Do Expats Pay Taxes in Portugal?

The taxes in Portugal are quite high, but the fiscal system itself is simple and transparent. Prices make living in the country possible even for people with a relatively small income. This fact is one of the reasons why Portugal is selected by expats and digital nomads.

The taxes paid by companies and individuals in Portugal depend on the person’s residency status. Residents should take into account their worldwide income while non-residents are only taxed on the part generated in Portugal. The individual income tax rate (including the one for expats) is progressive and ranges from 14.5% to 48%. The corporate tax amounts to 21%, but there are cases when a reduced rate can be applied.

You may be interested to read about the D7 Portuguese visa.

Receiving the tax resident’s status for individuals, including expats (the rules are applicable since January 2015, and you are required to comply with either condition):

• Permanent stay in Portugal for over six months (183 days) a year during any 12-month period
• Preservation of an address (real estate) in Portugal. If you comply with this condition, the term of actual stay in the country is of no importance.

The reform of PIT (Personal Income Tax known as IRS in Portugal) introduced the concept of partial residence, so the time of physical presence in the country acquires the main importance. Consequently, an individual usually becomes a tax resident of Portugal as soon as he or she crosses the border. This status is abolished the next day after the expat leaves Portugal.

Most important personal taxes:

• On personal income (rates vary from 0% to 48%/25% and depend on whether the person has the resident’s status)
• Social insurance taxes (11% and 23.75% for employee and employer, respectively, and 21.4% or 1/3 of the remuneration for the self-employed).

Personal taxes in Portugal that cover only some individuals and expats:

• Property tax: the rate depends on its cost and the area where the object is located
• Property transfer and municipal allowance tax
• Car tax (the rate depends on the car type, age, engine capacity, and the amount of emitted carbon dioxide.

Find out how you can relocate to Portugal and obtain citizenship in the country.

Standard income tax rates:

How to Pay Taxes in Portugal?

First of all, you will have to get a NIF (tax ID) at the nearest tax office. You will need a minimum package of documents: an ID and information on the address of residence (confirm it by providing a utility bill or a lease agreement). As an alternative, an expat can obtain a NIF via a representative – a lawyer or an accountant. As soon as you have done this, you can submit a tax return and open a bank account in Portugal.

Additional information on payment of taxes in Portugal:

• The tax return is submitted from March till June (depending on the type of tax). Exact dates may vary, and they are annually provided by the tax service.
• Failure to pay the taxes on time will entail fines and penalties.
• Income and expenses need to be accounted for on a mandatory basis.

NHR Scheme for Foreigners and Expats in Portugal

NHR (Non-Habitual Resident), introduced back in 2009, is an excellent option for temporary/non-permanent residents. It gives access to the tax benefits available to citizens of Portugal without obtaining a local passport (as this is a long-lasting and painstaking procedure).

Portuguese residency by investment in real estate: discover the loopholes.

Basic peculiarities of NHR scheme in Portugal for expats:

• Tax benefits for 10 years
• Personal tax rate on the income generated in Portugal is reduced to 20% (only for some professions)
• Personal tax rate on the income generated abroad is reduced (the actual amount of deduction depends on the profession and type of expat’s income).

Basic requirements for expats and foreigners that wish to obtain an NHR status in Portugal:

• Portuguese residency (for residents of non-EU member countries –D7/D2 visa or Golden Visa)
• Portuguese tax residency
• Availability of a NIF connected with an address in Portugal

The most popular investment options are closed as of July 4, 2023:

• In real estate
• In the special fund (Venture Capital Fund Investment)
• In the dilapidated housing restoration (Rehabilitation of real estate properties)

However, we cannot say that the Golden Visa program ceases to exist.

Kinds of income in Portugal by groups:

• Employment income (category A)
• Professional and business income (category B)
• Investment (passive) income (category E)
• Income from renting out real estate (category F)
• Income from capital gains (category G)
• Income from private pensions (category H)

Tax on income from work (categories A and B) for expats in Portugal derived from foreign sources, mandatory conditions for the full 10-year exemption (both items have to be complied with):

• The profession falls under the category of those that have a high added value if the relevant person is not a permanent resident of Portugal
• The income may be subject to taxation in the country where it is generated (in accordance with a DTA).

You may be interested to discover the peculiarities of freelance work in Portugal.

The situation is simpler if expats receive passive income from foreign sources: it is exempt from taxes if a relevant DTT has been concluded between Portugal and the other country (it should be whitelisted by OECD). Expats have an additional advantage to benefit from: a competent tax structuring plan can reduce the fiscal burden to zero on absolutely legal grounds.

The only exception from this rule is the tax on a pension from foreign sources (category H income) payable by the expat who obtained the right to participate in the NHR scheme: a 10% rate will be applicable in this case. This tax was not payable earlier, but the rule was changed in March 2020.

Taxes for expats that received the NHR status – advantages of the regime:

• Tax residency of Portugal (the country whitelisted by the European Union)
• The beneficial tax rates are effective for 10 years
• There is no tax on wealth
• Financial transactions to Portugal with a zero commission
• No tax on foreign income
• No tax on gifts for family members
• There are no requirements for expats regarding the minimum term of stay in Portugal
• The expat’s passive foreign income (dividends, interests, royalties) is not taxable. A relevant DTT is required to confirm that this tax is paid in another jurisdiction or is set by laws.

Read our article on Non-Habitual Tax Residence in Portugal.

How an expat can reduce taxes under the NHR scheme:

• Prove that he or she stays in the country on absolutely legal grounds
• Obtain a tax identification number
• Receive the tax resident’s status
• Apply for NHR

Basic package of documents required:

• A document which will confirm that the applicant had no tax resident’s status within a 5-year period
• A standard tax return (for the past 60 months)
• Proof of an address in Portugal

Main qualification requirements:

• No status of Portugal’s tax resident in the past (for at least 5 years) – however, it does not mean that the applicant cannot own real estate in Portugal.
• The term of stay in the country is at least 183 days. If it is shorter, you will need to have an address in Portugal.
• An effective tax resident’s status with enough time ahead (at least until March 31 of the next year).

Tips and recommendations:

• Saving on taxes does not mean that the fiscal service will not check the expat: you will need to keep all the documents that confirm working in the profession
• If there is no documentary evidence or it is questionable, the taxes will have to be paid in full and fines or penalties may be imposed
• Aggressive optimization of taxes (an attempt to obtain an NHR status in Portugal without sufficient grounds) may be considered an administrative offense, and the application will be automatically declined
• You can try lodging an appeal if you have been turned down, but the possibility of a positive decision on it is quite low.

Become a hotel co-owner to get a residence permit in Portugal.

Taxes on Individual Income in Portugal

Availability or absence of an NHR status does not exempt the expat from the need to pay taxes. Portugal is not an offshore jurisdiction, and you are liable for taxes as usual. Reduced or zero fiscal burden on expats that have an NHR status is a legal way to save on taxes.

Aspects to pay special attention to:

• You can use an online portal to submit a tax return
• The deadline for filing your tax return is June 30 of the year that follows the reporting one
• Some taxes have to be paid on a quarterly basis

Real estate tax (IMI/AIMI):

• It varies from 0.3% to 0.45% for towns ad from 0.3% to 0.8% for rural areas
• Deductions and benefits are available
• Increased property tax (AIMI) is applicable in cases when the total cost of property exceeds 600,000 euros

AIMI tax levels:

Tax rate	Cost of real estate in Portugal
0.7%	From 600,000 to 1,000,000 euros
1%	1-2 million euros
1.5%	Over 2 million euros

Tax on lease income:

• The source is the property that you rent out
• The rate amounts to 15% from the net income
• Deductions and benefits are available

Inheritance tax:

• The rate depends on the cost of inheritance and the degree of kinship
• It is applicable, among other things, with regard to non-residents
• The rules of inheritance tax calculation often change, so be sure to rely on updated information

Capital gains tax:

• It is applicable to both individuals (incl. expats) and legal entities
• The base takes into account the profit received from the sale of assets (real estate, shares, return of investments, etc.)
• The tax rate varies depending on the type of asset, term of its ownership, and the recipient’s tax status
• Benefits and deductions are available for the capital gains tax

A typical example is real estate in Portugal. Non-residents are subject to a fixed rate that amounts to 28%, while residents use a progressive scale that ranges between 14% and 28%.

If you want to register a company in Portugal as a non-resident, please read our article on the topic.

Additional sources of information about Portugal:

• Taxes and incentives that individual and legal entities can benefit from in Portugal
• Obtaining a residence permit in Portugal for retirees
• Setting up a company in Portugal with a corporate account in Macedonia
• Portugal Golden Visa program unofficially suspended
• Portugal residence permit: benefits and features

Write at info@offshore-pro.info to get in touch with International Wealth experts.