Find out who has to pay Portuguese income tax, including what tax rates and deductions apply when filing a Portuguese tax return as an expat.
Whether you relocate, work or retire in Portugal as an expat, you will typically be liable to pay Portuguese income tax on worldwide earnings, unless you qualify as a non-resident taxpayer. Portugal income tax law was reformed in recent years to incorporate favorable tax conditions to attract expat residents and employees.
Portuguese income tax law covers personal income tax (Imposto Sobre das Pessoas Singulares or IRS) and corporation income tax (Imposto Sobre das Pessoas Collectivas or IRC).
This guide explains income tax in Portugal for expats, including who has to pay Portuguese income tax, what forms of earnings are subject to income tax, Portugal’s income tax rates and what deductions and allowances you can claim when filing your Portuguese tax return. It also includes a Portuguese income tax calculator and additional income tax benefits for expats, such as the Non-Habitual Resident (NHR) tax scheme.
Who has to pay Portuguese income tax?
All tax residents in Portugal have to pay income tax in Portugal to the Portuguese tax authority Autoridade Tributária e Aduaneira on their worldwide income.
You are considered a tax resident in Portugal if you:
- have lived in Portugal for at least 183 days (consecutive or not) in total during a tax year; or
- have lived there less than 183 days but had a permanent residence there on 31 December.
Those who have lived in Portugal for less than 183 days and don’t have permanent residence are not considered tax residents, and will only pay Portuguese income tax on earnings or salary in Portugal.
Tax residents have to file an annual, self-assessment Portuguese tax return. Married couples are taxed on their joint income and have to submit a joint tax return. Read more in Expatica’s extensive guide on taxes in Portugal.
What earnings are subject to income tax in Portugal?
Personal income tax in Portugal is spread across the following six categories:
- Category A: employment income (wages and salaries in Portugal, remunerations, commissions, percentages, and other fringe benefits);
- Category B: self-employment income from a profession or business in Portugal;
- Category E: investment income (profits from assets and investments);
- Category F: rental income (from any properties that are rented in Portugal);
- Category G: capital gains (profits from selling a property in Portugal, assets, or shares);
- Category H: pensions in Portugal, including Plano Poupança Reforma (private pension plans).
Portugal income tax rates
Income tax rates in Portugal are progressive like elsewhere, meaning you pay more Portuguese income tax the more you earn. Portugal’s income tax rates are as follows:
|Grade||Annual taxable income||Portugal income tax rate|
|1||up to €7,091||14.5%|
Filing your Portuguese tax return
The Portuguese tax year runs concurrently with the calendar year from 1 January to 31 December. If you are employed in Portugal, your employer will deduct income tax contributions from your salary (Pay-as-You-Earn tax) but you will still need to fill out an annual Portuguese tax return if you are a classed as a tax resident.
The deadlines for completing your Portuguese tax returns are:
- between 15 March and 15 April for employment and pensions income;
- between 16 April and 16 May for all other types of income.
For tax owed on income that hasn’t been deducted through Portugal’s PAYE tax system, you can make payments in installments. These can be made in July, September, and December according to Portugal’s tax calendar.
There are financial penalties for filing late or incomplete Portuguese tax returns ranging from €200 to 2,500, while making late payments can be penalized from 10% to double the tax’s value up to maximum of €55,000 (plus interest).
You can fill out a paper version of Portugal’s tax return or submit your Portuguese tax return online. Before you can complete a Portuguese tax form, and before you can engage in any employment or professional activity in Portugal, you will need to fill out a registration form. This needs to be submitted to your local tax office, who will then issue your Portuguese income tax number and can also provide you with a tax return form (along with guidelines) 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.
Filing US taxes from Portugal
Despite the fact that every US citizen and Green Card holder is required to file a tax return with the IRS even when living abroad, many expatriates still fail to do so. Many are unaware of these obligations, thinking that as an expat they do not need to pay or file tax returns in the US. You do! For more information and help filing your US tax returns from Portugal, contact Taxes for Expats and see our guide to taxes for American expats.
Portuguese income tax allowances and deductions
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.
Deductions from taxable income
- A general allowance of 72% of 12 times the minimum wage (which currently works out to €4,104) for employment income.
- 150% of the amount paid in union fees (limited to 1% of gross 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 that can be used against your Portugal tax bill
- 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
- 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
Portuguese income tax benefits for expats
The Non-Habitual Resident (NHR) tax code offers a range of preferential tax rates and exemptions in Portugal. Those granted NHR status are given a tax exemption in Portugal on all forms of taxable income (employment, business, investment, rental, capital gains and pension) that they receive from abroad. Income obtained from inside Portugal is taxed at a flat rate of 20%. This special status is granted for 10 years.
To be a part of the NHR program, expats must apply online at the Portuguese government’s Portal das Finanças website by 31 March of each year.
Certain professions such as architects, engineers, doctors, university professors, auditors and tax consultants may also be eligible for a favored tax status. It is always advised to seek professional advice to understand the tax implications.
Portugal also 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.
For non-EU citizens, there is a Golden Visa scheme that aims to reduce barriers to residence for those outside the EU looking to invest, including property, or transfer/start a business in Portugal.
Portugal income tax calculator
To help you calculate the amount of income tax you have to pay, you can use the government’s Portuguese income tax calculator.
You can also apply the following Portuguese income tax calculations:
(gross income of each tax category A–H) – (deductions from taxable income) = (net income) – (loss deductions in any previous years) = (net worldwide taxable income*) x (tax rate**) = (assessed income) – (tax credits) = total payable income tax.
*divided by two in the case of married persons
** multiplied by two in the case of married persons
Appealing your Portuguese income tax assessment
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.