Looking to move to Portugal and wondering how to navigate the complexity of Portuguese taxes? You have probably heard that Portugal has some pretty high income taxes, but in truth, new residents can benefit from much lower tax rates.The Portuguese tax year runs from 1 January to 31 December. Workers must complete their tax returns for 2021 between 1 April and 30 June 2022. Self-employed people can pay their tax in three installments, July, September, and December. This guide to taxes in Portugal has everything you need to know, from income and property tax to the non-habitual tax regime.
Do foreigners need to pay tax in Portugal?
If you are a tax resident in Portugal, meaning you reside in Portugal for 183 days or more a year, you need to pay income tax on your worldwide income. If you live in the country for less than 183 days, you only pay tax on what you earn in Portugal. However, many expats in Portugal can enjoy the non-habitual resident (NHR) tax regime.
Non-Habitual Resident (NHR) Tax Regime
The Non-Habitual Resident (NHR) tax regime in Portugal attracts thousands of residents by offering reduced tax rates and even full tax exemptions for the first ten years of residence. The NHR tax regime was introduced in 2009 and is available to all new tax residents in Portugal that were not tax residents in Portugal for the 5 years prior.Let’s go through the main benefit of the NHR tax regime.
Personal Income Tax (IRS): 20% Flat Tax
Some NHRs are taxed at a flat rate of 20% on their income and are exempt from paying taxes on global income. Those who work in Portugal (freelance or regular employment) under the NHR tax regime only pay a 20% flat rate on personal income tax (IRS). To be considered “high value”, the job must be related to activities of scientific, artistic, or technical character. See what you would save below with a high-value tax rate under the regime.
Global Income
You will also not pay any tax on dividends, interest, royalties, capital gains, rental income from real estate outside Portugal, and income from employment in another country. These will be paid in the source country if your country has a Double Taxation Agreement (DTA) with the country. The UK, USA, and many more countries have a DTA with Portugal where this is the case. Therefore, you could be working for an American or English company and not pay any income tax in Portugal under the DTA. Rather, you would pay taxes in the US. You could also just choose to pay the flat tax rate of 20% if you fall under a “highly qualified professional” or if the latter is the case and you are paid by a Portuguese source.
These benefits only last 10 years.Take a look at our guide to visas in Portugal to obtain long-term residencyand be able to enjoy this attractive tax regime.
Guide to the NHR Tax Regime
VAT in Portugal
Known as IVA in Portuguese, VAT is paid by consumers when purchasing goods and services. The seller receives the VAT and then pays it to the tax authorities.
The VAT rate varies around Portugal. For mainland Portugal, the rates are either 6%, 13%, and most commonly 23%. In the Azores, the VAT rate is either 5%, 10%, or 18%. In Madeira, the VAT rate is either 5%, 12%, or 22%.
Self-employed people and companies that produce, market, or provide products and services in Portugal must pay the VAT to tax authorities.
Income Tax in Portugal
If you can take advantage of the NHR tax regime, the general income tax rate will not apply to you. However, even under the NHR tax regime, after 10 years, you will have to pay the general income tax rate, also known as the imposto sobre o rendimento de pessoas singulares (IRS) in Portugal. Most workers pay taxes automatically through their pay slips, but everyone must still complete an annual tax return. If you are married, you must submit a joint return with your partner. To calculate the tax rate applied to you as a married couple, your collective income will be divided into two. The rates below are applied currently.
Tax Reductions Under Proposed State Budget 2022-2023
However, under the new state budget, the tax rate will be altered from 7 tax brackets to 9, making it more progressive and fiscally unburdening the middle class. There will also be tax benefits for those with a second child. These proposed changes under the state budget are set to pass as the Socialist Party (PS) now holds a majority in parliament.
In a simulation for TVI/CNN Portugal, the consulting firm PwC estimates that a single person without children with a gross income of €1.250 per month will save €53 a year due to tax bracket change. This value doubles for couples without children with the same gross income. Couples with children will save even more.
Do you pay income tax if you are self-employed in Portugal?
Yes. Freelancers and those that are self-employed in Portugal pay income tax, rather than a corporate tax. Therefore, the general IRS rates apply, unless you can take advantage of the NHR tax regime or the 10 years of your status are over. You will also be paying your own social security, taxed at 21.4% for self-employed individuals. Self-employed people with a turnover of more than €10,000 on taxable goods and services must also pay VAT.
You can also deduct business expenses such as the rent of your office and utility bills, which will not be calculated in your taxable income. However, there are limits to this. Expenses for travel and entertaining clients can only be deducted if they amount to less than 10% of your overall income. If you work from home, you can claim expenses up to 25% of your overall income.
Freelancers can also take advantage of the simplified regime where they pay income tax on 75% of their overall income and the remaining 25% is offset with expense receipts. If you make over €200,000 you aren’t eligible for the simplified regime.
Guide to Working in Portugal
Corporate Tax in Portugal
Corporate tax is set at a flat rate of 21% on taxable profit, slightly below the EU average. Small and medium-sized businesses paid a discount fee of 17% in mainland Portugal, 11.9% in Madeira, and 12.5% in other areas on their first €25,000 of taxable profit.
If your company turns over more than €10,000 a year, you’ll need to pay VAT. Along with corporate tax, you need to pay a surcharge to your local municipality, at around 1.5% on the profit charged by the regional municipality. Other surcharges on top of your corporate tax bill include:
- 3% state charge on profit between €1.5 million and €7.5 million (2.1% in Madeira, 2.4% in the Azores)
- 5% surcharge on profit between €7.5 million and €35 million (3.5% in Madeira, 4% in the Azores)
- 9% surcharge on profit over €35 million (6.3% in Madeira, 7.2% in the Azores)
Social Security
If you are working in Portugal, either employed or self-employed, you will also have to pay social security which will one day assure you a retirement pension. The Portuguese Social Security is a system that also secures the basic rights of citizens and ensures equality in opportunities, providing measures of support such as unemployment allowances, paternal leave, and other financial support.
Employees pay 11%, while their employers pay 23.75%. Those who are self-employed pay 21.4%.
Inheritance Tax in Portugal
Inheritance tax has been abolished a few years ago, but you must still pay stamp duty, Imposto de Selo, which is 10%. In Portugal, inheritance law follows forced heirship rules. This means that legitimate heirs get a minimum of 50% of the deceased's estate. If there is more than one, this usually increases to 60%.
There is no wealth tax in Portugal.
Property Taxes in Portugal
If you are buying a house in Portugal, you must pay a number of property taxes to the government. You’ll need to calculate each of them, which a Portugal property tax calculator is helpful. Property owners have to pay three types of taxes:
1. Municipal Property Tax (IMI)
The IMI translates to Imposto Municipal Sobre Imóveis and will be different in each municipality. This money is used to maintain public infrastructures in municipalities. The IMI rates usually range from 0.3% to 0.45%. To calculate the IMI, you multiply the value of the tax asset with the IMI rate. You must pay the IMI every year. For example, if your property is valued at €500,000 and you live in the municipality of Cascais with a rate of 0.34%, then your yearly IMI is €1,700. You can be exempted from the IMI if your annual taxable income of the whole household does not surpass €15,295.
2. Property Purchase Tax (IMT)
The IMT is also known as the Imposto Municipal sobre as Transmissões Onerosas de Imóveis. This tax is paid when a house is bought in Portugal, so it is a one-time payment for buying a house. The rate of the IMT will depend on the type and value of the property, as well as whether this property is a principal or secondary residence.You must pay this before you buy a house. This is how you calculate the IMT = value of the deed or net worth tax (the larger amount) x rate – tax reduction. You won’t have to pay IMT if you buy a house in mainland Portugal and the price doesn’t exceed €92,407. IMT usually will range between 2% to 8%, depending on the case. However, properties acquired by companies located in a “blacklisted jurisdiction” pay 10% for IMT.
3. Tax on Stamps (IS)
You’ll also need to pay an Imposto de Selo, a stamp tax, contracts, loans, documents, and more. The rate also changes depending on the property and task, but it is usually between 0.4% and 0.8%. For example, for a mortgage of five years, the stamp duty tax is 0.6%.
Guide to Real Estate in Portugal
Taxes on Cryptocurrency: Is Portugal a crypto tax haven?
The Portuguese Tax & Customs Authority (PTA) officiallyannounced in 2019 that buying or selling cryptocurrency in Portugal is tax-free. Portugal does not view cryptocurrencies as an asset, but rather as a form of payment so they do not tax it as the former. Cryptocurrency is treated like any other currency, essentially. You will not be charged VAT or Personal Income Tax (IRS), as an individual. However, businesses that provide services related to cryptocurrency are taxed on gains between 28% and 35%. If you trade cryptocurrency as your primary income source (as your main profession) you will also be taxed this amount. There are many factors that determine whether this is the case like your profit and the frequency of your trade. To be sure, contact a tax advisor in Portugal.
If this is not the case for you, you can cash out your crypto into fiat currency (euro) without paying any tax. At times, Portuguese banks will contact you and ask you for a receipt or proof of exchange.
However, this is likely to change in the near future. In mid-May 2022, The new Minister of Finance Fernando Medina confirmed in parliament that cryptocurrencies will be subject to taxation in the future. While details are not yet set in place for the taxation of crypto in Portugal, the government has said the future plan will include, among others, a tax on the gains of selling cryptocurrencies such as bitcoin. The Secretary of State for Fiscal Issues Mendonça Mendes also announced that the government will not only tax crypto gains but cryptocurrencies will be included in other types of taxation, such as VAT (known as IVA) and Stamp Tax (known asImposto de Selo).
Guide to Crypto in Portugal
FAQs
How does the Portuguese tax system work? ›
Residents in Portugal for tax purposes are taxed on their worldwide income at progressive rates varying from 14.5% to 48% for 2023.
How are US citizens taxed in Portugal? ›Non-resident income tax rate in Portugal
The tax rate for foreigners in Portugal who are considered non-residents is 25% on all income earned.
Taxes For Retirees in Portugal
Portugal typically taxes all income. This includes pension income and income from international sources.
If you're a high earner in Portugal, income taxes can reach over 40 percent. However, if you're a non-habitual resident, tax can be fixed at rates of around 20 percent for a ten-year period.
What is US capital gains tax in Portugal? ›Capital gains tax for non-Portuguese residents
Put simply, capital gains tax in Portugal is charged on the sale of property or other assets at a rate of 28% for individuals and 25% for companies and non-residents. Residents will need to pay taxes on just 50% of their capital gains.
Taxes on retired expats in Portugal
You are considered a tax resident if you live in Portugal for at least 183 days during a tax year or if you have permanent residence there on 31 December. NHR status offers favorable tax conditions, including for earnings that would otherwise be subject to retirement tax.
How can I retire to Portugal from the USA? You need to apply for residency in order to retire in Portugal as an American. The process is straightforward, but it may take a while. You need to provide (1) your passport, (2) proof of income, (3) proof of health insurance, (4) criminal background check, in order to apply.
What is the tax rate for retirees in Portugal? ›Pensions and private pension plans are taxed at 10% in Portugal and not taxed in Spain. There is no wealth tax or inheritance and gift tax on assets outside Portugal.
Can I collect my Social Security if I live in Portugal? ›Can I Collect Social Security if I Live Outside the U.S.? If you are a U.S. citizen and qualify for Social Security retirement, family, survivor or disability benefits, you can receive your payments while living in most other countries.
What are the cons of retiring in Portugal? ›- Bureaucracy can be slow.
- Understanding double taxation can be tricky.
- Winters can be cold.
- Learning Portuguese is difficult.
- Cultural shock.
- Slow pace of life.
- Lots of tourists.
How much is Social Security in Portugal? ›
If you work as an employee, your contribution to Social Security is equivalent to 11% of your gross salary (total income without deductions). This amount is automatically deducted by the employer.
What tax form do expats file? ›Form 2555 is the form used to claim Foreign Earned Income Exclusion (FEIE). You will need to provide your amount of foreign-earned income, foreign address, employer's address and the dates you have travelled to the U.S. during the year. Form 1116 is used to claim Foreign Tax Credit.
Can I be resident in Portugal but not tax resident? ›According to the Portuguese tax law in force since January 2015, an individual is deemed to be resident in Portugal for tax purposes if one meets either of the following conditions: Spends more than 183 days, consecutive or not, in Portugal in any 12-month period starting or ending in the fiscal year concerned.
How can I live tax free in Portugal? ›Non-Habitual Resident (NHR) in Portugal is a special tax status for new residents. Its owners are exempt from paying taxes on global income. Income earned in Portugal is taxed at a flat rate of 20%. Foreign investors may get a Portugal Golden Visa and optimise their taxes applying for NHR status.
How long can you stay in Portugal as a non resident? ›U.S. citizens may enter Portugal for up to 90 days for tourism or business without a visa. Your passport should be valid for at least three months beyond the period of stay.
How much tax do you pay on property in Portugal? ›Property tax rates range from 0.3% to 0.45%. While properties in rural areas are taxed at 0.8%, properties in more urban areas are taxed within the mentioned range. If a property has been re-valued since 2004, it will fall between 0.2% and 0.5%.
Does the US have a double taxation agreement with Portugal? ›US Portugal Tax Treaty: The United States and Portugal entered into a tax treaty back in 1994. The tax treaty is very important on various international tax issues involving investment income, earnings, and pension.
Do you pay capital gains tax on inherited property in Portugal? ›Selling inherited property in Portugal
If an heir decides to sell a property in Portugal that was inherited, they may also need to pay capital gains tax.
Living in Portugal offers many advantages: a warm climate, the Atlantic ocean, mountains nearby, a low crime rate and a relatively low cost of living. Medicine and education are well developed here, and residents are offered tax exemptions. The disadvantages include the need to learn Portuguese and carry cash on you.
What city in Portugal has the most expats? ›Home to approximately 87 different nationalities, Lisbon is the most popular place for expats to live in Portugal. The diversity of the city makes it a very dynamic and exciting place to live.
Do retired expats pay taxes in Portugal? ›
If you live in Portugal for more than 183 days in any tax year, you become a tax resident and have to pay taxes there. However, you can get many tax benefits from the NHR regime and pay fewer taxes as an expat.
Where do most Americans live in Portugal? ›Most Americans in Portugal live in Lisbon, Porto, or the Algarve.
Why are so many Americans moving to Portugal? ›The fantastic climate, great quality of life, and affordable cost of living are just some of the reasons many Americans choose to live in Portugal. Portugal has, in many ways, become the European country to move to.
Can you be a dual citizen of the U.S. and Portugal? ›Both the US and Portugal allow their citizens to have dual citizenship.
Where do Americans retire in Portugal? ›Lisbon is one of the cities where expats are happiest with their life abroad, according to the Internations Expat City Ranking 2022, where the Portuguese capital comes in fourth.
Does Portugal tax US government pensions? ›Portugal can tax US source pensions (public and private) even if it is taxed at source in the United States. But that does not mean that the pensions would be double taxed since the Tax Treaty can be invoked to eliminate double tax when doing the US tax returns.
Can I live in Portugal as a U.S. citizen? ›As an American, you need to get a Portuguese residence permit if you're planning to stay there for longer than three months. If you reside in Portugal with a proper residence permit for five years, you can then apply for permanent residency or Portuguese citizenship.
What happens to my Social Security if I leave the US? ›If you are a U.S. citizen, you may receive your Social Security payments outside the U.S. as long as you are eligible for them. However, there are certain countries to which we are not allowed to send payments.
Do you lose Social Security if you retire abroad? ›If you leave the U.S., we will stop your benefits the month after the sixth calendar month in a row that you are outside the country. You can make visits to the United States for specific periods of time, depending on how long you've been outside, to continue receiving your benefits.
What does T1 mean in Portugal? ›The terminology used is T0, T1, T2, T3, and so on—the numbers correspond to the number of bedrooms. For example, a T1 is an apartment with one bedroom, a kitchen, a bathroom, and a living room. A T0 is a studio apartment.
What is the number 1 place to retire in the world? ›
Citing the state's high cost-of-living, wildfires, water shortages and at times its politics, many Californians have moved elsewhere in the U.S. Others have decided to relocate internationally. Americans now are among the fastest-growing groups of Westerners moving to Portugal.
How much is a gallon of gas in Portugal? ›...
Portugal Gasoline prices, 27-Feb-2023.
| Portugal Gasoline prices | Litre | Gallon |
|---|---|---|
| USD | 1.762 | 6.670 |
Price of electricity in Portugal is expensive
Unfortunately, Portugal has some of the highest prices for electricity in Europe thanks to taxes. According to Eurostat, we pay €0.2246 per kWh here which is 22% higher than in the UK.
Overall, Portugal is considered one of the cheapest countries in Western Europe and is, on average, 50 percent cheaper than living in the United States.
What taxes do expats pay in Portugal? ›Non-residents are taxed at a flat rate of 25% on their taxable remuneration in 2023.
What are the tax benefits of living in Portugal? ›Tax benefits for “digital nomads”
After relocating to Portugal, a freelancer can obtain an NHR (non-habitual resident) status. There are several advantages: no taxes on foreign income; 20% tax on income earned in Portugal compared to standard Portuguese income tax rates of up to 48%;
Per diems in Portugal for the year 2023
In Portugal: 50,20€ per day. Outside Portugal: 89,35€ per day.
| Expense | U.S. $ |
|---|---|
| Rent (two-bedroom, furnished apartment) | $1,100 |
| Utilities (Electricity, Water, Gas, Trash) | $150 |
| Internet/Cell Phone/Cable TV Package | $70 |
| Private Health Insurance (per couple) | $150 |
Foreigners may open a bank account in Portugal, either as a resident or a non-resident. Non-resident accounts require more documentation and can have more restrictions than a resident account, but this is an option if you don't have an address in Portugal yet.
Does the IRS go after expats? ›
Further, expatriated individuals will be subject to U.S. tax on their worldwide income for any of the 10 years following expatriation in which they are present in the U.S. for more than 30 days, or 60 days in the case of individuals working in the U.S. for an unrelated employer.
How does IRS know about foreign income? ›US taxpayers are required to report their worldwide income and foreign financial assets annually on their tax returns and on international informational reports, such as FinCEN Form 114 (FBAR), Form 8938, etc.
What happens if you don't file taxes as an expat? ›The penalty for not filing your tax return is 5% of the amount of tax shown on the return for each month you have not filed, up to 25% of your tax owing. If you fail to pay, the IRS imposes a ½ percent penalty for each month that the amount remains unpaid, up to 25% of your total tax owing.
Is Portugal still a tax haven? ›With standard tax rates ranging from 14.5% to 53%, Portugal can either be crippling or a tax haven depending on how and where you structure your wealth. Portugal introduced the Non-Habitual Residence (NHR) scheme in 2009 and made updates in 2020.
Does Portugal have no tax for 10 years? ›The resident-non-habitual NHR status is a fiscal regime that was created in 2009 by the Portuguese Government. It is a tax system that grants a 20% tax rate or a total exemption on the taxation of income of expatriates who choose to live in Portugal, for a period of 10 years.
How does tax free work in Portugal? ›When Purchasing an Item in Portugal. If your purchase is eligible for a VAT refund, let the retailer know that you want to benefit from the VAT refund scheme. They will ask you for your passport, so have it with you, and they will give you a normal receipt together with a special tax-free form with a registration code.
How to live in Portugal tax free? ›...
To do this, the applicant must fulfil at least one of the conditions:
- have lived in Portugal for more than 183 days in the last year;
- purchase residential real estate in Portugal, which is used as a permanent residence;
A US citizen can enter Portugal without a visa and stay there for 90 days. For a long-term stay in the country, you will need to obtain a long-term visa or residence permit.
Do you pay yearly property tax in Portugal? ›(Imposto Municipal sobre Imóveis)
IMI is levied on the property's fiscal value (“rateable value of properties” VPT), which takes into consideration several criteria such as property age, size, commodities and location. The property tax is fixed annually by each municipality and ranges from 0.3% to 0.8%.
Property tax rates range from 0.3% to 0.45%. While properties in rural areas are taxed at 0.8%, properties in more urban areas are taxed within the mentioned range. If a property has been re-valued since 2004, it will fall between 0.2% and 0.5%.
Do foreigners pay taxes in Portugal? ›
Income tax rates for residents in Portugal are progressive, meaning you pay more tax the more you earn. Non-residents are taxed at a flat rate of 25% of income.
What are the tax advantages of retiring to Portugal? ›But Portugal still offers a range of appealing tax benefits for retirees. These include: A reduced income tax rate on foreign pensions and rents paid to non-residents. Exemption from capital gains tax on property sold outside Portugal by non-residents.
How many US expats live in Portugal? ›How many expats are living in Portugal? The total population of expats in Portugal was approximately 661,000 in 2022. This amounts to around 6.5 percent of the total population.
How much monthly income do you need to live in Portugal? ›How much it costs to live in Portugal depends on your budget. Generally, one person can live comfortably with an income or allowance of $2,000 per month.
Are pensions tax free in Portugal? ›Portugal does not tax these pensions or include them as income for reporting and tax purposes. An important point in relation to the taxation of pensions is with regard to the pension commencement lump sum (PCLS) and withdrawals under “pension freedoms” arrangements.