Portugal Taxes for Expats: All You Need to Know about the Tax System

Every year, a large number of tourists visit Portugal to enjoy the warm climate and relax on the ocean. Some foreigners consider this country not only as a holiday destination but also as a permanent place of residence or business, which is justified by the low cost of living compared to other Eastern European countries.

Those who are going to move to Portugal or do business in the territory of this state should definitely take into account the tax regime. Non-residents pay taxes only on the income that was received in the territory of Portugal, at a rate of 25%. Tax residents must pay tax on any income ranging from 14.5% to 48%. Taxpayers file tax returns once a year from April to June.

Tax residency in Portugal

Foreigners who have taken part in the Portugal Golden Visa program or otherwise qualified to live in this country can become tax residents: https://immigrantinvest.com/residence-in-portugal-en/. It can be obtained in the following ways:

• Live in Portugal 183 days a year.
• If the head of household is already a tax resident, you also get this status.
• If you are a Portuguese civil servant.
• If you are a crew member of a Portuguese transport company.
• If you have permanent residence in Portugal.

Features of the tax system in Portugal

Taxes in Portugal are federal and local. Federal taxes are:

• Tax on capital gains
• Inheritance taxes
• Corporate tax
• VAT
• Tax on earnings as an employee or individual worker

Local taxes are taxes collected by the municipality. Tax rates depend on the area where the taxable object is located. Portugal property taxes and the wealth tax (paid by owners of property valued at over €600,000) are local taxes.

Portuguese taxes on goods and services

If a Portuguese company has a turnover of 10,000 euros, it must pay VAT. At the moment, the rate varies from 3% to 23% and depends on:

• Type of product or service
• The area of ​​Portugal where the company operates

1) Standard rate

In mainland Portugal, the VAT rate is 23%, in Madeira — 22%, and in the Azores — 18%.

2) Intermediate rate

For food, drinks, and certain services, the rate is 13% on the continent, 12% on Madeira, and 9% on the Azores.

3) Reduced rate

Books, newspapers, medicines, transportation, meat, fruits, vegetables, cereals, and hotel accommodations are taxed at a rate of 6% on the mainland, 5% on Madeira, and 4% on the Azores.

NHR — tax system in Portugal for foreigners

The Portuguese government considered it right to create special taxation in Portugal for expats. NHR is Portugal’s tax regime, which is relevant for foreign residents, investors, and prominent people.

If the taxpayer is not a tax resident in Portugal but is entitled to live there, they can apply for an NHR. After the application is approved, the taxpayer receives some benefits:

• The income tax rate is 20%
• No need to pay taxes on inheritance, wealth, or gifts
• No need to pay taxes on income received outside of Portugal
• the special income tax regime for 10 years

Foreigners who hold EU/EEA citizenship or who have obtained a Portuguese Golden Visa can use the NHR to significantly reduce tax costs. The Portuguese government has been able to achieve double taxation agreements with 60 countries.

Portugal personal income tax

Income tax is relevant for both tax residents of the country and non-residents. The difference is that the former pay tax on any income, and the latter — only on the one that was received in the territory of Portugal. Married couples and civil partnerships are eligible to file a joint tax return. Taxable categories include:

• Income from investments
• Income from self-employment
• Labor income
• Pension income
• Income from renting out property
• Income from the sale of property

The amount of tax depends on the amount of income:

• Up to 7,116 euros = 14.5%
• 7,117–10,736 euros = 23%
• 10,737–15,216 euros = 26.5%
• 15,217–19,696 euros = 28.5%
• 19,676–25,076 euros = 35%
• 25,076–36,757 euros = 37%
• 36,758–48,033 euros = 43.5%
• 48,034–75,009 euros = 45%
• 75,010 euros and more = 48%

Portugal property tax in 2022

If a taxpayer sells the property or any other type of asset, the property tax must be paid at the following rates:

• 28% for individuals
• 25% for companies
• 25% for non-residents

There are several exceptions. For example, if a resident decides to sell their house and buy another property in Portugal or other EU countries, there is no property tax to pay. A similar rule applies to cases where a resident sells property purchased before 1989.

If the resident owns the property, they must also pay the local IMI tax. The rate depends on the area:

• For an urban area = from 0.3% to 0.45% of the property value
• For rural areas = 0.8%

If the value of the property is less than 125,000 euros, the resident can apply for a property tax exemption within 3 years if the property is their place of residence. There are several other benefits for low-income residents.

If the value of the property is more than 600,000 euros, the resident is required to pay AIMI wealth tax. The rate depends on the value of the property:

• Up to 1,000,000 = 0.7%
• From 1,000,000 to 2,000,000 = 1%
• More than 2,000,000 = 1.5%

Renting out real estate is also subject to taxation. The rental income rate is 15%.

Corporate tax for Portuguese business

The rate on taxable income, according to corporate tax, is 21%. However, additional fees may apply depending on the location and also if the company’s profit exceeds 1.5 million euros. Corporate tax returns must be filed within one month between April 16 and May 16.

If the annual turnover of a small business is less than 200,000 euros, a simplified taxation regime comes into force when the turnover tax is paid. There is a reduced tax rate of 17% on the first €15,000 of taxable income for small and medium-sized companies.

Inheritance tax in Portugal

If the inheritance goes to a direct family member, you do not need to pay tax. This is the positive side of the tax system in Portugal. At the same time, Portuguese assets require a 10% stamp duty if the children or spouse receive them as a result of a gift or inheritance.

Tax for expats in Portugal

At the moment, the following rules apply for expanders:

• Self-employment income is taxed on contributions at a rate of 21.4% and must be reported every 4 months: April, July, October, and January.
• If the income exceeds 80,000 euros, the solidarity rate from 2.5% to 5% is activated.
• The tax rate on inheritance and gifts is 10%.
• When transferring property, stamp duty is paid. It is 0.8%.

Filing a tax return

The Portuguese tax year is the same as the calendar year. The tax return for the past year should be filed in the spring of the following year.

A qualified specialist from the company Immigrant Invest, Victoria Atanasova, believes that filing a tax return late can lead to unpleasant consequences. As a minimum, the taxpayer will have to pay a fine, the amount of which varies from 200 to 2,500 euros.

Although the list of taxes that residents of Portugal must pay is quite large, the system offers plenty of benefits and reduced rates to certain categories of taxpayers. Foreigners should definitely pay attention to the tax for expats in Portugal, which also has its characteristics.