Tax Management Services Portugal: Tax Planning for Expats

Portugal has one of Europe's most attractive tax regimes, making it a popular destination for foreign investors and entrepreneurs moving to Portugal.

However, navigating the country's tax system can be daunting for many businesses and individuals. This is where management services come in. Tax services offer expert guidance and support to ensure you comply with the relevant tax laws and regulations while minimizing your tax liability.

In this blog post, we will provide an overview of services in Portugal, including tax management consulting, management systems, tax efficiency, tax assistance, tax strategies, tax preparation and tax planning, and fiscal representation. These services can help you become more tax efficient and navigate international tax when living in Portugal.

Tax Management Strategies

Management strategies help businesses and individuals minimize their tax liability while fully complying with Portuguese and international tax laws and the Portuguese tax authorities (Autoridade Tributária e Aduaneira).

A tax strategy can involve various approaches, including optimizing your business structure, taking advantage of tax incentives, and structuring transactions tax-efficiently. Tax advisers can provide essential tax advice, helping clients with their financial planning and managing their tax affairs.

By working with a tax consultant or doing a little research, you can develop a tailored strategy using valuable tax advice that meets your specific needs and objectives, whilst also minimizing tax risks.

In Portugal, various tax incentives and deductions are available to help businesses and individuals save money on their taxes, such as the Non-Habitual Residency tax program.

Non-Habitual Residency

Non-Habitual Tax Residency (NHR) is a special tax regime available to individuals who become tax residents in Portugal. Expats living in Portugal will find that Non-Habitual Tax Residency allows them to access reduced rates while resident in Portugal.

Non-Habitual Residency offers a range of tax benefits for a ten-year period, including:

A flat income tax rate of 20 percent for certain types of income (including self-employment income)
A flat tax rate of 10 percent on pensions
Tax exemptions on foreign income
Tax exemptions on dividends of foreign origin

To qualify for Non-Habitual Residency, you must:

Not have been a tax resident in Portugal for the previous five years
Possess the right to live in Portugal through a valid visa, residence permit, or naturally through being a European Union citizen
Have a Portuguese fiscal address
Have a place to live in Portugal on 31 December of every year to maintain NHR
Stay for at least 183 days in the country annually or maintain a property as your habitual residence.
Have a NIF (a Portuguese taxpayer identification number)

You can apply for NHR status through the Portuguese tax authorities web portal known as Finanças. You can create an account on Finanças by using your NIF number and assigned password.

Registering for NHR status is a great long-term tax strategy that can save you a significant amount of tax every year for up to ten years.

When considering the tax advantages under this regime, many people decide to retire abroad to Portugal due to the low tax rates on foreign-sourced pension income.

Tax Consultancy Services

Tax consulting is the process of managing and optimizing a company's tax obligations. Various tax consulting firms in Portugal can help businesses navigate the complex tax system. These firms provide various tax services, including tax advice, tax preparation, financial planning, services for small businesses, investment management services, and audit support.

Fiscal representation

A fiscal representative is a legal entity registered with the Portuguese tax authorities (and acts as an intermediary between an individual or business and the tax authorities.

A fiscal representative is a designated individual or company acting as your tax agent in Portugal, ensuring you comply with all the relevant tax laws and regulations. By appointing a fiscal representative, you can avoid the risk of non-compliance and ensure that your tax affairs are in order.

Mandatory fiscal representation for non-European Union/European Economic Area/Swiss nationals

Non-EU/EEA expats who wish to conduct business in Portugal must appoint a fiscal representative based in Portugal. The fiscal representative can be a Portuguese resident or a Portuguese entity. The fiscal representative offers tax services ensuring that the non-resident complies with all Portuguese tax laws and regulations, including VAT registration, filing tax returns, and paying taxes.

In addition, as mentioned earlier, non-residents who want to obtain a NIF in Portugal must appoint a fiscal representative based in Portugal. The fiscal representative will handle the NIF application process and can offer tax efficiency services, ensuring that the non-resident complies with all relevant tax laws and regulations.

We offer fiscal representation services at GetNifPortugal. Not only will your fiscal representative get a NIF on your behalf, but they will also ensure that you meet your legal requirement to have a fiscal representative in Portugal.

Optional fiscal representation

While fiscal representation is mandatory for non-EU/EEA expats who wish to conduct business in Portugal, it is optional for EU/EEA residents and non-residents who do not conduct business in Portugal.

However, even if it is not mandatory, many non-residents and businesses choose to appoint a fiscal representative to help them navigate the complexities of the Portuguese tax system.

A fiscal representative can help non-residents and businesses with various services, including VAT registration, tax planning, tax compliance, and representation in all tax matters and disputes.

By working with a fiscal representative, non-residents and businesses can ensure they comply with all relevant Portuguese tax laws and regulations while minimizing their tax liabilities. It's important to note that anyone, including individuals and businesses, can appoint a fiscal representative in Portugal.

Tax Management Services Portugal (Systems)

Services such as tax consultation and fiscal representation can also be supplemented or replaced with online systems. A tax management system is a software tool that helps businesses manage their tax obligations and can help with tax preparation. In Portugal, several management systems are available that can help businesses with tax compliance, VAT reporting, and payroll management.

These systems can benefit small and medium-sized businesses that do not have the resources to hire a full-time tax professional.

Some examples of Portuguese systems that can help you meet your long-term financial goals include:

This online resource created by the Portuguese tax authorities provides an overview of the Portuguese Tax System and useful forms
The face-to-face appointment service offered by Finanças
Software tools such as MyExpatTaxes

The Importance of Getting a NIF and Opening a Bank Account

If you are starting a business in Portugal or moving to Portugal, it is important to get a NIF (Número de Identificação Fiscal), which is a tax identification number. A NIF is required for various activities in Portugal, including opening a bank account, signing contracts, setting up a business, buying or renting property, and paying taxes. Getting a NIF will allow you to become more tax efficient as you can use your NIF to get tax reductions, pay taxes, file your annual tax return, and sign up for programs like the Non-Habitual Residency scheme.

By obtaining a NIF through a service like GetNifPortugal, you can streamline the process and ensure you have all the necessary documentation. Simply apply for a NIF through our website and get your NIF straight to your email inbox in two to three weeks.

Additionally, opening a bank account in Portugal can help you manage your finances more effectively and ensure access to banking services like Portuguese credit and debit cards. We can also help you open a bank account with a leading Portuguese bank from the comfort of your home.

Getting a NISS

In addition, subject to obtaining a NIF, non-residents who want to work or reside in Portugal must also obtain a Social Security Number (NISS).

A NISS is a unique identification number required for social security and tax purposes. You can obtain a NISS by applying at a Social Security Office in Portugal. Once you have a NISS, you can work and pay social security contributions in Portugal.

Portuguese Taxes

Let's examine some of the most common Portuguese taxes you might have to pay under Portuguese tax law.

Local taxation

The IMI (Imposto Municipal Sobre Imóveis), akin to the council tax in other countries, is levied on property owners. This tax, determined by each municipality based on the size of your property, contributes to public infrastructure maintenance, including waste disposal and street sanitation. It's known as a municipal tax.

Property owners are required to pay IMI tax if they hold property on the last day of the applicable tax year. A heightened level of IMI, known as AIMI, is levied on residents whose homes are valued at more than €600,000 and is often seen as Portugal's version of a "wealth" tax.

The tax is calculated on an individual basis, so if a property is jointly owned, its value would have to exceed €1.2 million before AIMI is levied.

Rental income Tax

If you decide to rent out your property, you will be taxed on any profits you make from the rental income. Usually, net rental income is taxed at a flat rate of 28 percent, but based on the specifics of the contract, you may be eligible for reduced rates or exemptions.

When declaring your rental income to the Portuguese tax authorities, you may be eligible for certain tax deductions. Deductions for compulsory fire insurance are allowed, along with value expense deductions such as IMI, costs related to obtaining an energy certificate, and condominium fees, if applicable.

Goods and services taxation

Any business established in Portugal and turning over more than €10,000 on taxable goods and services are required to pay VAT.

Portugal's VAT (Imposto Sobre o Valor Agregado, or IVA) was instituted in 1986, and it features three chargeable brackets:

Reduced rate: At 6 percent in mainland Portugal, 4 percent in the Azores, and 5 percent in Madeira, this applies to goods such as bread, milk, books, and others as per List I of the Value Added Tax Code.
Intermediate rate: This stands at 13 percent in mainland Portugal, 9 percent in the Azores, and 12 percent in Madeira, and applies to goods like wine, musical instruments, and others as listed in List II of the Value Added Tax Code.
Standard rate: This is set at 23 percent in mainland Portugal, 18 percent in the Azores, and 22 percent in Madeira, and is applicable to all other taxable goods and services. Refer to Article 18 of the Value Added Tax (VAT) Code for more details.

Income tax

The personal income tax (IRS) is levied on the income of Portuguese residents and non-residents earning in Portugal.

While tax is usually automatically subtracted from salary, individuals are required to file an annual tax return. The tax is calculated based on the taxable income earned and the corresponding tax rate, less any legal deductions (such as education or health-related expenses).

IRS is assessed individually, but couples or civil partnerships can choose to file jointly. In such scenarios, income tax is charged on the total taxable income of all household members. In 2023, Portugal's rates for individuals ranged from 14.5 percent to 48 percent.

Capital gains tax

Capital Gains Tax in Portugal applies to the profit made from the sale of capital assets, such as real estate, stocks, and bonds. The tax rate for capital gains is 28 percent for both residents and non-residents and 25 percent for companies.

However, certain exemptions and reductions may apply to capital gains tax, such as a 50 percent reduction for assets held for more than two years or a full exemption for capital gains made from selling a primary residence.

Exemptions on Capital Gains Tax also apply to residents who sell their primary home to buy another property in Portugal or anywhere in the EU, or those selling a property they bought before 1989.

Inheritance taxes in Portugal (stamp duty)

Portugal has a favorable inheritance tax policy, as no inheritance tax is applied to direct family members. However, a 10 percent stamp duty (Imposto do Selo) applies to Portuguese assets when inheriting or gifting an estate to a spouse or children.

In contrast to other countries like the United Kingdom, Portugal has a generous inheritance tax system. Under UK inheritance tax law, the UK levies an inheritance tax of 40 percent on estates valued above a certain threshold (typically £325,000), even for direct family members.

However, under UK inheritance tax law, if an individual leaves everything above the £325,000 threshold to their children or grandchildren, the threshold can increase to £500,000.

Company taxes in Portugal

In Portugal, if you run a company, you are required to pay Corporate Tax at a flat rate of 21 percent on any taxable profits. Local municipality surcharges of up to 1.5 percent may apply, along with additional charges on profits exceeding €1.5 million.

Small- and medium-sized companies may pay a reduced corporate tax rate of 17 percent on their first €15,000 of taxable profit.

Small businesses and sole traders with an annual turnover of less than €200,000 can pay business taxes through a simplified regime, where they pay tax on their turnover rather than their profit.

The deadline for filing Portuguese corporate tax returns is between 16 April and 16 May each year.

Double taxation treaties

International tax can often seem complex and challenging, especially for foreign nationals living in Portugal. However, it's essential to know about the concept of a double taxation treaty, which can significantly affect how much tax you pay and where you pay it.

Double taxation agreements (DTAs) between two countries are intended to alleviate the potential problem of international taxpayers having to pay tax on the same income in both countries. These treaties are key instruments in preventing double taxation and fiscal evasion, creating a fair and transparent taxation system for individuals and businesses operating across borders.

Portugal has signed tax treaties with many countries worldwide to ensure that foreign nationals living in Portugal aren't taxed twice on the same income. These treaties generally cover income tax, corporate tax, and other taxes on income or assets. They are designed to divide the right to tax between the country where the income arises and the country of residence.

Foreign nationals living in Portugal who come from a country with a DTA with Portugal may be able to claim tax relief. To do this, they must usually prove they have already paid tax on their income in their home country.

Useful Resources

The following blogs can help you manage the Portuguese tax system:

Conclusion

Tax services can help small businesses, larger businesses, and individuals stay on top of their tax preparation and payments. Expats should contact tax advisors e.g. a tax accountant in order to ensure that they have the best tax strategy when moving to Portugal. Financial planning can help you navigate capital markets, helping you save money long-term and ultimately achieve your financial goals.

Frequently Asked Questions about Tax Services Portugal

What is tax management?

Management in the context of tax refers to the process of managing and optimizing a taxpayer's tax obligations, including tax planning, compliance, and reporting.

Management involves understanding the complexities of the tax system, staying up-to-date with changes in tax laws and regulations, and developing strategies to minimize liabilities while maximizing tax benefits. Tax services such as online software or a tax consultant can help you stay on top of your tax.

What is a tax management example?

An example might involve a business owner looking to minimize tax liability while complying with all relevant tax laws and regulations.

The business owner might work with a tax consultant to identify tax deductions and credits they are eligible for and develop strategies to optimize their tax position, such as restructuring their business or taking advantage of tax incentives.

What are the types of tax management?

Types of tax related management include tax preparation, tax compliance, tax reporting, and tax optimization. Tax planning involves developing strategies to minimize liabilities, such as identifying tax deductions and credits or restructuring business operations. Effective services and consulting with tax advisers can help you meet your financial goals.

Tax compliance involves ensuring taxpayers comply with all relevant tax laws and regulations, including filing tax returns and paying taxes on time.

Tax reporting involves preparing and submitting tax forms and reports to the relevant tax authorities.

Tax optimization involves maximizing tax benefits, such as taking advantage of tax incentives or deferring liabilities.

What is the importance of managing taxes?

Managing tax is important for individuals and businesses resident in Portugal because it helps them comply with tax laws and regulations, minimizes tax liabilities, and optimizes tax benefits.

By being tax efficient and effectively managing their tax obligations, taxpayers can avoid penalties and fines, reduce their tax burden, and improve their financial position.

Additionally, working with a tax consultant, management service, tax advisers, or service providers can help taxpayers stay up-to-date with changes in Portugal tax laws and regulations and ensure that they are taking advantage of all available tax benefits.