The tax system in Portugal: a guide for expats (2024)

Learning about taxes might seem like a chore, but if you’re moving to Portugal, it’s important to get your head around the tax system. Below, you’ll find information on:

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The tax system in Portugal

The Portuguese tax system consists of state and local taxes, which are generally calculated based on income, expenditure, and property ownership.

Foreigners living in Portugal must register as taxpayers before they can start earning money. You can register by completing a form and submitting it to your local tax office, which you can find on the Portuguese Tax Authority’s online portal (Portal das Finanças).

If you need help registering, you can contact an expat-friendly service to help you with the process. Some options include:

• Anchorless
• Bordr
• e-residence

The Portuguese tax year runs alongside the calendar year (1 January to 31 December).

Federal taxes in Portugal

Federal taxes include income tax on earnings for employed and self-employed workers, 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

Some taxes in Portugal are levied at a local level. The most significant is IMI (Imposto Municipal sobre Imóveis) – Portugal’s equivalent of council tax.

IMI is charged by your municipality based on the value of your home and the perceived wealth of the area in which you live. IMI is only applicable to homeowners, so tenants are exempt.

Income from IMI pays for ongoing upkeep and maintenance of the local area, including services such as bin collections and recycling.

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

Who pays VAT in Portugal?

Businesses in Portugal with a turnover of more than €13,500 on taxable goods and services must pay VAT. This will rise to €14,500 in 2024 and €15,000 in 2025.

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

• General rate:23% on taxable goods and services
• Intermediate rate:13% on food and drink goods and services
• Reduced rate:6% on certain essential necessities including certain foods (e.g., meat, fruit, vegetables, cereal), books, newspapers, medicines, transport, and hotel accommodation

Separate IVA rates apply in the islands of Madeira (22%/12%/5%) and the Azores (16%/9%/4%).

Who has to pay tax 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.

If you reside in Portugal for 183 days or more in a calendar year, you’ll be considered a resident and will need to pay income tax on your worldwide income. If you live in Portugal for fewer than 183 days, you’ll only need to pay on income earned within Portugal.

Income tax rates for residents in Portugal are progressive, meaning you pay more tax the more you earn. Non-residents are taxed at a flat rate of 25% of income.

The Portuguese tax system for foreigners

Some expats living in Portugal can take advantage of the Non-Habitual Residency (NHR) tax codes, which provide substantial exemptions for the first 10 years of residence.

NHR status is available for workers in qualifying professions and has two main benefits.

Firstly, you can live as a Portuguese resident but not pay tax on your earnings elsewhere in the world (including employment and capital gains), effectively giving you non-resident status.

Secondly, you’ll pay income tax on Portuguese earnings at a flat rate of 20%, rather than the standard progressive rates of up to 48%.

In 2020, the Portuguese government increased the tax rate on foreign pension income from 0% to 10%.

Golden visa scheme

Portugal awards golden visas to foreigners who purchase property worth more than €500,000. This enables investors to obtain residency in Portugal and travel freely within the European Union.

Since 2022, real estate investments only count towards a golden visa in inland parts of Portugal, the Azores, and Madeira. In 2023, the Portuguese government announced plans to scrap the scheme.

What are Portugal’s income tax rates?

Portuguese residents must pay personal income tax on their earnings. Most workers pay taxes automatically via their payslips, but everyone must still complete an annual tax return.

Married couples in Portugal must submit a joint return. To calculate the relevant tax rate, the couple’s collective income is divided in two.

Portugal’s rates for individuals for 2022 and 2023 are as follows:

2022 income tax bands

2023 income tax bands

Portuguese income taxes apply to earnings in the following six categories:

• A:Employment income
• B:Self-employment income
• E:Investment income
• F:Rental income from properties let in Portugal
• G:Capital gains from selling properties, assets, or shares
• H:Pensions in Portugal, including private pension plans

In 2023, an additional solidarity tax ranging from 2.5% to 5% applies to taxpayers who earn more than €80,000 a year.

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 can be anywhere from €200 to €2,500.

The current window for completing your tax return for 2022 is from 1 April to 30 June 2023.

If you owe tax on income that hasn’t been deducted through Portugal’s pay-as-you-earn system, you can make payments in installments, which are generally due in July, September, and December.

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 payPortuguese income taxrather than corporate tax.

Tax on property and wealth in Portugal

Capital gains tax in Portugal is charged on the sale of property or other assets at a rate of28% 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)

As a property owner in Portugal, you must pay IMI, the Portuguese version of council tax.

Each individual municipality sets its own rate, which the municipal assembly decides.

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.

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

First introduced back in 2017, the Adicional Imposto Municipal Sobre Imóveis (AIMI) affects owners with a share in Portuguese property worth over €600,000. If you and your partner jointly own the property, you only pay AIMI if the value is over €1.2 million.

Regardless of residency status, the rates applied are 0.4% on the total amount for properties held by companies, 0.7% for individuals, and 1% for those owning property valued over €1 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%.

Inheritance tax in Portugal

The Portuguese government abolished inheritance tax several years ago, but a stamp duty known asImposto do Selomay apply at a rate of 10%.

If you have to pay tax on inheritance in Portugal, you must do so within three months from the date of death. This is a strict deadline; you may have to pay a fine if you’re late.

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.

This means you can offset the tax paid in Portugal against any you might owe in your home country.

Company taxes in Portugal

Businesses pay corporate tax in Portugal at a flat rate of 21% of 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 €50,000 of taxable profit in 2023 (up from €25,000 in 2022).

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 the last day of the fifth month following the end of the tax year – so if the company’s tax year runs from January to December, the deadline would be the end of the following May.

Tax rebates and reliefs in Portugal

Individual taxpayers can benefit from a series of allowances against their taxable income. These include a general allowance of €4,104 and deductions for any dependants. It’s also possible to offset a proportion of healthcare, education and housing costs.

Tax avoidance and evasion in Portugal

The Portuguese government is increasingly looking to crack down on tax evasion. New rules introduced in 2023 mean companies must report a full inventory when filing their taxes, rather than simply supplying details of raw materials and products for sale.

If you don’t submit your tax return, you’ll face a penalty. Individuals who file their return late or incomplete face fines ranging from €200 to €2,500. Interest on late payments ranges from 10% of the outstanding tax to double its value (up to a maximum of €55,000).

Corporate tax fines are much higher. Companies who file their returns late face daily interest charges of 4% of the tax due. Penalties are capped at €45,000 (in cases of negligence) or €165,000 (if the delay is deliberate). Late payments are charged at between 30% and 100% of the tax due, capped at €45,000.

Tax advice in Portugal

Filing a tax return can be complicated, especially if you’re self-employed or own your own business. With this in mind, it makes sense to seek advice from an accountant or tax expert.

You can also get advice on tax and social security issues from an English-speaking chartered accountant through the international directory through theInstitute of Chartered Accountants in England and Wales (ICEAW).

Useful resources

• Portugal’s Tax Authority
• Portuguese Social Security department

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