Income Tax Brackets in Portugal: Explained

Tax jargon can sometimes feel like Portugal’s own secret language, right up there with deciphering the lyrics of a Fado song.

But what if we told you there’s a clearer tune to follow?

Dive in as we explain Portugal’s tax classes in a language everyone understands.

How To Know Your Tax Class In Portugal?

Your tax class in Portugal is determined by several factors, including your income, property ownership, and employment status. Here are some steps to help you determine your tax class in Portugal:

Determine your residency status: Your tax obligations in Portugal will depend on whether you are considered a resident or non-resident for tax purposes. To be considered a tax resident in Portugal, you must spend more than 183 days there during a tax year (from January 1 to December 31).
Determine your income tax bracket: If you are a tax resident in Portugal, you must pay personal income tax (IRS) on your income. The tax rate varies depending on your income bracket. You can find the current tax brackets on the website of the Portuguese Tax and Customs Authority (Autoridade Tributária e Aduaneira).
Determine your property tax obligations: If you own property in Portugal, you will need to pay municipal property tax (IMI) and, if you sell the property, municipal property transfer tax (IMT). The rates for these taxes depend on the value of the property.
Determine your other tax obligations: Depending on your circumstances, you may also need to pay other taxes in Portugal, such as the value-added tax (VAT) on goods and services, the motor vehicle tax (IUC), or social security contributions.
Seek professional advice: If you are unsure about your tax obligations in Portugal or have a complex tax situation, it’s always a good idea to seek professional advice from a tax expert or accountant.

By following these steps and staying informed abount tax regulations, you can determine your tax class in Portugal and ensure you meet all your tax obligations.

What Is The Income Tax In Portugal?

The personal income tax in Portugal is called IRS (Imposto sobre o Rendimento das Pessoas Singulares). The tax rate for the IRS in Portugal varies depending on the income earned. For the tax year 2022, the tax rates for IRS are as follows:

Up to €7,112: 14.5%
€7,112 to €10,732: 23%
€10,732 to €20,322: 28.5%
€20,322 to €25,000: 35%
€25,000 to €36,967: 37%
€36,967 to €80,882: 45%
Over €80,882: 48%

It’s worth noting that these rates are subject to change and may be adjusted in future tax years. Additionally, there are several deductions and exemptions available that may lower the amount of income tax owed.

These include deductions for health expenses, education expenses, and pension contributions. Non-residents in Portugal are subject to a flat rate of 25% on their Portuguese-sourced income unless a tax treaty between Portugal and their home country provides a different rate.

If you are still deciding about your income tax obligations in Portugal or have a complex tax situation, it’s always a good idea to seek professional advice from a tax expert or accountant.

Example Calculation Of Wage Tax Rates In 2022 In Portugal

Let’s say you are a tax resident in Portugal, and your gross annual income for 2022 is €30,000. To calculate your income tax liability for the year, you would follow these steps:

Determine your tax bracket: Your €30,000 falls into the 35% tax bracket.
Calculate the tax owed on the portion of your income in that bracket: The portion in the 35% bracket is €9,678 (€30,000 – €20,322). To calculate the tax owed on this portion, you would multiply it by the tax rate of 35%, which gives you €3,384.30.
Calculate the tax owed on the portion of your income in the lower tax brackets: The portion of your income in the lower tax brackets is €20,322 (€30,000 – €9,678). To calculate the tax owed on this portion, you would add up the tax owed at each lower tax rate. That gives you:

€1,033.80 for the portion of your income in the 14.5% bracket
€1,259.96 for the portion of your income in the 23% bracket
€2,901.30 for the portion of your income in the 28.5% bracket

Adding these amounts together gives you a total of €5,195.06.

Add up the total tax owed: To calculate your total income tax liability, you would add the tax owed on the portion of your income in the 35% bracket (€3,384.30) to the tax owed on the portion of your income in the lower tax brackets (€5,195.06). That gives you a total income tax liability of €8,579.36.

This is a simplified example, and there may be other deductions or exemptions that could lower your actual income tax liability.

Additionally, tax rates and regulations can change over time, so staying informed and consulting with a tax professional is essential to ensure compliance with all applicable laws and regulations.

How To Reduce Your Tax In Portugal?

There are several ways to reduce your tax liability in Portugal, including:

Take advantage of tax deductions: Portugal offers a range of deductions that can reduce your taxable income and lower your tax bill. For example, you can deduct expenses related to health care, education, and charitable donations, among other things.
Be sure to consult with a tax professional to determine which deductions you may be eligible for.
Invest in pension plans: Contributions to pension plans may be deductible from your taxable income in Portugal. By investing in a pension plan, you can lower your tax liability and save for your retirement at the same time.
Use tax-efficient investments: Certain investments may be more tax-efficient than others. For example, dividends from Portuguese stocks are exempt from personal income tax in some cases. Be sure to consult a financial advisor to determine which investments may be most tax-efficient.
Take advantage of non-habitual resident status: Portugal offers a non-habitual resident (NHR) program that provides favorable tax treatment for foreign residents who meet specific criteria.
Under the NHR program, you may qualify for a flat tax rate of 20% on certain types of income, such as pension income or income from high-value-added activities.
Consider moving to a tax-friendly jurisdiction: If you can work remotely or operate a location-independent business, consider moving to a country with lower tax rates. Portugal has a relatively competitive tax regime, but other jurisdictions may offer even more favorable tax treatment.

It’s important to note that tax planning can be complex, and the strategies that work best for one person may only be appropriate for one person.

Be sure to consult with a tax professional or financial advisor to determine the most effective ways to reduce your tax liability in Portugal.

When Do You Have To Change Your Tax Class?

In Portugal, your tax class is generally determined based on your personal circumstances and remains in effect until there is a change in those circumstances. However, certain situations may require you to change your tax class. Some examples include:

Change in marital status: If you get married or divorced, you may need to change your tax class to reflect your new status.
Change in employment status: If you change jobs or become self-employed, you may need to change your tax class to reflect your new income and employment status.
Change in residency status: If you move to or from Portugal, you may need to change your tax class to reflect your new residency status.
Change in family status: If you have a child or a dependent, you may need to change your tax class to reflect your new family status.
Change in income level: If your income level changes significantly, your tax class may change. For example, if you receive a large bonus or inheritance, your tax liability could increase, and you may need to adjust your tax class accordingly.

Tax Class Change After Marriage

In Portugal, when you get married, you can apply for a joint tax assessment with your spouse, which could result in a lower tax liability. To do so, you need to request a change in your tax class to reflect your new marital status.

The joint tax assessment allows couples to combine their income and expenses and pay taxes as a household. This can be beneficial for couples where one spouse earns significantly more than the other or if one spouse is not working.

To request a change in your tax class after marriage, you must fill out and submit a tax declaration form to the Portuguese tax authorities.

You will also need to provide documentation to support your change in marital statuses, such as your marriage certificate.

It’s important to note that the joint tax assessment may only sometimes result in a lower tax liability. It depends on the individual circumstances of each couple.

Be sure to consult with a tax professional or the Portuguese tax authorities to determine whether a joint tax assessment suits you and how to request a change in your tax class after marriage.

Portugal Tax Class Calculator

There are several tax class calculators available online for Portugal. Here are some options:

Finanças.gov.pt: This is the official website of the Portuguese Tax and Customs Authority, and it offers a tax calculator that allows you to estimate your tax liability based on your income, deductions, and tax class. You can access the calculator by clicking “Simulador IRS” under the “Serviços” section of the website.
PwC Portugal: This website offers a tax calculator that estimates your tax liability based on your income, deductions, and tax class. It also provides information about the different tax classes and their calculation.
KPMG Portugal: This website offers a tax calculator that estimates your tax liability based on income, deductions, and tax class. It also provides information about the different tax classes and their calculation.

It’s important to note that these calculators are designed to provide estimates only and may not consider all factors that could impact your tax liability.

For a more accurate assessment of your tax situation, it’s best to consult with a tax professional or the Portuguese tax authorities.

How To Change Your Tax Class?

You can change your tax class in Portugal by submitting a request to the Portuguese Tax and Customs Authority. Here are the steps to follow:

Determine the tax class you want to switch to: You can find information on the different tax classes on the Portuguese Tax and Customs Authority website. Consider your marital status, number of dependents, and income when deciding which tax class to switch to.
Fill out the appropriate form: You must complete the “Modelo 3” tax declaration form to request a change in your tax class. You can download the form from the Portuguese Tax and Customs Authority website.
Provide supporting documentation: You will need documentation to support your request for a change in tax class. This may include your marriage certificate, birth certificates of any dependents, and proof of income.
Submit the form and documentation: You can submit the form and documentation to the Portuguese Tax and Customs Authority by mail or in person at a tax office.

It’s important to note that the tax authority will only process your request for a change in tax class if it is submitted within a specific period.

The deadline for submitting your request may vary depending on your individual circumstances, so it’s best to consult with a tax professional or the Portuguese Tax and Customs Authority to determine the deadline that applies to you.

How To Fill Out The Application

To fill out the application for a change in tax class in Portugal, follow these steps:

Obtain the “Modelo 3” tax declaration form: You can download the form from the website of the Portuguese Tax and Customs Authority.
Provide your personal information: Your name, tax identification number (NIF), and contact information.
Indicate the tax class you are currently in: You will need to indicate your current tax class.
Indicate the tax class you want to switch to: You must indicate the one you want to switch to.
Provide supporting documentation: You will need documentation to support your request for a change in tax class. This may include your marriage certificate, birth certificates of any dependents, and proof of income.
Sign and date the form: You must sign and date the form to certify that the information you provided is accurate.
Submit the form and documentation: You can submit the form and documentation to the Portuguese Tax and Customs Authority by mail or in person at a tax office.

It’s important to note that the process for changing your tax class may vary depending on your individual circumstances, so it’s best to consult with a tax professional or the Portuguese Tax and Customs Authority if you have any questions or concerns.

Conclusion

Mastering Portugal’s tax classes is akin to perfecting the art of crafting pastéis de nata: nuanced, essential, and incredibly satisfying.

Armed with this knowledge, you’re set to dance through Portugal’s fiscal fiesta with flair.

Fiscal Fluent!

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