Taxes in Portugal for Foreigners | Essential Guide for Expats (2024)

Welcome to our comprehensive guide on taxes in Portugal for foreigners! In this article, you’ll find everything you need to know about navigating the Portuguese tax system as an expat. From understanding the different types of taxes, such as income tax, VAT, and property tax, to learning about special schemes like the Non-Habitual Residency and the Golden Visa program, we’ve got you covered. Stay tuned to discover essential information on filing tax returns, corporate taxes, and even inheritance tax.

Plus, use our expert services to help you quickly obtain your NIF (Tax Identification Number). Let’s make your transition to Portugal smoother and more enjoyable.

Overview of Portugal’s Tax System

The tax system in Portugal includes both national and local taxes. These taxes depend on how much you earn and spend and what property you own.

If you’re a foreigner planning to earn money in Portugal, you must sign up as a taxpayer first. You can do this by filling out a form and handing it in at your local tax office. You can find your nearest office on the Portuguese finanças office website, called Portal das Finanças.

If signing up sounds tricky, don’t worry; you can make it a breeze. We provide these kind of services as the following:

Remember, the tax year in Portugal goes from January 1 to December 31, following the calendar year. In other words, it’s “as regular as clockwork.

Types of Taxes in Portugal for Foreigners

In Portugal, there are 2 types of taxes:

1. Federal Taxes
2. Local Taxes   

A. Federal Taxes in Portugal

This type of tax includes the following taxes:

B.  Local Taxes in Portugal 

This tax mainly involves the IMI or Municipal Property Tax. It’s like the council tax you might be familiar with. Your local council sets the rate based on the value of your home and the area’s overall wealth. If you don’t own your home but rent instead, you don’t have to pay IMI.

The money from IMI goes toward local services like garbage collection and recycling.

If your home is worth more than €600,000, you pay an extra tax called AIMI. It’s like a wealth tax, hitting those with pricier properties. It’s a case of “the more you have, the more you pay.

Exploring IVA Payees in Portugal

In Portugal, VAT, or Imposto Sobre o Valor Agregado (IVA), is paid by businesses meeting a certain turnover threshold. Companies with a turnover exceeding €13,500 on taxable goods and services must pay VAT. This threshold is set to increase to €14,500 in 2024 and €15,000 in 2025.

Established in 1986, VAT in Portugal operates with three different rates:

It’s worth noting that different VAT rates are implemented in the Madeira (22%/12%/5%) and Azores (16%/9%/4%) regions.

Who Is Eligible for Taxation in Portugal?

In Portugal, whether you have to pay tax depends on where you live and work.

You’re seen as a resident if you spend 183 days or more in Portugal in a year. Residents have to pay tax on all the money they earn worldwide.

But if you’re in Portugal for fewer than 183 days, you only pay tax on the money you make in Portugal.

Residents’ tax rates go up as they earn more. For non-residents, it’s simpler: they pay a flat rate of 25% on whatever they earn.

Taxation Guidelines for Foreign Residents in Portugal

There’s a unique tax system for foreigners living in Portugal called Non-Habitual Residency (NHR). This system offers significant benefits for the first 10 years you’re here.

If you qualify for NHR, you can live in Portugal and not pay tax on money you earn outside the country. Otherwise, you’ll be taxed as a non-resident on that income.

Plus, any money you make in Portugal is taxed at a flat rate of 20%, lower than the usual rates that go up to 48%.

However, it’s worth noting that in 2020, the Portuguese government started taxing foreign pension income at 10%, up from 0%.

Golden Visa Scheme

The Golden Visa scheme in Portugal offers residency to foreigners who buy property valued at over €500,000. This allows investors to live in Portugal and move freely across the EU.

Property investments must be made in inland areas of Portugal, the Azores, or Madeira to qualify for a Golden Visa starting in 2022.

In 2023, the Portuguese government revealed intentions to discontinue the program.

What Are the Varying Income Tax Rates in Portugal?

In Portugal, residents are required to pay personal income tax on their earnings. While many workers have taxes deducted from their paychecks automatically, everyone still needs to complete an annual tax return.

Married couples in Portugal must file a joint tax return. The couple’s combined income is divided equally to determine the applicable tax rate.

For the year 2024, Portugal’s income tax rates for individuals are as follows:

These tax rates are applied to various types of income, including employment, self-employment, investments, rental properties, capital gains, and pensions.

Additionally, starting in 2024, an extra solidarity tax ranging from 2.5% to 5% is imposed on taxpayers earning over €80,000 annually.

Process for Filing Income Tax Returns in Portugal

In Portugal, the tax year starts on January 1st and ends on December 31st. Tax returns are due the following spring. You can file your return either online or using a paper form. Late submissions can lead to penalties ranging from €200 to €2,500.

For the tax year 2022, the deadline to submit your return is from April 1st to June 30th, 2023. If you owe income tax not deducted through Portugal’s pay-as-you-earn system, you can pay it in installments. These payments are typically due in July, September, and December.

Portugal’s Income Tax System for Self-Employed Professionals

In Portugal, sole traders, freelancers, and individuals running unincorporated businesses treat their income as personal earnings. This means they pay Portuguese income tax rather than corporate tax.

Taxation Policies on Property and Wealth in Portugal

In Portugal, capital gains tax applies to selling property or assets. Individuals are taxed at a rate of 28%, while companies and non-residents pay 25%. However, residents are taxed on only 50% of their gains.

There are exemptions for residents selling their primary home and purchasing another property in Portugal or elsewhere in the EU. Additionally, those selling a property acquired before 1989 are also exempt from this tax.

Property Tax (IMI)

In Portugal, property owners must pay IMI, similar to council tax in other countries. The rate varies depending on the municipality, with urban areas typically ranging from 0.3% to 0.45% of a home’s value and the rural regions at 0.8%.

Urban homeowners with properties valued under €125,000 can enjoy a three-year exemption on IMI if they live in the property themselves. Additional deductions, around €20 per dependent, and exemptions exist for low-income earners and those with energy-efficient homes.

Property Wealth Tax

Introduced in 2017, the Adicional Imposto Municipal Sobre Imóveis (AIMI) targets property owners with holdings exceeding €600,000. For jointly owned properties, AIMI applies if the combined value exceeds €1.2 million. Rates range from 0.4% to 1% depending on property value and ownership structure, applying to residents and non-residents.

Tax on Rental Income

In Portugal, if you choose to rent out your property after purchasing it, you’ll be taxed on the profits you earn from rental income. The net rental income is taxed at a flat rate of 15%.

Inheritance Tax in Portugal

In Portugal, the inheritance tax was abolished some years ago, but a stamp duty called Imposto do Selo may be applicable at 10% on inheritances.

If you’re liable for inheritance tax in Portugal, you must pay it within 3 months from the date of death. Meeting this deadline is essential as there may be fines for late payment.

To alleviate the tax burden on expats, Portugal has double taxation treaties with over 60 countries, including Germany, Hong Kong, and the United Kingdom. Moreover, you can read about Portugal’s Digital Nomad Visa.

Company Taxes in Portugal

In Portugal, businesses are subject to corporate tax at a fixed rate of 21% on any taxable profits. Additionally, local municipality surcharges of up to 1.5% may apply, along with extra charges on profits exceeding €1.5 million.

Small- and medium-sized companies benefit from a reduced corporate tax rate of 17% on their initial €50,000 of taxable profit in 2023, increased from €25,000 in 2022. For small businesses and sole traders with an annual turnover under €200,000, a simplified regime allows them to pay taxes based on turnover rather than profit.

In Portugal, the deadline for submitting corporate tax returns is the final day of the fifth month after the end of the tax year. For instance, if a company’s tax year spans from January to December, the deadline would be the end of May of the following year.

Get Your Portugal Documents Easily with Our Expert Services

Need assistance setting up in Portugal? No worries! We provide quick and budget-friendly solutions for obtaining your NIF (Tax Identification Number) online. Let us manage the paperwork hassle-free while you savor your new life in Portugal. Reach out to us today to begin!