Guide to taxes in Portugal
What taxes in Portugal apply to expats? This guide to Portuguese taxes includes VAT in Portugal, Portuguese tax rates, Portuguese tax calculators and an overview of the Portuguese tax system.
Foreigners who live and work in Portugal are typically liable to pay taxes in Portugal on their worldwide income, although certain foreigners may be eligible to apply for non-resident tax status and thus only pay Portuguese taxes on income earned in the country.
Robbin Davies, a financial expert at Spectrum IFA, explains how the Portuguese tax system work, Portugal's tax rates, VAT in Portugal and tax in Portugal for expats, including the differences between resident and non-resident taxpayers.
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, ie. from 1 January to 31 December, and the Portuguese 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 15 March. For other forms of income, such as investment income, the deadline is extended until 30 April.
Are you a resident or non-resident taxpayer in Portugal?
Anyone residing in Portugal for 183 days or more during a single calendar year must pay taxes in Portugal on worldwide and local income. Non-residents – those who reside in Portugal fewer than 183 days per year – are not required to pay tax on worldwide income.
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. It can also include those who work for the Portuguese state from any other location or those who are employed to work on a ship, yacht or aircraft owned by a Portuguese company.
What income is subject to Portuguese tax?
Portuguese residents are taxed on Personal Income Tax (IRS) from worldwide earnings, based on a self-assessment. Income tax in Portugal for 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. Read more in our guide to Portuguese income tax, including allowable deductions and how to file your Portuguese tax return as an expat.
Types of income liable to taxes in Portugal
Portuguese income taxes apply to 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.
Portuguese tax for married couples
A splitting procedure applies to married couples, where the family income is divided in two prior to the applicable marginal tax rate being determined. Total taxable income is taxed at progressive rates varying from 14.5 percent on income under EUR 7,000 to 48 percent for income over EUR 80,000 to determine a final tax liability, then multiplied by two in respect of married couples. There has existed a 'Solidarity Tax' of 2.5 percent which is charged on income over EUR 80,000, and progressively up to 5 percent for income over EUR 250,000, although this will cease at the end of the 2016 tax year.
Portuguese tax on investment income
Investment income (such as capital gains, interest and dividends etc.) is currently taxed at a rate of 28 percent. Likewise, rental income is also currently taxed at 28 percent.
However, in both instances tax residents in Portugal can elect for scaled tax rates to be applied (based on income), 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.
Portuguese tax on self-employment income
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 threshold, they are liable to pay Portugal's tax rate for ‘simplified regimes’, whereby 20 percent of income from sales of products or 80 percent of income arising from other business and professional services is taxed, with a minimum taxable amount due. You should be aware that no expense 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 assessments. All income from self-employment or independent activity in Portugal is subject to tax, whether or not an individual is a 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 mortgage interest, where applicable, although certain conditions exist. There are other credits available, for example for contributions into pension schemes and the purchase of renewable energy systems. Deductions are also available for limited donations to charities, and for the payments of alimony that have been determined by a court decision.
Portugal tax rates
Portuguese tax rates on income earnings are rated on a sliding scale similar to elsewhere, where the more income you earn the more tax you pay. However, a number of expenses and allowances can be deducted from your Portuguese income tax liability.
Below are Portugal's tax rates in 2017.
|Income||Portugal tax rate||Deductible amount|
|Up to 7,035||14.5 percent||0|
|EUR 7,035–20,100||28.5 percent||EUR 984.90|
|EUR 20,100–40,200||37.0 percent||EUR 2,693.40|
|EUR 40,200–80,000||45.0 percent||EUR 5,909.40|
|EUR 80,000+||48 percent||EUR 8,309.4|
Portugal tax calculator
Doing an online search will reveal several online webpages offering free Portuguese tax calculators. The government also provides a tax calculator, in Portuguese only.
Wealth tax in Portugal
Portugal's new wealth tax applies as of 2017 and is essentially an extension of Portugal's Imposto sobre Imóveis (IMI), or property tax. Portugal's wealth tax is charged on the ‘catastral’ value of real estate in Portugal, regardless of where the owner is an official resident. It is an annual tax of 0.3 percent for Portuguese properties worth more than EUR 600,000; married/civil partners are granted a combined threshold of EUR 1.2mn.
The tax-free threshold, however, is typically available to individuals and estates, and certain company properties used for commercial, industrial or agricultural purposes. Certain companies are not eligible, in which cases the threshold does not apply. However, wealth tax can be offset againtst the payable tax derived from property rental income, provided you pay taxes in Portugal at the progressive rates.
Penalties for filing tax returns late can be high in Portugal, anywhere from EUR 200 to EUR 2,500. Late payment penalties can be anywhere from 10 percent of the amount owed to double, up to a maximum fine of EUR 55,000.
VAT in Portugal
Portugal's Value-Added-Tax (VAT) rules are based on EU regulation; if a conflict ever arises regarding VAT in Portugal, the European Directive takes precedence.
Portugal's VAT rates (imposto sobre o valor agregado, IVA) include:
- a reduced rate of 6 percent on certain foodstuffs and other basic necessities
- an intermediate rate of 13 percent for provision of food and drink services
- 23 percent on all other taxable goods and services.
There is zero VAT in Portugal on intra-community and international passenger transport. Different VAT rates apply in the Portuguese islands of Azores (18 percent) and Madeira (22 percent).
Portuguese VAT law is directed by the Código do Imposto sobre o Valor Acrescentado (or Codigo do IVA) and Regime de IVA nas Transacções Intracomunitárias (RITI) and administered by the Autoridade Tributária. VAT is typically payable to the authorities seven day after the VAT reporting period deadline, whether monthly or quarterly.
Under the EU single market initiative, it is also possible to buy and sell good without a local company (non-resident VAT trading) or tax registration in Portugal, although it is typically requested by customers.
Portuguese tax benefits for non-nabitual residents (NHR)
The Non-Habitual Resident (NHR) programme is an attractive regime for new residents with substantial assets, available to those who have not been a tax resident in Portugal during the last five years, whether employed or retired in Portugal. It provides for substantial tax exemptions during the first 10 years of residence.
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.
NHR Portuguese tax rates on foreign-sourced income
The following outlines how various sources of income generated outside of Portigal are treated under the Portuguese tax system.
|Category||Liable taxes in Portugal|
|Real estate rentals||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.
In addition, as of 2017, any jurisdiction with tax rates less than 60 percent of the equivalent Portuguese tax rate will be deemed as blacklisted. This could affect homeowners with properties owned through offshore companies, which if deemed in a blacklisted jurisdiction could subject homeowners to wealth tax in Portugal. In such cases, a professional can explain the consequences and conditions.
NHR Portuguese tax rates on local 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, in addition to seeking tax advice in Portugal, candidates for the NHR Tax Code should inform their home country’s tax authority that they are leaving, in order to be aware of or avoid any risk of double taxation. Please note, however, that some countries may challenge Portugal's NHR residency status by arguing that in accordance with their domestic rules the relevant person should be considered a local resident. If that becomes the case – ie. 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. In any case, seeking expert advice is important.
Disclosing foreign bank accounts
It should be noted that since 2010, all foreign bank account holdings must 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 percent. However, there are alternatives to these jurisdictions that are approved by the Portuguese Tax Authority.
Likewise, while 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.
This is not an exhaustive list of items liable to Portuguese taxes and changes may occur during the current tax year, but it is designed to give an overview of the key issues of tax in Portugal for expats. You can find more information, in English, via the Portuguese tax authority.
Click to the top of our guide to taxes in Portugal.
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. Updated 2017.
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