, if you’re a non-habitual resident, tax can be fixed at rates of around 20 percent for a ten-year period.
What is income tax in Portuguese?
Personal income tax in Portuguese is known as Imposto sobre o Rendimento das Pessoas Singulares (IRS).