Taxes in Portugal for foreigners can be complex, but understanding them is crucial if you’re a non-EU entrepreneur, pensioner, investor, highly-skilled professional, or digital nomad looking to immigrate to Portugal.
Although understanding taxes in a foreign country can appear complex - sometimes overwhelming—knowing the tax implications of living and working in Portugal will help you manage your financial responsibilities effectively. To help you better understand how things work, we've compiled a guide to Portugal's tax landscape.
In this guide, we’ll walk you through:
- The key aspects of Portugal's tax system for foreigners
- How to register with the Portuguese tax authorities
- Mandatory Tax Representatives in Portugal for Foreigners
- Insights on changes to and benefits of the Non-habitual Residency (NHR) program
- Taxation criteria for foreigners
An Overview of the Portuguese Tax System
Portugal’s tax system is managed by the Tax and Customs Authority (Autoridade Tributária e Aduaneira). It encompasses a variety of federal and local taxes that affect residents and non-residents.
At the federal level, the main taxes include income tax, corporate tax, value-added tax (VAT), capital gains tax, and inheritance tax. Each of these taxes funds public services and infrastructure. On a local level, property owners are subject to the IMI (Imposto Municipal sobre Imóveis), which is based on the value of their property.
Portugal's tax year is from 1 January to 31 December, aligning with the calendar year. This structure ensures that taxpayers' tax obligations are clear and manageable.
Who has to pay taxes in Portugal?
So, how do you know if you're considered a taxpayer in Portugal? Your tax liability as an expat in Portugal depends on your residency status, which is defined by how much time you spend living and working in Portugal each year.
If you are in Portugal for 183 or more days in a single calendar year, you will typically be considered a Portuguese tax resident.
However, the following may also make you a tax resident:
- You have a permanent residence in Portugal on 31 December of that tax year
- The head of your household is a tax resident in Portugal
- You are crew on a ship, yacht, or aircraft owned by a Portuguese entity
- You work for the Portuguese state, regardless of where you work from
How to Register in the Tax System in Portugal
Registering in the Portuguese tax system starts with registering as a taxpayer and obtaining your NIF (Número de Identificação Fiscal) number. You can request your NIF online through this website or go to a Finanças and request a NIF in person.
Once you've received your NIF, you'll need to fill out a form stating that you're starting a new tax activity and submit it to your local tax office, which you can find on the Portuguese Tax Agency's online portal.
As highlighted before, the Portuguese tax year starts on January 1 and ends on December 31. Returns are submitted between April and June of the following year and can be completed online via the Portuguese Tax Authorities' website or in printed form.
Returns must be filed on time to avoid potentially hefty penalties, ranging from €200 to €2,500. If doing business in the country, hiring an accountant or bookkeeper is advisable, even for small businesses.
Mandatory Fiscal Representatives in Portugal for Foreigners
One essential aspect of understanding is the requirement for a mandatory tax representative. You must appoint a tax representative if you are a non-resident individual from a non-European Union, European Economic Area country, or a foreign company generating income in Portugal.
The primary purpose of a tax representative is to ensure compliance with Portugal's tax laws and to act as a liaison between you and the Portuguese tax authorities.
A tax representative can assist you with the following tasks:
- Filing tax returns: Your tax representative will help you prepare and submit your annual income tax return according to the tax year, ensuring you meet all deadlines and requirements, record your annual turnover, pay Value Added Tax (VAT) if you need to, pay business taxes, and pay tax on income earned.
- Handling tax payments: Your representative will manage your payments to the Portuguese tax and customs authority, including income tax, property tax, municipal real estate tax, local taxes, and any other applicable taxes.
- Communicating with tax authorities: As your intermediary, your tax representative will handle all correspondence with the tax and customs authority, ensuring that your tax affairs are current and that you comply with local laws.
- Providing guidance on tax matters: Your tax representative will offer tax advice on matters such as tax deductions, property taxes, tax liability, understanding the implications of the NHR program or navigating the complexities of Portugal's double tax treaty agreements.
- Record-keeping: Your tax representative will maintain records of your tax filings, payments, and other relevant documents, ensuring you can access these records if needed.
To appoint a tax representative, you must choose a Portuguese resident with a Portuguese address registered with the tax authorities. This person will require your NIF number and a signed power of attorney to act on your behalf. Choosing a reliable and experienced tax representative is crucial to ensure the smooth management of your tax obligations in Portugal.
This mandatory tax representative is also essential to obtain your NIF if you're a non-EU/EEA national. Non-EU residents seeking a NIF usually incur charges from their fiscal representative for the application process. Additionally, many lawyers charge recurring annual fees for providing fiscal representation. The cost of securing a fiscal representative in Portugal can vary widely, ranging from as low as €50 to well over €1,000.
At GetNIFportugal, we charge €350 to link you with a Portuguese attorney who will act as your fiscal representative and secure an NIF on your behalf. Our ongoing fiscal representation service includes relaying messages from the Tax Office to you until a new NIF tax representative is assigned to you (this service is billed at an annual rate of €350).
Our tax representation and GetNifPortugal services are available to individuals of all nationalities.
The Importance of Getting a NIF and NISS in Portugal
Navigating taxes in Portugal is significantly simplified by obtaining two crucial tax identification numbers: the Número de Identificação Fiscal (NIF) and the Número de Identificação da Segurança Social (NISS). These identification numbers are essential for managing your tax and social security obligations as well as your social security benefits in Portugal.
Portugal's tax identification number (NIF)
The NIF is a unique tax identification number assigned to both individuals and companies operating in Portugal. Getting a NIF number is one of the most important steps towards living and working in Portugal.
It is essential for various aspects of living and doing business in the country. Some of the primary purposes of a NIF include:
- Registering with the tax authorities: The NIF is necessary for tax registration, ensuring that the tax authorities correctly identify you.
- Opening a Portuguese bank account: Portuguese banks require your NIF to open an account in Portugal, which is vital for managing your finances and making transactions within the country.
- Buying or selling property: When purchasing or selling real estate in Portugal, you must provide your NIF to finalize the transaction and manage property taxes in Portugal.
- Signing contracts: A NIF is required for any legally binding contract in Portugal, whether you're entering into a rental agreement, employment contract, or setting up utility services.
- Filing tax returns and making tax payments: A NIF is necessary for filing your income tax returns and making tax payments to the Portuguese tax authorities.
NISS: Número de Identificação da Segurança Social
The NISS is a unique social security identification number assigned to individuals working in Portugal. Getting a social security number in Portugal (NISS) is crucial for managing your social security contributions and accessing social benefits. Some of the primary purposes of a NISS include:
- Registering with the social security system: The NISS must enroll in Portugal's social security system, ensuring the authorities correctly identify you.
- Paying social security contributions: Your NISS tracks your social security contributions, which are mandatory for employees, self-employed individuals, and business owners.
- Accessing social benefits: The NISS is necessary for claiming social benefits, such as healthcare services, unemployment benefits, and pensions.
Tax Responsibilities for Foreigners in Portugal
As a tax resident in Portugal, your taxes will depend on factors such as your assets, your residence status in the country, and whether you've registered for the NHR program. However, almost every expat in Portugal with a regular "active" source of income will have to pay income taxes.
Non-Habitual Residency (NHR)
The Non-Habitual Residency (NHR) program is a tax incentive that has attracted many expats to Portugal. It offers significant tax advantages, including a reduced income tax rate for certain professions and the potential for tax-free foreign income.
Since its launch in 2009, Portugal's Non-Habitual Resident (NHR) regime has been a major attraction for tax residents and investors. It provides several benefits, such as tax-free transactions, low taxes on pension income or wealth, and a flat income tax rate. With NHR tax status, securing significant tax benefits for up to ten years is possible.
Important update: The NHR ended in January 2024, and the transitional regime will be introduced before the end of the NHR tax regime in 2025.
Anyone registered as a tax resident in the country in 2023 and had not been taxed in Portugal in the previous five years could still apply by March 31, 2024.
It's also possible for some individuals to apply up until March 31, 2025, but the eligibility requirements for this deadline are more stringent. To qualify, it's necessary to meet at least one of the following criteria:
- Having an employment contract signed by December 31, 2023
- Having a lease agreement or other contract for the use/possession of property signed by October 10, 2023
- Having a contract to buy property in Portugal signed by October 10, 2023
- Having children enrolled or registered in a school in Portugal by October 10, 2023
- Having a residence visa or a residence permit valid from December 31, 2023
- Having an application for a residence visa or residence permit initiated by December 31, 2023
- Being a member of the household of anyone who meets the above criteria
Anyone who qualifies under these conditions will have NHR status from the date they become a tax resident - whether in 2024 or the first quarter of 2025 - until December 31, 2033.
What will replace NHR? Updated for 2024
The State Budget proposal has introduced a new program known as the Incentivised Tax Status Program (ITS) or the Tax Incentive for Scientific Research and Innovation, which replaces the existing NHR tax regime.
Those who qualify will benefit from a flat tax rate of 20 percent on eligible professional income from Portugal and possibly an exemption on professional foreign-sourced income. They will also be exempted from most foreign-sourced income, such as dividends, interest, capital gains, and rents. However, unlike under the existing NHR program, this excludes pensions. These benefits will last for ten years.
To qualify, individuals must fulfill the following conditions:
- They become tax residents in Portugal
- They have not been tax residents in the previous five years
- They earn income in certain professional categories
Individuals in the following categories will be eligible for the Tax Incentive for Scientific Research and Innovation program:
- Teachers and scientists
- People with qualified jobs according to the tax code and members of corporate bodies within the scope of contractual benefits for productive investment, such as:
- Activities carried out within the scope of the extractive industry and manufacturing industries
- Tourism, including activities of interest to tourism
- IT and related activities and services
- Agricultural, aquaculture, fish farming, farming and forestry activities
- Research and development and high technological intensity activities
- Information technologies and audiovisual and multimedia production
- Defense, environment, energy and telecommunication
- Activities of shared service centers
- Highly qualified professionals, which will be anyone performing one or more of the above activities and carrying them out in a qualifying entity
- People working for companies recognized by relevant government agencies — AICEP, EPE, IAPMEI, IP — or relevant to the national economy, working with investment etc.
- Research and development personnel who meet the definitions of the tax code
- People working for startups, certified by law as such
- People working in Madeira and Azores who meet the terms set by these regions
Beneficiaries of the NHR program or the Regressar Program cannot apply.
Types of Taxes in Portugal
When exploring taxes in Portugal, it's important to understand the different types that apply to goods, services, and property.
Taxes on goods and services
Businesses with taxable sales exceeding €10,000 must pay VAT (Imposto Sobre o Valor Agregado, or IVA). This tax has three rates:
- Reduced Rate: 6% in mainland Portugal for essential items like food and books.
- Intermediate Rate: 13% in mainland Portugal for goods such as wine and musical instruments.
- Standard Rate: 23% in mainland Portugal for most other goods and services.
These taxes are crucial for funding public services and infrastructure.
Local taxes
The main local tax is the IMI (Imposto Municipal Sobre Imóveis), applicable to property owners. Rates differ by municipality and contribute to local services like waste collection and street maintenance. If you own property on the last day of the tax year, you’re liable for IMI. Homes valued over €600,000 incur a higher tax called AIMI, which is often seen as a “wealth” tax.
How much income tax do foreigners pay in Portugal?
The income tax rate expats in Portugal pay depends on their residency status and employment situation. In Portugal, non-residents are generally taxed at a flat rate of 25 percent on their Portuguese-sourced income.
Residents are subject to progressive tax rates based on their worldwide income. However, some residents are also registered in the Non-Habitual Residency (NHR) regime, which, as discussed previously, offers beneficial tax treatment for ten years. Personal income tax, or Imposto sobre o Rendimento das Pessoas Singulares (IRS), applies to Portuguese residents and non-residents earning Portuguese-sourced income.
The resident income tax rates for 2024 are as follows:
|
Taxable income (Euros) |
Tax rate (%) |
Deductible amount (Euros) |
|
0 - 7,750 |
14.5 |
$0 |
|
7,751 - 11,630 |
21.0 |
498.75 |
|
11,631 - 16,460 |
26.5 |
1,151.45 |
|
16,461 - 21,350 |
28.5 |
1,485.45 |
|
21,351 - 27,010 |
35.0 |
2,875.75 |
|
27,011 - 39,470 |
37.0 |
3,425.85 |
|
39,471 - 51,490 |
43.5 |
5,988.40 |
|
51,491 - 80,750 |
45.0 |
6,779.15 |
|
80,751 and over |
48.0 |
9,254.15 |
Typically, income taxes are deducted automatically from paychecks. However, it's still mandatory to file an annual tax return. The income tax owed is determined by considering the taxable income earned, applying the corresponding tax rate, and subtracting any allowable deductions, such as those related to education or healthcare expenses.
IRS is calculated on an individual basis, but married couples or those in civil partnerships have the option to file jointly. In these instances, the tax applies to the combined taxable income of the household members. As of 2024, the Portugal income tax rate for individuals ranges from 14.5 percent to 48 percent.
Income tax in Portugal is imposed on revenues that are categorized into six key areas:
- Income from employment
- Income from self-employment activities
- Returns from investments
- Income derived from renting properties within Portugal
- Capital gains realized from the sale of properties, assets, or stocks
- Pensions received in Portugal, encompassing private pension schemes
Self-employed income tax in Portugal
Sole traders, freelancers, employed digital nomads, and individuals operating unincorporated businesses in Portugal are considered personal earnings. As a result, they pay Portuguese income tax instead of corporate tax.
Filing a Tax Return and in Portugal
As mentioned previously, the Portuguese tax year spans from January 1 to December 31. T tax returns are typically filed the subsequent spring and can be completed either online or using a paper form.
If you have access to the Finanças Portal, you can submit your annual tax return statement online. Alternatively, you can submit it in person at:
- Serviço de Finanças offices
- Citizen Shops (Lojas de Cidadão)
- Parish councils (Câmara Municipal)
Please note that in certain locations, you'll have to schedule an appointment for this service.
Capital Gains Tax in Portugal
Capital Gains Tax, often referred to as CGT, is a tax charged on the profit when you sell or dispose of an asset that has increased in value. In Portugal, this tax applies to both residents and non-residents, including foreigners. It's important to note that different capital gains tax rates and exemptions may apply depending on your residency status and the type of asset in question.
Capital gains property tax
For real estate sales, the capital gains are considered to be the difference between the sale price and the original purchase price (adjusted for inflation). The cost of major improvements made within the last 12 years can also be deducted.
If you're a tax resident in Portugal, you may have to pay tax on 50 percent of the gain from the sale of your property. This gain is then added to your other taxable income for the year and taxed at the marginal rate (between 14.5 percent and 48 percent).
However, if the proceeds are reinvested in the purchase of another primary residence in Portugal or in the EU/EEA within 36 months, the capital gain could be tax-exempt.
Non residents in Portugal are taxed at a flat rate of 28 percent on 100 percent of the gain from the sale of Portuguese property. However, you may be given tax credits under double taxation treaties and only need to pay this tax in your home country.
Capital gains tax on shares and securities
Capital gains from selling shares and other securities are also subject to tax in Portugal. For residents, these gains are taxed at a flat rate of 28 percent. However, only 50 percent of the gains from selling shares in micro and small enterprises are subject to this tax if the shares were held for more than three years.
For non-residents, only capital gains derived from selling shares in Portuguese companies are subject to Portuguese CGT.
Inheritance Tax in Portugal
Technically, there's no "inheritance tax" for foreigners in Portugal as of 2024. However, you need to be aware of stamp duty, which applies to inherited assets in Portugal, regardless of the beneficiary's residency status. Here's the key information:
Rate: 10 percent on the value of inherited assets (real estate, cars, art, etc.)
Exemptions: Spouses, descendants (children, grandchildren), and ascendants (parents) are exempt from paying stamp duty.
Tax base: Calculated on the VPT (Valor Patrimonial Tributário) for real estate or market value for other assets.
Any inherited assets in Portugal are subject to this 10 percent stamp duty unless exempt. Remember, this only applies to Portuguese assets, not assets you inherit elsewhere.
Company Taxes in Portugal for Expats
As a foreign entrepreneur or representative of a foreign company establishing operations in Portugal the main company taxes you'll encounter in Portugal in 2024 are:
Corporate Income Tax (IRC): The cornerstone of the Portuguese tax system for businesses, the IRC applies a standard rate of 21 percent to your company's taxable profits.
However, certain circumstances, such as engaging in research and development activities or operating in designated low-density areas, might entitle you to a reduced corporate tax rate, ranging from 17 percent to 12.5 percent. Additionally, companies are subject to a municipal surtax of 0.4 percent to 0.475 percent, depending on the municipality in which they operate.
Value-Added Tax (IVA): Portugal's standard VAT rate is 23 percent. However, essential goods and services like food, medicines, and public transportation benefit from reduced rates of 13 percent and 5 percent. Certain transactions, including exports and international services, are exempt from VAT.
Other potential taxes: You might encounter additional taxes depending on your company's activities and assets. The annual Local Business Tax (IMI) applies to any real estate owned by your company, while the Stamp Duty (Imposto do Selo) taxes specific legal documents and transactions, such as company registrations and contracts.
The deadline for completing Portuguese corporate tax returns is the last day of the fifth month following the end of the tax year. So if the company's tax year runs from January to December, the deadline would be the end of the following May.
Exemptions and Tax Treaties
Portugal has established double taxation treaties with many countries to avoid double income taxation, including capital gains. Therefore, depending on your country of tax residency, you might not have to pay CGT in Portugal or be credited for the tax paid in Portugal against your tax liability in your home country.
Before making any significant asset sale or purchase, it's always recommended to consult with a tax advisor or professional familiar with the tax laws of Portugal and your home country to understand the potential tax implications and planning opportunities.
How We Can Help
We offer services that help foreigners navigate the Portuguese tax system. For example, we offer tax representation and can help you get a NIF online. Simply apply online, and we'll deliver your NIF number to your email, helping you get set up and registered on the Portuguese tax system.
We can also help you open a Portuguese bank account with one of Portugal's leading banks. This allows you to pay income tax more easily, pay social security contributions, and make financial transactions in the country.
Get in touch today.
Frequently Asked Questions about Expat Taxes in Portugal
Are there any tax benefits for foreigners living in Portugal?
Yes, Portugal offers several benefits to attract foreign residents. For instance, the Non-Habitual Residency (NHR) regime provides beneficial tax treatment for ten years. This includes a tax exemption on certain types of foreign earned income and a flat rate of 20 percent on certain types of Portuguese-source income.
How is personal income tax calculated for foreigners in Portugal?
Personal income tax for foreigners in Portugal is calculated based on the source and amount of income. Non-residents are generally taxed at a flat rate of 25 percent on their Portuguese-source income. Residents, however, are subject to progressive tax rates on their worldwide income.
Is US Social Security income taxed in Portugal?
Though exceptions exist, US Social Security is generally taxed in Portugal. Non-residents (staying less than 183 days) only pay tax on Portuguese income, so their Social Security may be exempt.
Residents (over 183 days) face progressive income tax rates of up to 52 percent on Social Security, though programs like NHR (ending for new applicants) can offer temporary relief.
Are there any tax treaties between Portugal and other countries that affect foreigners living in Portugal?
Portugal has established tax treaties with several countries to prevent double taxation. These treaties can affect how a foreigner's income is taxed in Portugal. For example, certain types of income earned in Portugal by a US citizen may be eligible for tax credits under the US-Portugal tax treaty, potentially helping to avoid double taxation.
Whether you qualify and need to file Form 1116 Foreign Tax Credit depends on specific factors such as the type of income, provisions of the treaty, and your overall tax situation. Consider consulting with a qualified tax professional familiar with both US and Portuguese tax systems to ensure that you receive optimal tax benefits and minimize your tax burden.
What happens if I don't file taxes in Portugal as a foreigner?
Failure to pay taxes in Portugal can lead to penalties, including fines and interest on the unpaid amount pay tax. In severe cases, failing to pay taxes can also lead to legal action.
Can I hire a tax professional to help me file taxes in Portugal as a foreigner?
Yes, you can hire a tax professional or a legal representative to assist you with your taxes in Portugal. They can guide you on the tax system, help you with your tax forms and tax filings, and ensure you take advantage of any available tax benefits.
Does Portugal have a 0 percent tax on foreign income?
For those under the NHR program, Portugal does offer a 0 percent tax rate on certain types of foreign-sourced income, such as dividends, inheritance, and net rental income, provided they meet specific criteria. However, this doesn't apply to all foreigners.
To determine your eligibility, consult an accountant, tax expert or advisor.
