Expats living and working in Portugal typically need to pay Portuguese income tax on the earnings. Portugal offers attractive tax incentives for expats, but new government proposals could see these watered down.
This guide to income taxes in Portugal includes advice on the following:
- Income tax in Portugal
- Income tax in Portugal for foreigners
- Earnings subject to income tax in Portugal
- How to file your tax return in Portugal
- Income tax rates in Portugal
- 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 relocate, work 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 classed as 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 considered non-residents for tax purposes.
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 – but this could be set to change.
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 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. Income from inside Portugal is taxed at a flat rate of 20%.
This may soon change, however. 28,000 expats have benefited from NHR status since 2009, and nearly 9,000 of these have been pensioners. This has led to criticism from the European Union.
In the 2020 Budget, the Portuguese government announced it would increase the tax rate on foreign pension income from 0% to 10% for people with NHR status. This change is set to be ratified in March 2020.
Golden visa scheme
Portugal offers golden visas to foreigners who purchase property worth more than €500,000. The golden visa enables investors to obtain residency in Portugal and travel freely within the EU.
Since 2012, Portugal has issued more than 8,200 golden visas, with more than half of these going to Chinese citizens.
This scheme is also undergoing change. In February 2020, the Portuguese parliament approved banning golden visas for property purchases across Portugal’s coastline, including Lisbon and Porto.
This means real estate investments will now only count towards a golden visa in inland parts of Portugal, the Azores and Madeira.
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.
Earnings subject to income tax in Portugal
Personal income tax in Portugal applies on income from the following six categories:
- A: employment income (wages and 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 is tax-deductible.
How to file your tax return in Portugal
The Portuguese tax year runs from 1 January to 31 December. The deadlines for completing your Portuguese tax returns are as follows:
- Between 15 March and 15 April for employment and pension income
- Between 16 April and 16 May for all other types of income
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 instalments.
These instalments are generally 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 will need to register on the government’s website and request a password.
If you 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 are as follows:
|Annual taxable income||Portugal income tax rate|
|up to €7,112||14.5%|
Non-residents are taxed at a flat rate of 25% on 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 their Portuguese tax return.
Allowable deductions on tax returns
- A general allowance €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
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 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.