The income tax system in Portugal
If you're working in Portugal, here is an overview of income taxes in Portugal.
A personal income tax (Imposto sobre os Rendimentos de Pessoas Singulares or IRS) is levied annually. Returns for income received in the previous year must be submitted in February or early March for the following categories; income from employment and pensions. For the rest of the categories, the forms must be filled in at the end of March or in April. Specific deadlines will change each year.
Personal income tax is charged on the value of the following income categories:
- Category A – Income from employment
- Category B – Income from business and professional services
- Category E – Investment income
- Category F – Property income
- Category G – Capital income
- Category H – Pensions
A taxpayer’s card is required and can be obtained at the local tax office by presenting a valid identity document. A taxpayer’s number (Documento Provisório de Identificação Fiscal) is allocated for the first few months.
Residents are subject to the tax on income earned anywhere in the world. You will be considered a resident of Portugal for a given tax year if:
- You are in Portugal for more than 183 days during the year
- You were in Portugal for less than 183 days; but on 31 December you are in possession of accommodation that you intend to use as a permanent residence
- You work with an airline whose companies are based in Portugal
All members of a family are considered to be resident in Portugal if the person responsible lives there.
Portugal has agreements with other European member states in order to avoid double taxation of income. If you earn income in another member state, you will only have to pay tax on that income in that country.
Married couples (who are not separated) and unmarried couples present their annual tax return together. Unmarried taxpayers pay tax individually.
The following deductions are made from taxable income of the tax payer and dependants: health, education and vocational training expenditure, vocational rehabilitation expenditure, nursing home expenditure (for relatives or dependants), expenditure on the purchase of or repairs/improvements to a dwelling (including the purchase of renewable-energy equipment), costs of acquiring computers and software, costs relating to certain insurance premiums, Plano Poupança Reforma (private pension plans), and donations to the State and to other entities of public utility.
Income tax rates vary according to seven brackets of annual income. The first rate is 10.5 percent for income below EUR 4,755 and the maximum rate is 42 percent for income above EUR 64 110. The rates may vary according to location; for example, in Madeira in 2007, they ranged from 8.5 percent to 41 percent.
VAT – Value Added Tax (imposto sobre o valor agregado – IVA)
Purchase, sales and imports of goods and services are subject to VAT. The applicable rates vary according to the different types of goods and services:
- 5 percent for foodstuffs and other basic necessities
- 12 percent for provision of food and drink services
- 20 percent for other goods and services
The rates applied in the independent regions of Madeira and the Azores have been dropped to 4 percent, 8 percent and 14 percent respectively.
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