In this guide, we’ll explore the ins and outs of the Portuguese tax system. This encompasses who pays taxes in Portugal, corporate and property taxation, expat taxes in Portugal, and various tax breaks that the nation offers.
If you reside and/or work in Portugal, you’ll need to pay taxes on your assets and income when filing a tax return. While taxes in Portugal for foreigners can vary depending on the circumstances, it’s important to know what you owe.
We’ll review all of these important details in this guide, along with addressing common questions about taxes in Portugal for expats and which tax breaks you may be eligible for, depending on your residency status.
Whether you live in this country or are considering relocating to Portugal, it’s a good idea to fully understand how the nation’s tax system works.
The Tax System in Portugal
Under Portuguese law, national residents, along with non-residents who earn income in the country, are required to pay personal income tax. This means that any individuals who earn revenue from personal work, capital, business, property ownership, employment, or pensions in the nation must file an IRS tax return.
Corporate Taxation in Portugal
Any company that generates income in Portugal is subject to corporate taxation. The rates of corporate taxes in Portugal vary and break down to the following:
- Mainland Portugal: 21% in corporate taxes owed
- Autonomous region of Madeira: 20% in corporate taxes owed
- Autonomous region of the Azores: 16.8% in corporate taxes owed
Small and medium sized businesses in Portugal that reap most of their profits from commercial, industrial, or agricultural activity owe 17% on the first €25,000. After this, the regular rates, as seen above, apply.
In the case of companies that aren’t permanently established in Portugal and/or lack a registered office in the country, they must pay 25% in corporate taxes, except if they’re generating income that qualifies for a 35% tax rate.
The income that would garner a 35% tax rate in Portugal includes the following:
- Prizes from lottery games, draws, lotteries, or other similar competitions
- Earnings made available or paid in accounts belonging to one or additional holders, yet existing on behalf of one or more third parties
- Earnings from companies that exist in a region, territory, or country with more preferable tax regulations
Property Taxes in Portugal
When paying property taxes in Portugal, the immovable rate for urban properties ranges between 0.3% to 0.5%. Rural property, on the other hand, carries an annual 0.8% immoveable tax rate.
Both residents and foreigners who own property in the country are responsible for paying taxes on it accordingly. As a resident renting out property, you’ll have to pay an income tax rate of 14% to 48%. For non-residents who are renting out property, there’s just a 25% flat tax rate.
Property taxes in Portugal also apply when you opt to sell property. Known as the capital gains tax, residents are responsible for a tax on just 50% of the profits they reap from the sale. Non-residents, on the other hand, are taxed for 100% of the sale’s profits. However, in the case of residents who are selling one piece of property in order to purchase another, the Portuguese government does not collect a capital gains tax.
Resident Income Tax Rates
If you’re a Portuguese resident or seeking residency in the country, you’ll want to thoroughly understand resident income tax rates, especially taxes in Portugal for expats. At this time, residents are subject to a progressive form of taxation that ranges between 14.5% to 48%.
These taxes pertains to income and/earnings that fall under the following brackets:
- Self-employment
- Employment
- Real Estate
- Investments
- Pensions
- Capital Gains
Each tax year in the nation runs from January 1 to December 31. Expat taxes in Portugal that cover income must be paid during the following tax year before June 30. For taxes that are already owed, payment by August 31 is mandatory.
International Taxes in Portugal
Residents who live abroad in other nations are still subject to paying taxes to the Portuguese government. In this case, the progressive tax rate of 14.5% to 48% still maintains. However, depending on the nation that Portuguese residents live in, they may also owe that government taxes as well.
Depending on your nation of origin, you may be eligible to pay lower or higher taxes under one of the double taxation treaties that include Portugal. We’ll explore the ins and outs of this further along in the guide.
How Does Tax Work for Expats in Portugal?
If you’re a current or future expat of Portugal, understanding the complexities of the tax system goes a long way. While the 25% flat tax rate for income earned by non-residents applies, you’ll first need to register to pay taxes.
Thankfully, this is a fairly simple process. To obtain a formal tax identification number, you can either hire a legal representative or go to your local tax office and submit an application. Having this formal tax identification number is essential for paying expat taxes in Portugal.
If you’re an American expat who carries Social Security, you will most likely have to pay taxes on this. The Portuguese government applies a progressive tax rate to US Social Security that can reach as high as 52%.
When it comes to expat taxes in Portugal, nine times out of ten, the income you’re taxed on will come from about six different revenue sources. We’ll now explore the ins and outs of those below.
Please remember that you can live in Portugal by getting a Portugal Golden Visa, a D7 Visa, or a Portugal Digital Nomad Visa. Indeed, Portugal Golden Visa is a residency by investment program that is also considered a plan B investment since the program only requires you to spend 7 days in Portugal.
Sources of Revenue in Portugal
The country consistently charges tax on key sources of revenue generated via a series of different streams. Currently, the following revenue sources collectively garner taxes for the Portuguese government:
- Individual income taxes
- Social insurance taxes
- Corporate income taxes
- Property taxes
- Taxes on goods and services
NHR Tax System
The Non-Habitual Resident (NHR) is a tax benefit for new residents of Portugal only and does not include taxes in Portugal for foreigners. Expats, depending on how long they’ve lived in the country and how they immigrated, could potentially be eligible for the benefits provided by NHR.
Under the NHR tax system, new residents of the country can go for ten years without paying any tax on global income. Instead, their earned income is subject to merely a 20% flat tax rate. The NHR tax system likewise offers beneficial policies that pertain to capital gains, foreign (non-Portuguese) rental income from real estate, the gift tax, and the inheritance tax.
After ten year’s time, Portuguese residents are no longer eligible for NHR benefits. Instead, they’ll begin to pay the same amount in taxes that regular citizens of Portugal pay.
Because of the NHR’s setup, some digital nomads and remote workers might be eligible for this tax system’s benefits. However, eligibility requires their income to come from outside of Portugal and these workers have to meet certain Portuguese residency criteria.
Double Taxation Treaties
Depending on which country you’re from, taxes in Portugal for foreigners or expat taxes in Portugal may be subject to one of several double taxation treaties. The United States, for example, holds a very clear tax treaty with Portugal. Given the rise of American citizens relocating to Portugal, it’s crucial to understand what the US-Portugal tax treaty entails.
At its core, this tax treaty is designed to avoid double taxation. As a result of this, passive income from the United States often garners lower tax rates or total tax exemptions. This is especially common in cases that involve pensions, dividends, business profits, capital gains, and interest.
The savings clause plays a critical role in the US-Portugal tax treaty. Per the rules of this clause, America is permitted to tax its own citizens in accordance with its own regulations, even if said citizens live abroad, in this case, in Portugal.
However, in many cases, this can mean that various benefits that come with the US-Portugal tax treaty are difficult for Americans living in Portugal to access. To offset this, some people rely upon foreign tax credits and/or foreign earned income exclusion to reap the upsides of this treaty.
Tax Breaks in Portugal
Along with the aforementioned NHR program, there are a series of other tax breaks available when it comes to taxes in Portugal for expats or residents. Granted, these tax breaks tend to favor investors and other high net worth individuals.
Various benefits afforded for intellectual property certainly fall under this bracket. Going far beyond property taxes in Portugal, intellectual property tax breaks consist of the following:
- 10% tax on income stemming from intellectual property rights that were created or used in Portugal
- Tax exemption for income that stems from intellectual property rights that were created or garnered outside of Portugal by non-residents
- Patent box treatment with a lowered 85% tax rate on income that stems from qualified intellectual property created or garnered after March 31, 2019
Investors likewise reap tax breaks for the following:
- Exemptions on tax for interest, royalties, and dividends paid to non-residents
- Deductions on tax for investment in key locations, such as the Azores and Madeira
- Exemptions on capital gains (and other similar income) that stems from sharing sales in Portuguese businesses
- Lowered corporate tax rate for companies involved in exports
Unlike many other countries around the world, Portugal does not have the following taxes for non-habitual residents:
- Wealth tax
- Gift tax
- Inheritance tax
Future Tax Benefits in the Making
When it comes to paying taxes in Portugal, the country’s government is always considering various measures and proposals. Right now, the Portuguese Parliament is proposing a series of tax breaks that are designed to appeal to young people and attract more foreigners. If these breaks on taxes in Portugal for expats and the youth go into effect, they’re expected to appear in 2025’s budget.
Under current proposals, individuals 35 years old and under would be exempt from paying taxes on the first €28,000 they earn within one year. Over the next ten years, their owed taxes would gradually increase, starting with exemptions from 75% of income, then 50%, and next 25%.
Many Portuguese officials believe these tax proposals are essential to keeping young people living and working inside the nation. If Portugal ultimately passes such initiatives into law, it’s expected to benefit hundreds of thousands of youth and expats.
A Recap on Taxes in Portugal
In this guide, we’ve explored taxes in Portugal for foreigners, expats, and residents alike. This encompassed a thorough analysis of the nation’s overall tax system, along with property taxes in Portugal, corporate and international tax.
We’ve likewise explored the various available tax breaks, such as the Non-Habitual Resident system and various exemptions and/or reductions for investors. It’s clear that Portugal is interested in keeping more people in the country, while also appealing to foreigners, expats, and high net worth individuals who can invest in the nation’s economy.
Judging by future breaks proposed by the Portuguese government, we can see that its tax system is ever evolving. In the years ahead, young people under the age of 35 could be drawn to relocate to Portugal, especially if the country passes various breaks that are currently under consideration. The same applies to foreigners who are buying and selling property in the country as well.
If you live, or are considering moving, here, you’ll want to remain up to date on the various regulations concerning taxes in Portugal. This guide is a great resource to hold onto and share with others.
In closing, personalized questions about property taxes in Portugal or taxes in Portugal for foreigners are best directed to an account or tax advisor. A specialist can access your individual financial situation, go over all the details, make sure all your affairs are in order.
This may prove to be especially beneficial for people who are non-EU residents, self-employed, running a business, or earning multiple income streams. Working with a tax expert allows you to not just avoid making a mistake, but it also ensures that you don’t miss out on any tax breaks that you might be eligible for.
Frequently Asked Questions
How much tax do you pay in Portugal?
The amount of income tax you pay in Portugal depends on your residency status and also the type of income you earn.
- If you are a Portuguese resident, you are taxed on your worldwide income at progressive rates ranging from 13.25% to 48% for 2024. If you are high-income earner you may also be subject to an additional solidarity tax.
- If you are a non-resident, you are only taxed on your Portuguese-source income, such as income earned from employment in Portugal or from Portuguese companies. This is taxed at a flat rate of 25% for 2024.
Is Portugal highly taxed?
Portugal’s tax rates are considered relatively competitive, especially for certain types of income and for individuals who qualify for specific tax regimes when compared to some other countries.
Do US expats pay taxes in Portugal?
Yes, as US expats living in Portugal, you are subject to US federal income tax on your worldwide income, regardless of your residency status in Portugal. However, you may be eligible for foreign tax credits to offset taxes paid to the Portuguese government.
Is Portugal still tax free for expats?
There is no longer a completely “tax-free” status for expats in Portugal. However, the Non-Habitual Resident (NHR) regime offers significant tax benefits for certain types of income, such as employment income and foreign-source income. Under the NHR regime, you may be eligible for a 20% flat tax rate on certain income for up to ten years.
