Taxes in Portugal

Guide to taxes in Portugal

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Find out whether you need to file a Portuguese tax return in Portugal, and what taxes apply in Portugal.

Foreigners who live and work in Portugal are usually liable to pay taxes in Portugal on their worldwide income, although certain foreigners may be eligible to apply for non-resident tax status in Portugal.

Robbin Davies, a financial expert at Spectrum IFA, explains how the tax system in Portugal works, the differences between resident and non-resident taxpayers and the various tax bands in Portugal.

Taxes in Portugal

Foreigners living in Portugal must register as taxpayers before receiving any form of income. You do this by completing a form called the fiche de inscricao and submitting it to your local tax office.

The Portuguese tax year runs for a calendar year i.e. from 1 January to 31 December, and the tax system consists of state and local taxes, which are generally calculated based on income, expenditure and property ownership. 

Portuguese residents are required to file an annual tax return in the spring of the following year. The deadline for employees of businesses is March 15. For other forms of income, such as investment income, the deadline is extended until April 30.

Residency status: Are you a resident or non-resident taxpayer?

Anyone residing in Portugal for 183 days or over during a single calendar year must pay taxes in Portugal. You might also be responsible for filing a Portuguese tax return if you hold permanent residence in the country on December 31 of the tax year, or if your partner is the head of your household and lives in Portugal. In addition if you work for the Portuguese state from any other location or if you are employed to work on a ship, yacht or aircraft owned by a Portuguese company.

Non-residents—those who reside in Portugal fewer than 183 days per year—are not required to pay tax on worldwide income. On the other hand, residents are subject to such tax.

What taxes are based on

Portuguese residents are taxed through Personal Income Tax (IRS) on their worldwide income on a self-assessment basis. The income of married taxpayers is based on the entire family unit, and married couples must also submit a joint tax return. However, spouses of individuals residing in Portugal for fewer than 183 days in the calendar year, and who are able to prove that their main economic activities are not linked to Portugal, may file a tax return in Portugal disclosing the tax resident individual’s income and just their part of the couple’s income.

Types of income

Income is split into the following categories:

  • revenue from employment
  • business and professional income
  • investment income (including interest)
  • rental income
  • capital gains
  • pension income.

Defined tax-deductible expenses are deducted from gross income for each separate category, giving a net taxable income for that category.

Taxes for married couples

A splitting procedure applies to married couples by dividing the family income by two prior to the applicable marginal tax rate being determined. Total taxable income is taxed at progressive rates varying from 14.5% on income under €7,000 to 48% for income over €80,000 to arrive at a final tax liability, then multiplied by two in respect of married couples. There has existed a “Solidarity Tax” of 2.5% which is charged on income over €80,000, and progressively up to 5% for income over €250,000, but this will cease at the end of the 2016 tax year.

Investment income tax

Investment income (such as capital gains, interest and dividends etc,) is currently taxed at a rate of 28%. Likewise, rental income is also currently taxed at 28%, but in both instances tax residents in Portugal may elect for the scale rates to be applied, but once this method is chosen, it will be applied to all income sources. Any tax withheld is considered to be a payment on account against the final total tax liability. 

Self-employed income tax

Income from self-employment is considered category “B” income and is taxed either under a ‘simplified regime’ or based on the taxpayer’s actual accounts. If a taxpayer has earnings below a certain ceiling, they are liable to taxation according to the ‘simplified regime’ whereby 20% of income from sales of products or 80% of income arising from other business and professional services is taxed, with a minimum taxable amount due. You should be aware that no expenses deductions are permitted under the simplified regime.

If the simplified regime is not applicable, then net profits or gains made by an individual are assessed in accordance with the same rules that apply to corporate tax assessment. All income from self-employment or independent activity in Portugal is subject to tax, whether or not an individual is tax resident in Portugal, and may be withheld at source. Tax credits are potentially available for medical expenses, life and health insurance premiums, school fees, and where appropriate also for mortgage interest, but they are subject to certain conditions. There are other credits available, for example for contributions into retirement schemes and the purchase of renewable energy systems. Deductions are also available for limited donations to charities, and for the payments of alimony that has been determined by a court decision.

Non-habitual residents (NHR) tax code

Portugal’s NHR and Golden Visa regimes offer beneficial tax and residence arrangements for foreigners looking to live in Portugal. 

The NHR tax code is designed to attract foreign individuals to Portugal to entice investment and increase employment opportunities in Portugal. NHRs are tax residents of Portugal, but they can benefit from preferential tax rates and in many cases, receive income and interest, which is totally exempt from Personal Income Tax (PIT).

Any person who has not been resident in Portugal in the past five years and who subsequently becomes resident of Portugal may be entitled to apply for this status. The NHR is valid for 10 years—and may well be extended in the future. Individuals who qualify must apply by March 31 in the year following registering as a resident of Portugal. 

Tax treatment of foreign source income (i.e. generated outside Portugal)

The following outlines how various sources of income are treated in the Portuguese tax system.

Category                    Taxation in Portugal

Pension                     Tax Exempt

Real Estate Rentals  Tax Exempt

Interest                     Tax Exempt

Employment             Tax Exempt

Capital Gains             Tax Exempt

Self-employment      Exempt - provided it was obtained from abroad

Note that sources of income from any of the 81 “Black Listed” territories will not qualify under the NHR tax code.

Resident income tax rates for 2016

In Portugal, as in almost all countries in the world, the more income you earn, the more tax you pay. Here are the tax rates for 2016.                                              

Over                           Not over                           Tax rate (%)      Deductible amount (EUR)

0

7,035

14.5

0

7,035

20,100

28.5

984.9

20,100

40,200

37.0

2,693.4

40,200

80,000

45.0

5,909.4

80,000

 

48.0

8,309.4

* euros

Here is a tax calculator, in Portuguese only.

NHR and Portugal source income

Under the NHR scheme, any income generated in Portugal will be taxed at a flat rate of 20 percent instead of at the normal progressive rates: up to 48 percent.

Certain professions, such as architects, engineers, doctors, university professors, auditors and tax consultants and other esoteric occupations may also obtain a favoured tax status.

In essence then, anyone who qualifies for residence in Portugal and who can meet the NHR criteria can obtain the these tax privileges.

Importantly, as well as taking tax advice in Portugal, candidates for the NHR tax Code should ensure that they have informed their home country’s tax authorities that they are leaving to avoid any risk of double taxation. Please note, however, that other countries may challenge such residency status by arguing that in accordance with their domestic rules the relevant person should be considered resident in such jurisdiction. If that becomes the case, i.e. if there is a conflict of residency where two countries consider the same individual resident in both their respective jurisdictions, the tie-break clause established under the tax treaties will apply.

In the case of the United Kingdom, the new Statutory Residence Test (SRT) “maze” can exclude a claim of non UK residence, or inhibit the number of days one can visit the UK in the first three years of non-UK Residence unless certain steps are taken. 

Who can apply for a Golden Visa?

The Golden Visa programme makes it easier and faster for foreign investors from non-EU countries to obtain a fully valid residency permit in Portugal. This permit enables non-EU citizens to enter and live in Portugal if they are involved in investments defined in the law. 

Third-state citizens involved in an investment activity, either individually or through a company conducting, at least, one of the following operations in national territory for a minimum period of five years:

I) Capital transfer with a value equal to or above 1 million Euros;

II) Creation of at least 30 job positions;

III) Acquisition of real estate with a value equal to or above 500,000.- Euros.

It covers shareholders of companies already set up in Portugal, or in another EU State, with a stable residence in Portugal and with tax obligations fulfilled.

The investment function established for the Golden Visa has to made and maintained for a minimum of five years from the date of which the Golden Visa is established. The Golden Visa is initially valued for 1 year, renewable for each two-year period required. Holders of the golden visa may need to evidence that they have stayed on Portuguese territory for at least seven days in the first year and fourteen days in the subsequent two-year renewal periods

After the six years, the visa holder is eligible to apply for Portuguese citizenship, if they so desire.

Disclosing foreign bank accounts

It should be noted that with effect from 2010, all foreign bank account holdings are required to be disclosed on income tax returns. In addition, Portugal has a list of jurisdictions that it considers to be “tax havens”. This list includes the Channel Islands and the Isle of Man, and income from these jurisdictions is taxed at the higher rate of 35%. There do exist alternatives to these jurisdictions which are approved by the Portuguese Tax Authority. Likewise, whilst Trust income is considered liable to taxation, this varies depending on whether the payments from such entities arise from distribution by, or dissolution of, the trust. Nevertheless, where estate planning is concerned, this can be of considerable interest.

Non-Habitual Resident (NHR) programme

This attractive regime for new residents with substantial assets is still available for those persons who have not been tax resident in Portugal during the previous five years, whether employed or retired. It provides for substantial tax exemptions during the first ten years of residence. Spectrum IFA Group would be pleased to discuss the structure and implications of the scheme.

Tax penalties

Penalties for filing tax returns late can be high in Portugal, anywhere €200 to €2,500. Late payment penalties can be anywhere from 10% of the amount owed, to double – but there is a maximum fine of €55,000.

Disclaimer

This is not an exhaustive list of taxable items, and changes may occur during the current tax year, but it is designed to give an overview of the most import and key issues. You can find more information, in English, via the Portuguese tax authority


Robbin Davies Spectrum IFA / Expatica

Taking professional advice from a designated tax-advisor is essential, and Spectrum IFA Group assists in finding the appropriate institution or individual to provide such advice.

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