Tax Declarations in Portugal: Step By Step By Guide

Stepping into the realm of tax declarations in Portugal? Bravo! Get ready to demystify the art of financial transparency, expat-style.

In this comprehensive guide, we’re your co-pilots, steering you through the ins and outs of tax declarations.

From deciphering the paperwork waltz to claiming deductions like a pro, we’re here to transform tax season into your victory dance. Let’s dive in!

So How Would You Know If You Are Considered A Taxpayer In Portugal?

The tax liability as an ex-pat depends on an individual’s residency status, which is essentially defined by how much time they spend living and working in Portugal each year.

If an individual is living in Portugal for more than 183 days in one single calendar year, they will typically be considered a Portuguese tax resident.

However, the following may also make a tax resident:

You have a permanent residence in Portugal on December 31 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

The Portuguese (NHR) Tax System For Foreigners

Portugal’s Non-Habitual Residency (NHR) tax scheme was introduced in 2009 and offers tax benefits to foreign residents.

Under the NHR program, individuals who have not been tax residents in Portugal for the previous five years and who apply for NHR status can benefit from either tax exemptions or a flat 20 percent tax rate on their foreign-sourced income for a ten-year period.

This flat rate can apply to Portuguese-sourced income from self-employment or specific professions. The NHR rates are highly generous compared to regular Portuguese income tax rates of up to 48 percent.

This program makes Portugal an attractive option for digital nomads, retirees, and anyone looking to live and work in a beautiful and welcoming country while keeping more of their income.

Whether you’re seeking a change of pace or a new adventure, Portugal’s NHR program is worth exploring. In order to qualify for the Portuguese NHR regime, applicants must have the right to reside in Portugal either by being an EU/EEA/Swiss citizen or through visa schemes such as the Portugal Golden Visa.

They must not have been a Portuguese tax resident in the five years before taking up residence in Portugal. Portuguese Golden Visa Program, a Residence Permit Program, is a five-year residence under an investment scheme for non-EU citizens.

This is part of the Portuguese immigration incentives to welcome more investors to Portugal. The Golden Visa program has become one of the most successful.

Since its implementation in 2012, thousands of families have successfully migrated to Portugal and benefited from this program. Portugal issues a golden visa to foreigners who purchase real estate for more than 500,000 euros.

From January 1, 2023, residential properties must be located in specially designated inland areas or in Madeira and the Autonomous Islands of the Azores. There are no location restrictions for commercial real estate.

This allows investors to obtain a residence permit to live in Portugal and travel freely within the European Union.

Personal Income Tax (IRS) Rates In Portugal

Personal income tax (IRS) applies to the incomes of both Portuguese residents and non-residents who earn income in Portugal.

Usually, tax is automatically deducted from pay slips, but you are still obligated to complete an annual tax return. Tax is determined by looking at the taxable income earned and the corresponding tax rate and removing any legal deductions (e.g. expenditure on education or health care).

IRS counts separately, but married couples and same-sex marriages can file jointly. In this case, tax is imposed on the total taxable income of the household members. The individual rates for Portugal in 2023 are 5-48 percent

Income tax range in Portugal Portuguese tax rate is:

up to €7,116, 14.5%
7,117–10,736 € 23%
10,737–15,216 € 26.5%

Subject to Portuguese income tax 4

Income from employment
Income from self-employment
Investment Income
Portugal Real Estate Rental Income
Capital Gains from the Sale of Property, Assets, or Shares
Portugal Pensions, including Personal Pension Plans

How To File An Income Tax Return In Portugal

The tax year in Portugal runs from January 1 to December 31 and is due the following spring. Returns can be completed online or in paper form.

If you have access to the financial portal, you can file your annual tax return online. You can also apply directly at the following address*:

Serviço de Finanças Offices
Citizen Shops (Lojas de Cidadão)
Parish Councils (Câmara Municipal)

* Service reservations are required at specific locations.

Get started with Portugal’s Online Financial Portal🔥

Income Tax On Self-Employed Persons In Portugal

Self-employed persons, freelancers, and persons engaged in unincorporated businesses in Portugal count their income as personal income. This results in them paying Portuguese income tax rather than a corporate tax.

Local Taxes In Portugal

There are a few local taxes you should be aware of before moving on to more specific taxes, such as income tax and VAT.

The Imposto Municipal Sobre Imóveis (IMI) is equivalent to a local tax in Portugal and is paid by the property owner. Each municipality sets different rates depending on the size of your property.

IMI is involved in public infrastructure maintenance, such as garbage collection and street cleaning. You must pay IMI tax if you own real estate at the end of the tax year.

Residents of homes worth more than €600,000 must pay a higher level of IMI, known as AIMI. Many consider AIMI as Portugal’s equivalent of a “wealth” tax.

Taxes On Property And Wealth In Portugal

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

However, there are particular exemptions and reductions that are granted, such as a reduction of 50 percent for assets held for more than two years or a complete exemption for capital gains made from the sale of a main residence.

Exemptions on Capital Gains Tax also apply for residents selling their main place of residence and buying another property in Portugal or another one elsewhere in the EU and then hose selling a property they purchased before 1989.

Portuguese Property Tax (IMI)

In Portugal, if you own real estate, you must pay the Imposto Municipal Sobre Imóveis (IMI) property tax. Rates are set according to the municipality and region in which you own your home.

IMI ranges from 0.3% to 0.45% of home value in urban areas.

Rural areas are subject to a tax rate of 0.8%. IMI rates for your region for 2023 can be found on the SAPO website (in Portuguese).

Homeowners in urban areas with properties under 125,000 euros are entitled to a three-year IMI exemption if they live in the property. You can get an additional deduction of around €20 per dependent, with exceptions for low-income people or owners of energy-efficient homes.

Property Tax (AIMI)

Another post-purchase property tax in Portugal is the Adicional Imposto Municipal Sobre Imóveis (AIMI). This relatively new tax is notorious as a Portuguese wealth tax, as it applies to those whose total property value exceeds €600,000.

Taxes are calculated individually. This means that if the property is jointly owned, the property must be worth at least 1.2 miles to initiate AIMI payments.

There are three levels of AIMI tax in Portugal:

7 percent on property valued between €600,000 and €1 mi
A tax of 1 percent on property valued between €1 mi and €2 mi
A tax of 1.5 percent if the total value exceeds €2 million

Tax on rental income:

If one decides after purchasing a property that they wish to let it out, they will be taxed on any profits they make from rental income. Net rental income is taxed at a flat rate of 15 percent.

When declaring your rental income to the Portuguese tax authorities, you might be entitled to certain tax deductions.

Deductions for fire insurance are allowed (as it is compulsory for all rental properties) alongside value expense deductions such as IMI, costs associated with obtaining an energy certificate, and condominium fees, if applicable.

Inheritance Tax In Portugal

The inheritance tax in Portugal is very favorable as it does not apply to immediate family members. However, there is a stamp duty (Imposto do Selo) of 10% on Portuguese assets when inheriting or gifting property to a spouse or children.

Tax On Companies In Portugal

If you own a company/business in Portugal, you are liable to pay corporate tax at a flat rate of 21% on all taxable income. Municipal surcharge up to 1.

5% applies, as does the surcharge for profits exceeding 1.5 million euros.

Small businesses can pay a reduced corporate tax of 17% on the first €15,000 of taxable income. Small businesses and individual entrepreneurs with an annual turnover of fewer than 200,000 euros can pay business tax under a simplified regime.

Accordingly, tax is paid on turnover rather than profit. The deadline for filing corporate tax returns in Portugal is between April 16 and May 16 each year.

Tax Advice In Portugal

Filling out a tax return and navigating complex tax-related administrative work can be confusing and complicated, especially if you are self-employed or managing a business as a non-EU resident in Portugal.

It can give you peace of mind to seek help or advice from an accountant or tax expert. With the help of your tax expert, you will be able to get your tax and social security issued and be sure that everything is on board.

Personal Tax Allowances And Deductions In Portugal

In Portugal, residents can claim general income tax allowances and tax credits to reduce their taxable income. Allowable deductions include a general allowance of €4,104, expenses paid for property maintenance and conservation, and a deduction of €600 per dependent, with increases for dependents under three years old.

150% of the amount paid in the union fees (limited to only 1% of employment income) and that employee social security contributions to mandatory schemes even if it is higher than €4,104.

Maintenance and conservation expenses are paid out on the property yielding a rental income. Tax credits include expenses for family, health, education, rent, and donations, among others, with limits on the amount allowed.

The Non-Habitual Residency (NHR) tax code offers a preferential tax rate of 20% and exemptions for a period of 10 years to qualifying ex-pats. Meal allowances, travel expenses, and daily allowances for business travel are also exempt from Portuguese income tax.

Income Rates

Reduced rate: 6 percent in mainland Portugal, 4 percent in the Azores, and 5 percent in Madeira for the goods and services included in the List of the Value Added Tax Code.

The reduced rate applies to goods such as bread, pasta, milk and dairy products, books, newspapers, and chocolate.

Intermediate rate: 13 percent in mainland Portugal, 9 percent in the Azores, and 12 percent in Madeira on goods and services included in List II of the Value Added Tax Code.

Medium rates apply for items such as pickles, wine, musicals, and instruments.

Standard rate: 23% in mainland Portugal, 18% in the Azores, and 22% in Madeira for all other taxable goods and services. For more information, see Article 18 of the Value Added Tax (VAT) Code.

Tax Credits On Income Tax Return

35% of the general family expenses up that is a limit of €250 per each taxpayer
15% of health expenses that is a limit of €1,000
30% of educational expenses that are up to a limit of €800
15% of the VAT on the invoices issued that are by car repair shops, restaurants, hairdressers, and beauty salons that are up to a total limit of €250 per family
20% of alimony pensions fees arising from court decisions
15% of rent costs that are up to a limit of €502
15% of interest on housing loans that are up to a limit of €296
25% of donations made to different credited institutions
25% of expenses that are incurred with the homes and institutions to support and enrich the elderly or disabled that are up to a limit of €403.75
20% of premiums paid on pension contributions that are up to a limit of €400 for those that are aged under 35, €350 for those that are between 35–50, and €300 for those that are over 50

In addition to all this, these certain daily expenses also are seemingly exempt from Portuguese income tax.

Income Tax In Portugal For Foreigners

The Portuguese tax system allows for meal allowances of up to €4.77 in cash or the €7.63 in lunch vouchers for each day and business travel allowances of up to €50.50 within Portugal or €89.35 abroad.

Travel expenses vary based on the means of transport and the number of employees traveling. Portugal has a Non-Habitual Residency (NHR) tax code for foreign ex-pats, which provides preferential tax rates and exemptions for a period of 10 years for qualifying individuals.

This tax code allows ex-pats in some professions to receive a tax exemption on all forms of income received from abroad and tax income from inside Portugal at a flat rate of 20%.

Since 2009, 28,000 foreigners have received NHR status, including about 9,000 retirees. This drew criticism from the European Union (EU).

In April 2020, the Portuguese government raised the tax rate on foreign pension income for people with NHR status from 0% to 10%, making the tax code somewhat less attractive to foreigners.

Double Taxation Treaties

Portugal has concluded double taxation treaties with all EU countries and a number of non-EU countries.

The European Union Directive of 2003 on the taxation of interest on savings income transferred from one Member State to another can help migrants ensure fair taxation.

For information on how to file your taxes remotely in the UK, US, or Canada, check out our guide to filing taxes while living abroad.

Tax Refund In Portugal

If you disagree about the calculation of your income tax in Portugal, you may appeal to the tax authorities. Read the tax assessment letter to find out where to file an appeal and what the appeals process is.

If your appeal is denied, you may apply to have your case heard in the Tax Court. Beginning in 2022, you can no longer contest tax deductions accruing in income category B (self-employed).

Tax Penalties In Portugal

Late or incomplete tax returns in Portugal result in financial penalties ranging from 200 to 2500 euros.

Late fees may be subject to a penalty of 10% of the unpaid tax, up to twice the amount, up to EUR 55,000 plus interest.

Conclusion

You’ve conquered the tax declaration tango like a true expat virtuoso! Armed with knowledge and a touch of Portuguese flair, you’ve navigated the maze of forms and figures.

Remember, each declaration is a step toward financial clarity in your adopted land. So keep those documents organized, embrace the deductions you’re entitled to, and raise a glass to stress-free tax seasons ahead!

Declaration Dominated!

But Wait! There’s lot more for you to follow: