Last Updated on November 11, 2024 by Maryam Siddiqui
Has your planning reached the stage where you need to know the tax system? Well, you’ve landed in the right place! Portugal has a relatively simple tax system, but there’s still a lot to learn. Most expats already know about the non-habitual resident tax regime; do you know about it too? Keep reading the article to learn more about the tax system in Portugal.
In this article, we’ll try to break it down step by step. By the end of the article, you should know about federal taxes, local taxes, taxes on goods and services, car taxes, income taxes, and much more!
Surely there’s a lot to learn, but take it easy. Let’s get started!
How does the tax system work in Portugal?
The tax system is based on residency. This means that residents are taxed on their worldwide income, and non-residents are taxed only on their Portuguese income.
IRS – The Personal Income Tax is the main tax in Portugal, with progressive rates ranging from 14.5% to 48%. You should also know that there are tax benefits specifically for expats as well, which can provide a 10-year tax exemption on foreign income!
More on this is discussed later, so stick around to read the entire article and know everything about the tax system in Portugal.
Who has to pay taxes in Portugal?
Residents and non-residents who have income sourced from Portugal need to pay taxes. Portuguese source income includes employment income, rental income, and capital gains. If you are self-employed, then too also need to pay social security contributions.
Additionally, Portugal has indirect taxes, like the Value Added Tax (VAT), which is levied on most goods and services. As an expat, it’s important to understand your tax obligations in the country and seek professional advice to ensure compliance with local tax laws.
- Check out our summarized FAQ on Taxes in Portugal to answer some frequently asked questions.
How to register as a taxpayer in Portugal?
For this, you’ll need to obtain a Fiscal Number (NIF), which is one of the most important documents you must obtain. You just need to visit a local tax office to provide proof of identity and residency. They may ask you for your Passport or ID Card and a utility bill or rental agreement.
You can also obtain a NIF through a representative, such as a lawyer or an accountant. And after you get your NIF, you’ll be able to file taxes and open a bank account in Portugal.
It’s important to note that expats may be subject to different tax rules and rates than Portuguese citizens, so it’s advisable to seek professional advice to ensure you meet all your tax obligations. But don’t worry at all! Experts from Viv Europe are here to figure out your tax legalities too.
When do I have to pay taxes in Portugal?
The deadline for filing your tax returns is typically between March and June of each year, but this depends on the type of tax you’re paying. The exact dates can vary and are announced by the tax authorities each year.
If you have any tax liabilities, you’ll need to make payments by the deadline specified by the authorities. These can either be in a lump sum or in installments. But failure to pay taxes on time can result in penalties and interest charges.
It’s essential to keep accurate records of your income and expenses throughout the year to ensure you can file your taxes correctly and on time.
Still have questions? Continue reading the article to learn the specifics of the tax system in Portugal.
The tax system in Portugal
If you’ve understood things so far, it’s time to dive into more curious details about the various types of tax in Portugal. Along with national taxes, local taxes are imposed, which include property transfer tax (IMT) and municipal property tax (IMI).
Portugal also has car taxes levied by the government based on the vehicle’s engine size, age, and environmental impact.
Let’s walk you through every type of tax.
Federal taxes
Federal taxes in Portugal include personal income tax, corporate income tax, value-added tax, and property tax. As mentioned earlier, the personal income tax rates range from 14.5% to 48%, depending on the individual’s income level.
Corporate income tax is levied at a flat rate of 21%, and value-added tax is set at a standard rate of 23%. And property tax rates depend on the property’s value and location. Overall, the federal tax system is considered relatively competitive and attractive for both locals and expats.
Local taxes
There are a few local taxes expats should be aware of. You may need to pay personal income tax (IRS) on your worldwide income and an IMI – property tax if you own property.
Other than this, municipal tax on property transfers (IMT) and municipal surcharges can also be applicable. The IMT is a one-time tax payable on the purchase of the property. And the municipal surcharges, as the name suggests, vary by municipality and are typically imposed on top of other taxes.
Goods and services taxes
In Portugal, the Goods and Services Tax (GST) also goes by the name of Value Added Tax, VAT. Usually, businesses are required to register for it if their annual turnover exceeds €12,500.
It is important to know the standard rate of VAT in Portugal is 23%, which is applied to most goods and services. Still, there are reduced rates of 6% and 13% for certain goods and services such as food, medicine, books, and tourism-related activities.
Car Tax
Tax on cars is called Imposto Único de Circulação – IUC. The tax paid depends on several factors, such as the vehicle’s type, age, engine size, and CO² emissions.
The tax system in Portugal is based on a sliding scale, with lower rates for less polluting vehicles and higher rates for those with higher emissions. Also, the IUC must be paid annually, and failure to do so can result in fines and even vehicle seizures.
The Portuguese Tax System for Foreigners (NHR)
While it’s essential to understand local taxes, as an expat, you should also be aware of the NHR. The Portuguese Non-Habitual Resident Tax Regime is a popular option for expats who want to benefit from Portugal’s tax incentives.
Through the NHR, expats who have not been tax residents in the country for the past five years can enjoy significant tax incentives for 10 years! These range from a flat income tax rate of 20% for certain professions and a tax exemption on foreign income, pensions, and capital gains.
To apply for this, you must reside in Portugal for at least 183 days per year. The NHR regime is a great option if you are looking to maximize your income and minimize your tax burden.
Income tax rates in Portugal
This operates on a progressive basis, and the rates tend to vary. Some taxable income thresholds are listed below for your ease:
| Income Tax Bands | Tax Rate |
|---|---|
| Up to €7,479 | 14.5% |
| Between €7,7,479 and €11,284 | 23% |
| Between €11,285 and €15,992 | 26.5% |
| Between €15,993 and €20,700 | 28.5 |
| Between €20,701 and €26,355 | 35% |
| Between €26,356 and €38,632 | 37% |
| Between €38,633 and €50,483 | 43.5% |
| Between €50,484 and €78,834 | 45% |
| Above €78,835 | 48% |
Filing an income tax return is a whole other process, and we have all the information you’ll need to know.
How to file your income tax return in Portugal
To file your income tax return in Portugal, you can use the online portal available on the Tax Authority’s website or hire a tax representative to assist you.
First, you’ll need to gather all the necessary documents, including your tax identification number, payslips, and any receipts or invoices related to deductible expenses. After this, you must access the online portal and complete the relevant tax forms.
It’s important that you provide accurate information about your income, expenses, and deductions. You can also choose to submit your tax return by mail or in person at a tax office. Be aware that the deadline for filing your tax return in Portugal is typically June 30th of the year following the tax year.
Self-employed income tax in Portugal
In Portugal, self-employed individuals are subject to income tax, which is calculated based on their profits. If you fall under this category, you must register for tax with the Portuguese tax authorities and submit a tax return annually by April 30th.
You must also make payments towards your tax liability throughout the year via quarterly payments. Also, social security contributions are mandatory for self-employed individuals, and the calculation is based on their income level.
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Other taxes paid by individuals in Portugal
Expats are also subject to taxes besides income tax. The tax system in Portugal includes stamp duty on certain transactions, such as the purchase of property or the issuance of certain documents. There is also a local property tax, known as the “Imposto Municipal sobre Imóveis” (IMI), which is based on the property’s value and is paid annually.
If you earn rental income from property in Portugal, you are subject to tax on that income. That is known as “Imposto sobre o Rendimento das Pessoas Singulares” (IRS). This tax is calculated based on the net rental income received after deducting certain expenses. Continue reading to learn more!
Property and wealth taxes in Portugal
The property tax is on the value of urban and rustic properties and is paid annually by the property owner. But the wealth tax is imposed on the cumulative value of all properties held by a local or expat.
For expats, it’s important to be aware of these taxes, as they may impact your financial planning. You should know that owning property in Portugal may subject them to both property and wealth tax.
Property tax
The tax rate varies depending on the property’s location and value. But roughly, the rates range from 0.3% to 0.45% for urban properties and 0.8% for rustic properties.
There are some exemptions and reductions available to the tax. For example, there’s a 50% reduction for properties used as the primary residence. You must consult with a tax professional to understand your specific obligations and potential exemptions.
Property wealth tax
This is known as the AIMI and applies to those with a total real estate worth above €600,000. The calculation is done on an individual basis. This means that if you own a joint property, then your property will have to be worth over €1.2 million before it starts owing AIMI.
Check out the three levels of AIMI Tax in Portugal:
- A tax of 0.7% on property valued between €600,000 and €1 million
- A tax of 1% on property valued between €1 million and €2 million
- A tax of 1.5% if the total value exceeds €2 million
Rental income tax
As the name suggests, this tax is on the property you rent out. A flat rate of 15% is taxed on net rental income.
You can be eligible for certain tax deductions in the rental income in Portugal. For example, fire insurance deductions and value expense deductions are allowed. These may include IMI, costs associated with obtaining an energy certificate, and condominium fees.
Inheritance tax in Portugal
The tax rate for this varies depending on the value of the inheritance and the relationship between the deceased and the heir.
For example, spouses, children, and parents are exempt from inheritance tax, while siblings and other relatives pay a tax rate of up to 10%. Inheritance tax is also applied to non-residents who inherit property in Portugal.
It is important to note that inheritance tax laws in the country are subject to change, so it is advisable to seek the advice of a qualified tax professional for specific guidance on individual cases.
- Read Also: Top 5 Cheapest Areas To Buy Property In Portugal.
Capital gains tax in Portugal
This is imposed on individuals and businesses alike. It is levied on the profit made from the sale of assets, such as property, stocks, and other investments.
The tax rate varies depending on the type of asset sold, the length of ownership, and the taxpayer’s residency status. For example, non-residents selling real estate in Portugal are subject to a flat tax rate of 28%.
At the same time, residents are subject to a progressive tax rate that ranges from 14% to 28%. But as mentioned earlier, exemptions and deductions can help reduce the tax burden for both residents and non-residents.
Company taxes in Portugal
Companies operating in Portugal have to pay corporate income tax on their worldwide income. The corporate tax rate in Portugal is 21% for companies with profits up to €25 million and 25% for companies with profits over €25 million.
Still, certain types of companies, like startups and SMEs, may be eligible for reduced tax rates and exemptions.
For expats who own or work for a company in the country, it is important to be familiar with the tax laws and regulations. This is important in order to comply with the tax requirements and take advantage of any incentives available in the tax system in Portugal.
How to avoid double taxation?
This occurs when the same income is taxed twice, once in the country where it’s earned and second in the country where you reside. To avoid this, Portugal has signed double taxation treaties with many countries, including the United States, the United Kingdom, Canada, China, and 75 others!
These treaties ensure that income will only be taxed once in either country, preventing expats from being taxed twice on the same income. You should stay informed and take advantage of these provisions. As an expat, these can help minimize your tax burden and maximize your earnings while living in Portugal.
Do you need tax advice in Portugal?
As an expat, one of the most important things you need to do is understand the tax system of Portugal. Yes, it is a little complicated, especially for someone new to it. But it gets easier once you start to live around absolute peace and serenity.
To understand this topic better, you can book a consultation with Viv Europe’s experts and get the right help! A one-on-one discussion can help clarify your confusion to understand your income distribution better.
For further questions, feel free to join our Facebook Group – All About Portugal For Expats, and learn from people’s experiences. Having a community of expats to guide you comes in handy when you least expect it. We hope to see you soon!
