Expats living and working in Portugal typically need to pay Portuguese income tax on the earnings. Portugal has long offered attractive tax incentives for expats, but recent changes have seen these benefits watered down.
This guide to income taxes in Portugal includes advice on the following:
- Income tax in Portugal
- Earnings subject to income tax in Portugal
- How to file your tax return in Portugal
- Income tax rates in Portugal
- Income tax in Portugal for foreigners
- Tax refunds in Portugal
- Tax fines in Portugal
- Income tax advice in Portugal
Income tax in Portugal
The Portuguese tax authority (Autoridade Tributária e Aduaneira) administers Portugal’s tax system. Whether you work in Portugal or retire in Portugal as an expat, you’ll typically need to pay income tax on your earnings.
Portugal operates a pay-as-you-earn income tax system. This means employees typically have their income tax contributions deducted automatically from their salary.
Regardless of your employment status in Portugal, you’ll need to need to fill out an annual Portuguese tax return if you are a tax resident. Married couples in Portugal are taxed jointly on their income and can submit a joint tax return.
Who pays income tax in Portugal?
The income tax rules in Portugal vary depending on whether you’re classified as a resident or non-resident.
Residents must pay Portuguese income tax on their worldwide income, while non-residents only need to pay the tax on Portuguese earnings.
Workers are tax residents in Portugal if either of the following rules apply:
- You have lived in Portugal for at least 183 days (consecutive or not) in total during a tax year.
- You have lived in Portugal for less than 183 days but had a permanent residence there on 31 December.
Expats who have lived in Portugal for less than 183 days and don’t have permanent residence status are non-residents for tax purposes.
Who is exempt from income tax in Portugal?
If you work and earn money in Portugal, you’ll almost always need to pay income tax. All residents have a general tax allowance of €4,104 a year, so if you earn less than this, you won’t need to pay.
There are also some tax exemptions in place for expats living in Portugal who qualify for Non-Habitual Resident (NHR) status. You can find out more about in the section on income tax in Portugal for foreigners.
Earnings subject to income tax in Portugal
Personal income tax in Portugal applies on income from the following six categories:
- A: employment income (salaries in Portugal, remunerations, commissions, percentages, and other fringe benefits)
- B: self-employment income from professions or businesses in Portugal
- E: investment income (profits from assets and investments). Interest on bank deposits, bonds, and dividends are taxed at 28%.
- F: rental income (from any properties that are rented in Portugal). Rental income is taxed at rates of 10–28% (depending on the length of the contract). Residents can choose to instead pay tax at the standard income tax rates.
- G: capital gains (profits from selling a property in Portugal, assets, or shares). Capital gains on property are taxed at 28% on 50% of the gain (for residents and EU nationals). Taxes on capital gains are 28%.
- H: pensions in Portugal, including private pension plans (Plano Poupança Reforma). 25% of employee contributions to private pensions in Portugal are tax-deductible.
How to file your tax return in Portugal
Income tax deadlines in Portugal
The Portuguese tax year runs from 1 January to 31 December. The period for completing your Portuguese tax returns for 2020 is 1 April to 30 June 2021.
If you owe tax on income that hasn’t been automatically deducted through Portugal’s pay-as-you-earn system, you can make payments in installments. If you choose to pay this way, installments are generally due in July, September, and December.
Income tax forms in Portugal
The office will then issue your Portuguese income tax number and can also provide you with a tax return form if you want to file a paper copy.
To complete the Portugal tax form online, you must register on the government’s website and request a password.
If you choose to submit a Portuguese tax return online, you can request an electronic invoice or receipt.
Income tax rates in Portugal
Income tax rates in Portugal are progressive, meaning you pay more tax the more you earn.
Portugal’s income tax rates for 2020 (to be filed in 2021) are the following:
|Portuguese income tax bands||Portuguese tax rate|
|up to €7,112||14.5%|
Non-residents are taxed at a flat rate of 25% of their taxable remuneration.
To help you calculate the amount of income tax you have to pay, you can use the government’s Portuguese income tax calculator.
Personal tax allowance and deductions in Portugal
There are a number of general income tax allowances in Portugal that residents can deduct from their taxable income or use as tax credits to reduce their income tax in Portugal.
Below are some of the tax deductions and tax credits foreigners can consider when filing a Portuguese tax return.
Allowable deductions on tax returns
- A general allowance of €4,104.
- 150% of the amount paid in union fees (limited to 1% of employment income).
- Employee social security contributions to mandatory schemes if higher than €4,104.
- Maintenance and conservation expenses paid out on property yielding a rental income.
Tax credits on your income tax return
- 35% of general family expenses up to a limit of €250 per taxpayer
- 15% of health expenses, up to a limit of €1,000
- 30% of educational expenses, up to a limit of €800
- 15% of VAT on invoices issued by car repair shops, restaurants, hairdressers, and beauty salons, up to a limit of €250 per family
- 20% of alimony pensions arising from court decisions
- 15% of rent costs, up to a limit of €502
- 15% of interests on housing loans, up to a limit of €296
- 25% of donations made to accredited institutions
- 25% of expenses incurred with homes and institutions to support the elderly or disabled, up to a limit of €403.75
- 20% of premiums paid on pension contributions, up to a limit of €400 for those aged under 35, €350 for those between 35–50, and €300 for those over 50
In addition to this, certain daily expenses also are exempt from Portuguese income tax, including the following areas:
- Meal allowance up to €4.77 in cash or €7.63 in lunch vouchers per day
- Daily allowance for business travel up to €50.50 within Portugal or €89.35 abroad
- Travel expenses, variable depending on means of transport and number of employees traveling
Income tax in Portugal for foreigners
Over the last decade, Portugal has sought to entice foreign talent and investment by offering tax breaks for expats. However, recent reforms have made some of the schemes less attractive.
Non Habitual Residency (NHR) tax code
The NHR tax code offers preferential tax rates and exemptions for a period of 10 years to qualifying expats.
It works like this: the tax code allows expats in some professions to benefit from a tax exemption on all forms of income (employment, business, investment, rental, capital gains, and pension) that they receive from abroad. Further income from inside Portugal is taxed at a flat rate of 20%.
28,000 expats have benefited from NHR status since 2009, including nearly 9,000 pensioners. This has led to criticism from the European Union.
Accordingly, in the 2020 budget, the Portuguese government increased the tax rate on foreign pension income from 0% to 10% for people with NHR status from 1 April 2020, making the expat tax code somewhat less attractive.
Double taxation treaties
Portugal has tax treaties with all EU countries as well as a number of countries outside of the EU to prevent double taxation.
A 2003 European Union directive regarding taxation of interest on savings income moved between one member state to another can also help expats ensure that they are fairly taxed.
You can check out our guides on filing your taxes while living abroad for information on filing your UK, US, or Canadian taxes remotely.
Tax refunds in Portugal
In the event of a dispute over your Portuguese income tax assessment, you can appeal to the tax administration.
Read your tax assessment letter to find out which department you need to appeal to and what the appeals process is.
If your appeal is rejected, you can then apply to have your case assessed by the tax courts.
Tax fines in Portugal
There are financial penalties for filing late or incomplete Portuguese tax returns ranging from €200 to €2,500.
Late payments can be penalized from 10% of the outstanding tax to double its value up to a maximum of €55,000 (plus interest).
Income tax advice in Portugal
Doing your taxes in Portugal can be a complex matter. The information given here provides a general overview, but you should always get professional advice from a financial expert regarding your individual situation.
The Institute of Chartered Accountants in England and Wales (ICAEW) offers guides, resources, and contacts for English-speaking accountants in Portugal.