Last Updated on October 31, 2024 by Maryam Siddiqui
Navigating the intricacies of tax regulations is crucial to ensure compliance and maximize your returns. With the tax deadline looming, understanding the amendments becomes essential. In this guide, we’ll walk you through the recent US tax changes and help you understand the significant implications, including how to file taxes as an expat.
We’ll discuss the tax rates in Portugal and how the US – Portugal tax treaty benefits expats. You must stay informed of tax reforms to optimize your tax returns and avoid penalties. So stick around to learn about these changes in this step-by-step guide. Let’s get right into it!
How does the tax system work in Portugal?
The tax system in Portugal has a progressive structure, where people are taxed at increasing rates based on their income level. There are different types of taxes, such as personal income tax (IRS), corporate tax, value-added tax (VAT), and property tax.
Like most countries, Portugal has tax treaties with numerous countries, including the USA, to prevent double taxation for residents with income from abroad. You’ll also find various deductions and credits available to taxpayers, such as those for education expenses, health care costs, and charitable donations.
But to avail of these credits and other benefits, it’s pertinent to abide by the tax deadline and other legal rules.
- Check out our comprehensive article on the Portugal Tax System: Easy Breakdown For Expats.
Tax Deadlines 2024
The tax deadlines vary based on the type of tax, but typically the deadline is between March and June. It can also vary every year, so it’s important to stay updated and have the latest information.
The Portugal tax deadlines for 2024 are as follows:
- 26 February: End date to verify your invoices on the Tax Authority Website.
- 1 April: End date to claim invoices for general and household expenses.
- 31 May: First property tax (IMI) instalment due.
- 30 June: Last day to hand in personal income (IRS) statement.
- 31 August: Second property tax (IMI) installment due.
- 30 November: Second property tax (IMI) installment due.
- 30 November: Third property tax (IMI) installment due.
- Road Tax (IUC): Payment is due by the last day of the month on the number plate.
Main US Tax Changes in 2024
There have been many changes recently, but what are the most significant US tax changes for expats?
Firstly, all US citizens living abroad must report their global income to the IRS. They must file US tax returns if their income from worldwide sources exceeds specific thresholds based on their filing status.
Many expats usually don’t owe US taxes due to benefits like the Foreign Earned Income Exclusion and Foreign Tax Credit, which offset foreign income and taxes paid. This helps reduce US tax liability. American expats also receive an automatic extension to file their US tax returns because of double taxation treaty credits.
State tax filing obligations may apply based on domicile, residency, and income earned within the state. Note that expats with foreign financial accounts exceeding $10,000 must file an FBAR. Expats claiming the FEIE may need to limit US travel to maintain eligibility.
Those who failed to file US tax returns in previous years can utilize penalty-free options through the streamlined procedure. After the US tax changes, renouncing US citizenship involves a complex process with significant tax compliance requirements.
Now, self-employed expats are subject to self-employment taxes, including Social Security and Medicare taxes. Do remember that this year is the last chance for expats to claim stimulus checks if they meet eligibility criteria.
US – Portugal Tax Treaty
Thanks to the bilateral tax treaty between the US and Portugal, you don’t need to remit US income taxes on income sourced from Portugal.
This treaty exempts expats from taxation in both countries on wages, salaries, tips, and vice versa. To be eligible, you need to be:
- An employee of a US company with a permanent establishment in Portugal or
- Residing in Portugal for at least 183 days within a consecutive 12-month period.
If you are self-employed and fit the latter criteria, you are also exempted from US tax liabilities. This exemption applies to profits derived from self-employment or professional activities conducted while living outside of the US.
The exemption is applicable only when such activities are effectively connected with foreign business operations conducted by an individual through one or more fixed places of business outside their country of residence.
- Read an in-depth article on How To Pay Corporate Tax In Portugal
Tax Rates in Portugal
When tracing the US tax changes, it’s important to know the current tax rates in Portugal too. As mentioned initially, Portugal’s tax rates have a progressive structure.
Check out the details below:
| Income Bracket | Tax Rate |
|---|---|
| Income up to €7,703 | 13.25% |
| Income from €7,703 to €11,623 | 18% |
| Income from €11,623 to €16,472 | 23% |
| Income from €16,472 to €21,321 | 26% |
| Income from €21,321 to €27,146 | 32.75% |
| Income from €27,146 to €39,791 | 37.0% |
| Income from €39,791 to €51,997 | 43.5% |
| Income from €51,997 to €81,199 | 45.0% |
| Income above €81,199 | 48.0% |
Rates are as of February 2024.
Taxes On Income Earned Outside Of Portugal
As a US expat in Portugal earning income from outside the country, you may owe taxes on that income.
According to the US-Portugal tax treaty, you can exclude up to €91,012 ($98,600) of foreign earned income from your US tax returns, with a total limit of €190,002 ($205,842) per year from all countries combined for 2018.
If you exceed this limit or haven’t used up all your exclusion and want to pay taxes on the remaining foreign income at a lower rate than in the US, you can file Form 1116 with your 1040 return.
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How to file taxes in Portugal as an American
To file taxes as an expat requires careful attention to detail and knowledge of both US tax changes and Portuguese tax regulations.
The US-Portugal tax treaty may provide certain benefits or exemptions for expats, but it’s important to ensure compliance with the tax laws of both countries. If you’re confused at any point in time, get in touch with Viv Europe’s tax consultants to file your taxes as an expat.
You’ll need to gather all necessary documents, including:
- Passport;
- NIF Number;
- Proof of residency status in Portugal;
- Proof of income, such as employment contracts or salary statements;
- Documentation of any income earned outside Portugal, including US income;
- Bank statements showing interest income, dividends, or capital gains;
- Receipts or invoices for deductible expenses;
- Any tax forms or documentation related to foreign assets or investments, such as the Foreign Bank Account Report (FBAR) or Form 8938;
- Documentation of any tax payments made in other countries, including the US.
You should also know important deadlines for filing tax returns in both countries and any requirements for extensions or estimated tax payments. Staying organized can help avoid penalties and ensure compliance with tax laws.
- Read More: How To File Your Income Taxes In Portugal.
Tax Deductions for Expats
When learning about US tax changes, don’t forget to study the tax deductions thoroughly. These help legal residents optimize their taxation. For example, a significant deduction opportunity lies in medical expenses.
If you’ve incurred costs related to medical treatment, such as doctor visits or prescriptions, these expenses can be deducted from your income. But to avail of these deductions, it’s essential to maintain thorough records of these expenses, including all receipts and invoices.
You’ll also have to ensure these surpass the deduction threshold, which typically hinges on a certain percentage of your household’s total income.
Likewise, you can apply for deductions in education-related expenses, such as tuition fees and educational materials. You can leverage pension contributions for tax deductions if you’re an expat retiree.
Also, if you own a residence and document mortgage interest payments, you can reduce your overall tax burden by deducting this interest from the taxable income. Portugal also extends tax credits and deductions for dependents, such as children or elderly family members, through family allowances.
- Check out Personal Tax Deductions in Portugal.
How to find an experienced tax consultation in Portugal
Coming to the fairly difficult part: finding an experienced tax consultant in Portugal who’ll help you out!
When juggling taxes as an expat, it’s absolutely crucial to have a professional with you is crucial. Many Portuguese don’t file their own taxes themselves, so you can expect that expats will find it difficult too. And that’s okay.
At this point, you must look for experienced professionals who know exactly what they’re doing and how they can minimize your tax liability legally. These professionals must have specific experience with US tax regulations and be updated on the recent US tax changes to ensure they can address your needs effectively.
You’re in the right place for this! We’ve got experts at Viv Europe who take care of your entire immigration process, from visa assistance to post-relocation services. Our experienced tax consultants help expats file their taxes in Portugal on time and hassle-free.
Do you need help filing your taxes?
We all do!
It’s okay to be stuck somewhere along the process when it comes to taxes in a different country. The only important thing is that you have the help you need most!
Get in touch with tax consultants from Viv Europe to help file your taxes as an American in Portugal. Understand the process and ensure that you meet all the legal requirements for your situation. And remember, the deadline is in April, so you must make decisions quickly; see you!
