Portugal’s tax system, while seemingly complex, operates on a relatively simple structure with flat rates for most taxes. This makes it relatively straightforward for individuals and businesses to understand and navigate.
This guide provides a comprehensive overview of the Portuguese tax system, highlighting key aspects relevant to expats, remote workers, freelancers, and businesses operating in Portugal.
Key Changes in the 2024 Tax System
The Portuguese government implemented several changes to the tax system in 2024, including:
- Income Tax Thresholds: The earnings thresholds for each income tax bracket were increased by 3%. This means that individuals will generally pay lower taxes on their income.
- Lower Tax Rates: The tax rates for the first five income tax brackets were lowered, further reducing the tax burden for many workers.
- VAT Exemption for Food: The temporary VAT exemption for essential food items introduced in 2023 was removed.
- Start-up Corporate Tax Rate: A lower corporate tax rate of 12.5% was introduced for start-up businesses on their first €50,000 of income.
- NHR Program Closure: The “Non Habitual Resident” (NHR) tax system, which offered tax breaks for qualifying expats, was discontinued at the end of 2023.
Who Pays Taxes in Portugal?
Your tax obligations in Portugal depend on your residency status, which is determined by the amount of time you spend living and working in the country.
- Residents: If you reside in Portugal for 183 days or more in a calendar year, you are considered a resident and must pay income tax on your global income.
- Non-residents: If you live in Portugal for fewer than 183 days, you are considered a non-resident and only need to pay taxes on income earned within Portugal.
Income Tax Rates:
- Residents: Progressive tax rates apply, meaning the more you earn, the higher your tax rate.
- Non-residents: A flat rate of 25% applies to their income earned in Portugal.
Tax Registration for Expats
Foreigners planning to work in Portugal must register as taxpayers before they can earn income. This process involves completing a form and submitting it to your local tax office. The Portuguese Tax Authority’s online portal (Portal das Finanças) provides information and resources for registration.
NHR Tax System (Ended in 2023)
The “Non Habitual Resident” (NHR) tax scheme, which offered tax benefits to qualifying expats, ended in December 2023. It allowed individuals to benefit from a flat tax rate of 20% on their income for a period of 10 years.
Double Taxation Treaties
Portugal has double taxation treaties with several countries, including all EU members and many non-EU nations. These treaties help prevent double taxation by allowing individuals to offset taxes paid in Portugal against any owed in their home country. Worldwide Tax provides a comprehensive list of treaties currently in place.
Types of Taxes in Portugal
Portugal levies various federal and local taxes on individuals and businesses. These include:
1. Income Tax
- Residents: Pay personal income tax on their earnings at progressive rates, ranging from 13.25% (for earnings of less than €7,703) to 48% (for earnings of more than €81,000).
- Non-residents: Pay a flat tax rate of 25% on their income earned in Portugal.
| Taxable Income (EUR) | Tax Rate (%) | Deductible Amount (EUR) |
|---|---|---|
| Over 0, Not over 7,703 | 13.25 | 0 |
| Over 7,703, Not over 11,623 | 18.00 | 365.89 |
| Over 11,623, Not over 16,472 | 23.00 | 947.04 |
| Over 16,472, Not over 21,321 | 26.00 | 1,441.14 |
| Over 21,321, Not over 27,146 | 32.75 | 2,880.47 |
| Over 27,146, Not over 39,791 | 37.00 | 4,034.17 |
| Over 39,791, Not over 51,997 | 43.50 | 6,620.43 |
| Over 51,997, Not over 81,199 | 45.00 | 7,400.21 |
| Over 81,199 | 48.00 | 9,836.45 |
Taxable Income Categories:
- A: Employment Income
- B: Self-Employment Income
- E: Investment Income
- F: Rental Income from Properties in Portugal
- G: Capital Gains from Property Sales and Assets
- H: Pensions in Portugal (including private pension plans)
Tax Deductions and Allowances:
- General Allowance: €4,104
- Dependant Deductions: Allowances for dependents
Tax Return Filing:
- The deadline for filing tax returns for 2023 income is from 1 April to 30 June 2024.
- Married couples must submit a joint tax return. Their collective income is halved to calculate the applicable tax rate.
Income Tax for Self-Employed Workers:
- Self-employed individuals, such as sole traders, freelancers, and unincorporated businesses, pay personal income tax on their earnings rather than corporate tax.
2. Corporate Tax
- Standard Rate: Companies pay a flat corporate tax rate of 21% on their taxable profits.
- Start-up Rate (Effective 2024): Start-up companies can benefit from a reduced rate of 12.5% on their first €50,000 of taxable income.
- Small and Medium-Sized Enterprises (SMEs): SMEs can pay a reduced rate of 17% on their first €50,000 of taxable profit.
- Simplified Regime: Small businesses with annual turnover under €200,000 can opt for a simplified tax regime, paying tax on their turnover instead of their profit.
Corporate Tax Returns:
- The deadline for filing corporate tax returns is the last day of the fifth month following the end of the tax year. For example, if the tax year runs from January to December, the deadline is the end of May.
3. Value Added Tax (VAT)
- General Rate: 23% on most goods and services
- Intermediate Rate: 13% on food and drink goods and services
- Reduced Rate: 6% on essential necessities, including certain food items, books, newspapers, medicines, transportation, and hotel accommodations.
Separate VAT Rates for Islands:
- Madeira: 22% / 12% / 5%
- Azores: 16% / 9% / 4%
VAT for Businesses:
- Businesses with annual turnover exceeding €14,500 (rising to €15,000 in 2025) on taxable goods and services must register for and pay VAT.
- Businesses require a VAT number, known as a NIPC (Número de identificação de pessoa coletiva).
- VAT payments are typically made monthly or quarterly.
4. Municipal Property Tax (IMI)
- Council Tax Equivalent: Based on the value of your property and the perceived wealth of the area.
- Rates: Vary from approximately 0.3% to 0.45% in urban areas, with a rate of 0.8% in rural areas.
- Additional Tax (AIMI): Applies to properties valued at more than €600,000, effectively a wealth tax.
- Exemption: Homeowners in urban areas with properties worth less than €125,000 can benefit from a three-year exemption, provided they reside in the property.
5. Capital Gains Tax
- Rate: A flat rate of 8% for individuals and 25% for companies and non-residents.
- Residents: Pay tax on 50% of their capital gains.
- Exemptions: Apply for residents selling their primary home and buying another property in Portugal or the EU, as well as those selling properties acquired before 1989.
6. Rental Income Tax
- Rate: A flat rate of 15% applies to profits earned from rental income.
7. Inheritance Tax
- Abolished: Inheritance tax was abolished in Portugal, but a stamp duty called Imposto do Selo may apply at a rate of 10%.
- Deadline: Payment is due within three months from the date of death. Late payments may incur fines.
8. Road Tax
- ISV (Imposto Sobre Veículos): Payable upon vehicle registration. Rates are based on CO2 emissions. Electric vehicles are exempt.
- IUC (Imposto Único de Circulação): Annual road tax. You can calculate your bill on the IUC website.
Tax Avoidance and Evasion
The Portuguese government is actively combatting tax evasion. New regulations introduced in 2023 require companies to provide a comprehensive inventory when filing their taxes, rather than just supplying details of raw materials and products for sale.
Tax Fines and Penalties
- Late or Incomplete Returns: Individuals face fines ranging from €200 to €2,500 for late or incomplete tax returns. Interest on late payments can range from 10% of the outstanding tax to double its value, up to a maximum of €55,000.
- Corporate Tax Fines: Companies face daily interest charges of 4% on late returns. Penalties range from 30% to 100% of the taxes due, capped at €45,000 for negligence cases and €165,000 for deliberate delays.
Bottom Line
Portugal’s tax system, while requiring careful navigation, is generally transparent and operates with flat rates for most taxes. Understanding the key aspects discussed in this guide can help expats, remote workers, freelancers, and businesses navigate the Portuguese tax landscape effectively.
Seeking professional advice from a qualified accountant or tax expert can help ensure compliance and minimize tax liabilities.
References
- Expatica. (n.d.). The tax system in Portugal. Expatica.
- PwC. (2024, February 19). Portugal – Individual – Taxes on personal income. PwC.
- Portal das Finanças. (n.d.). Autoridade Tributária e Aduaneira. Portal das Finanças.
