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.
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%
€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%
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.
Foreigners in Portugal who are classified as non-residents are subject to a flat income tax rate of 25 percent on all their earnings. This means that if you earned €50,000 in Portugal during 2022, you would owe €12,500 in taxes, equivalent to 25 percent of your income.
How to file your income tax return in Portugal
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.
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.
Foreigners in Portugal who are classified as non-residents are subject to a flat income tax rate of 25 percent on all their earnings. This means that if you earned €50,000 in Portugal during 2022, you would owe €12,500 in taxes, equivalent to 25 percent of your income.
For non-residents, you'll pay a flat tax rate of 25%, while residents are taxed on a progressive scale from 14.5% to 48%. Like the US, the Portugal tax year is the calendar year. Returns must be filed by March 31st, and you are required to pay any additional tax owed by that date.
They won't pay social security taxes in Portugal. Under U.S. law, U.S. Social Security covers self- employed workers if they are U.S. citizens or U.S. resident aliens, even if they live and work outside the United States.
All US citizens and permanent residents — even those living abroad — are subject to taxation on their worldwide income, as long as they meet the minimum income thresholds.
The treaty provides that you won't be taxed in either country on your wages, salaries, tips, and other compensation from a Portuguese source if you're an employee of a U.S. company that has a permanent establishment in Portugal or if you live in Portugal for 183 days or more during a consecutive period of 12 months.
Foreigners in Portugal who are classified as non-residents are subject to a flat income tax rate of 25 percent on all their earnings. This means that if you earned €50,000 in Portugal during 2022, you would owe €12,500 in taxes, equivalent to 25 percent of your income.
The Portuguese Non-Habitual Residency status enables those who become tax resident in Portugal and are accepted as a non-habitual resident, the opportunity to receive qualifying income tax-free both in Portugal and in the country of the source of the income.
You can live comfortably with an estimated €1,300-€1,500 (US$1,500-1,700) per month in small towns or €1,700 ($2,200) in larger urban areas such as Lisbon or Porto. Groceries, eating out, rent, utilities, and health care are especially affordable in Portugal.
In order to move to Portugal as a retiree, you will need to get a residence permit. As with other countries in the European Union (E.U.), getting residency in Portugal is rather easy for E.U. citizens. But the process is also simple for U.S. citizens.
How much tax will I pay? As a non-resident of Portugal you will pay tax at a rate of 28%, but only on 35% of the total rental income because the remaining 65% is deemed to be expenses in running the business. This means you are paying an effective tax rate of less than 10%.
Portugal has long been a top location to retire to. With dreamy sunsets over beautiful beaches, an affordable cost of living, excellent seafood, and attractive tax benefits, it is understandable why so many retirees are turning their attention to Portugal.
Well, if you qualify for the Foreign Tax Credit, the IRS will give you a tax credit equal to at least part of the taxes you paid to a foreign government. In many cases, they will credit you the entire amount you paid in foreign income taxes, removing any possibility of US double taxation.
While yes, U.S. citizens file a yearly tax return even if they live abroad, U.S. expats don't usually end up owing anything. While there is no overarching tax exemption for U.S. citizens living abroad, there are a variety of mechanisms in place to prevent Americans from being double taxed on foreign-earned income.
Property tax rates range from 0.3% to 0.45%. While properties in rural areas are taxed at 0.8%, properties in more urban areas are taxed within the mentioned range.
Since nowadays the IRS declaration can only be submitted electronically, you need to log in to the Tax Office Portal ("Portal das Finanças"). The access to the portal can be done using your tax number (NIF) and password, mobile digital key or with your citizen card.
A 10% tax rate on foreign pension payments (including IRA and 401k withdrawals) and a 20% tax rate on Portuguese income, instead of the country's standard tax rates that can run as high as 48%. No tax on dividend and interest payments from foreign investments.
As a general rule, an individual is qualified as a resident of Portugal if: - he is present in Portugal for more than 183 days, consecutive or otherwise, in any 12-month period starting or ending in the calendar year concerned; or - he is in Portugal for a shorter period, but he has on any day during the period ...
Portugal introduced the Non-Habitual Residence (NHR) scheme in 2009 and made updates in 2020. It offers new residents to the country the potential for very low (or no) tax on pensions, capital gains and certain types of income for 10 years.
The tax rate is determined annually and varies between 0.3% and 0.8%. This tax is due by anyone who owns the property on the last day of December of the previous year. For example, if you own a property on 31 December 2021, you will have to pay the Portuguese IMI tax in 2022.
Lisbon is one of the cities where expats are happiest with their life abroad, according to the Internations Expat City Ranking 2022, where the Portuguese capital comes in fourth. (Valencia, Dubai, and Mexico City are first, second, and third, respectively.)
It is relatively easy to retire in Portugal. The Algarve region in the south of the country is especially popular with retirees. At least 100,000 retirees are estimated to be living in that region alone.
The main places American expats live in Portugal are Lisbon, Cascais, Porto, Algarve, and Coimbra. Lisbon: Lisbon is Portugal's capital city and offers a vibrant cultural scene, a bustling nightlife, and easy access to the rest of Europe.
Health Insurance in Portugal is affordable and averages somewhere between €40 and €100 per month, depending on multiple factors like age and pre-existing conditions. To visit a private Doctor in Portugal, you would typically pay around €50 to €100 per appointment. With insurance you can pay only a fraction of that.
As an American, you need to get a Portuguese residence permit if you're planning to stay there for longer than three months. If you reside in Portugal with a proper residence permit for five years, you can then apply for permanent residency or Portuguese citizenship.
Put simply, 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 will need to pay taxes on just 50% of their capital gains.
Portugal's 'non-habitual residents' (NHR) scheme gives special tax benefits to new residents for their first ten years in the country. It also offers a lower income tax rate of 20% if you're employed in Portugal in a 'high value' activity and allows you to receive some foreign income tax-free.
Firstly, the Global Peace Index 2021 ranks Portugal as the fourth-safest country to live in, while Italy is ranked at thirty-two. Of course, this doesn't mean Italy is completely unsafe, but an environment where you don't have to worry about your safety is an added benefit for older people.
Mainly yes, Portugal has a free healthcare system. It's free for all Portuguese citizens and residents. Citizens and residents of the country who contribute to the Social Security Fund can receive free medical care through the National Health Service, SNS.
Combined with its relatively warm temperatures, plentiful recreational activities, widespread knowledge of English among many locals, and relatively low cost of living, Portugal is a natural destination for Americans looking to relocate.
Portugal has become a top-choice European country for Americans Expats, Nomads and Retirees in recent years for many reasons. Portugals fast and straightforward pathway to citizenship certainly plays a factor. After 5 years of residency those who speak a basic level of A2 Portuguese language can apply for citizenship.
There are a number of different ways for Americans to get a Portuguese visa, through work, marriage, or the Golden Visa investment program. After five years, you can apply for permanent residency and Portuguese citizenship, provided you meet all the requirements under Portuguese nationality law.
Portugal is actually considered one of the most affordable countries in Western Europe and is an average of 50 percent cheaper than living in the United States.
Home to approximately 87 different nationalities, Lisbon is the most popular place for expats to live in Portugal. The diversity of the city makes it a very dynamic and exciting place to live.
The average monthly salary in Portugal is low, however, the affordable cost of living makes up for the low income. The average monthly salary after the taxes comes to around €850. Many locals in Portugal get by with less than €750 a month. The cost of living for a couple in smaller cities in Portugal is around €1700.
If your employer hired you to work in an agreement country, you generally will pay social security taxes only to that country. This also applies if you are in a country to work for more than five years. You will be exempt from paying U.S. Social Security taxes1.
Do I still need to file a U.S. tax return? Yes, if you are a U.S. citizen or a resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live.
Some American expats who work abroad may also need to pay US social security and Medicare taxes on their earned income, especially if they are self-employed or work for a US-based employer. For the 2022 tax year, the rate for expat employees is 7.65%. For self-employed expats, however, the total is double, at 15.3%.
If you are thinking of living or working in Portugal you must fulfil one of the following conditions to obtain a tax address in Portuguese territory: remain for over 183 days, whether consecutive or not, within a 12-month period, beginning or ending in the year in which you request a tax address.
The expatriation tax provisions (prior to the AJCA amendments) apply to U.S. citizens who have renounced their citizenship and long-term residents who have ended their U.S. residency for tax purposes, if one of the principal purposes of the action is the avoidance of U.S. taxes.
If you are a resident of both the United States and another country under each country's tax laws, you are a dual resident taxpayer. If you are a dual resident taxpayer, you can still claim the benefits under an income tax treaty.
There are several advantages: no taxes on foreign income; 20% tax on income earned in Portugal compared to standard Portuguese income tax rates of up to 48%; social contributions 10% which is considerably less than the standard rate.
Resident individuals are subject to income tax on their worldwide income while nonresidents are liable to income tax only on income sourced in Portugal. Residence is determined by physical presence in Portugal for 183 days or more in any tax year.
The short answer is yes!Buying property in Portugal is a great way to invest your money, whether you're looking for a holiday home, a retirement property, or an investment to rent out. We've seen that the returns from short-stay property lets are particularly profitable in Portugals tourist and student-heavy cities.
The rise in property prices has been caused by growing demand from foreign buyers, who have flocked to Portugal in search of a warm climate, lower costs of living and the so-called “golden visa” program, which ties residency permits to real estate purchases.
As an American, you need to get a Portuguese residence permit if you're planning to stay there for longer than three months. If you reside in Portugal with a proper residence permit for five years, you can then apply for permanent residency or Portuguese citizenship.
Does Portugal Allow Dual Citizenship? Portugal allows dual citizenship. Only if the applicant's home country does not allow it, the applicant may have to renounce their citizenship of their own country.
Buying property in Portugal allows you to acquire a Portugal residence permit, as long as you stay in the country for a minimum of 14 days each two years.
Non-residents are liable to income tax only on Portuguese-source income, which includes not only that portion of remuneration that can be allocated to the activity carried out in Portugal but also remuneration that is borne by a Portuguese company or permanent establishment (PE).
Introduction: My name is Nicola Considine CPA, I am a determined, witty, powerful, brainy, open, smiling, proud person who loves writing and wants to share my knowledge and understanding with you.
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