Tax in Portugal

In this guide, the experts analyse in detail the matters relating to tax in Portugal. This covers who must pay tax in Portugal, corporate tax and property tax, tax for foreign nationals living in Portugal, and the tax incentives the country offers.

Where a person resides and/or works in Portugal, they must pay tax based on their assets and income when filing a tax return. Although tax in Portugal for foreign nationals may vary with circumstances, having a firm grasp of what is payable is important.

The guide covers all these important matters, and also answers frequently asked questions about tax in Portugal for foreign nationals and the tax incentives an applicant may be entitled to depending on their residence status.

Whether an applicant is already living in the country or is considering moving to Portugal, understanding how the national tax system works is essential.

A detailed article onthe country of Portugal.

The tax system in Portugal

Under Portuguese law, residents of the country together with non-residents earning income there must pay personal income tax. This means that any individual with revenue from personal work, capital, business, property ownership, employment or a pension in Portugal must file an IRS tax return.

Corporate tax in Portugal

Every company generating income in Portugal is subject to corporate tax. Corporate tax rates in Portugal vary and break down as follows:

• Mainland Portugal: the corporate tax rate payable is 21%
• The Autonomous Region of Madeira: the corporate tax rate payable is 20%
• The Autonomous Region of the Azores: the corporate tax rate payable is 16.8%

Small and medium-sized enterprises in Portugal whose profits derive largely from commercial, industrial or agricultural activity benefit from a rate of 17% on the first EUR 25,000. Above this level, the standard rates set out above apply.

Where companies do not operate permanently in Portugal and/or have no registered office in the country, they must pay 25% corporate tax, unless they generate income falling within the 35% rate.

Income subject to the 35% rate in Portugal includes:

• Prizes from lotteries, prize draws and similar competitions
• Income paid or credited to an account belonging to one or more owners, but in fact held on behalf of one or more third parties
• Income from companies located in areas, territories or countries with more favourable tax rules

Property tax in Portugal

On property tax in Portugal, the property tax rate on urban property ranges from 0.3% to 0.5%. Rural property, by contrast, is subject to an annual property tax of 0.8%.

Both residents and foreign nationals owning property in the country are responsible for paying the corresponding tax. Residents letting property must pay income tax of 14% to 48%. For non-residents letting property, a flat rate of 25% applies.

Property tax in Portugal also applies where an applicant decides to sell a property. Known as capital gains tax, residents are taxed on only 50% of the profit from the sale. Non-residents, by contrast, are taxed on 100% of the sale profit. However, where a resident sells one property in order to buy another, the Portuguese government does not charge capital gains tax.

A detailed article onBuying a home in Portugal.

Income tax rates for residents

Where an applicant is a Portuguese resident or is applying for residence in the country, they need to understand the income tax rates for residents, particularly tax in Portugal for foreign nationals. Residents are currently subject to progressive taxation ranging from 14.5% to 48%.

These rates apply to income and/or revenue in the following categories:

• Self-employment income
• Employment income
• Property
• Investments
• Pensions
• Capital gains

Each tax year in the country runs from 01/01 to 31/12. Foreign nationals’ income tax in Portugal must be filed in the following tax year before 30/06. Any tax that has arisen must be paid before 31/08.

International tax in Portugal

Residents living abroad in other countries must still pay tax to the Portuguese government. In this case, the progressive rate of 14.5% to 48% still applies. However, depending on the country in which the Portuguese resident lives, they may also have to pay tax to that country’s government.

Depending on the country of origin, applicants may be eligible to pay a lower or higher rate under one of the double taxation treaties to which Portugal is party. The details of this are set out later in the guide.

How does tax in Portugal work for foreign nationals?

Where a person is a current or future foreign national in Portugal, understanding the complexities of the tax system is essential. Although the flat rate of 25% on non-resident income still applies, applicants first need to register in order to pay tax.

Fortunately, this process is fairly straightforward. To obtain an official tax identification number, applicants may engage a legal representative or attend the local tax office and apply for one. Holding an official tax identification number is mandatory in order to pay tax in Portugal as a foreign national.

Where a person is an American foreign national receiving social security, they will most likely have to pay tax on it. The Portuguese government applies progressive taxation to United States social security that may be as high as 52%.

When it comes to tax in Portugal for foreign nationals, taxable income comes mostly from around six different revenue sources. The experts analyse those in detail below.

Note that applicants may live in Portugal by applying for theThe Portugal Golden Visa, visa D7or the Portugal digital nomad visa. In fact, the Portugal Golden Visa is a residence-by-investment programme, also regarded as a Plan B settlement investment because the programme only requires the applicant to be in Portugal for 7 days.

Sources of revenue in Portugal

The country continuously taxes the main revenue sources generated through a range of different cash flows. At present, the following revenue sources together generate the tax take for the Portuguese government:

• Personal income tax
• Social insurance tax
• Corporate income tax
• Property tax
• Goods and services tax

The NHR tax system

Non-Habitual Resident (NHR) is a tax incentive for new residents of Portugal and does not cover ordinary tax in Portugal for foreign nationals. Foreign nationals, depending on how long they have lived in the country and how they immigrated, may be eligible for the NHR incentives.

Under the NHR tax system, new residents of the country may pay no tax at all on worldwide income for ten years. Instead, income earned is subject only to a flat rate of 20%. The NHR tax system also provides favourable rules on capital gains, rental income from foreign property (outside Portugal), gift tax and inheritance tax.

After ten years, Portuguese residents are no longer eligible for the NHR incentive. Instead, they begin paying tax as ordinary Portuguese citizens.

Because of the way NHR is structured, some digital nomads and remote workers may be eligible for this tax system’s incentives. However, the condition is that the income must come from outside Portugal and these workers must meet certain residence criteria in Portugal.

Double taxation treaties

Depending on the country of origin, tax in Portugal for foreign nationals may be governed by one of a number of double taxation treaties. For example, the United States has a very clear tax treaty with Portugal. Given the wave of United States citizens moving to Portugal, understanding the content of the United States – Portugal tax treaty is important.

Fundamentally, this tax treaty is designed to avoid double taxation. As a result, passive income from the United States usually benefits from a lower rate or is exempt from tax entirely. This is particularly common in cases involving pensions, dividends, business profits, capital gains and interest.

The saving clause plays an important role in the United States – Portugal tax treaty. Under this clause, the United States is permitted to tax its own citizens under its own rules, even where that citizen lives abroad, in this case in Portugal.

However, in many cases this means that the benefits accompanying the United States – Portugal tax treaty are hard for Americans living in Portugal to access. To compensate, some rely on the foreign tax credit and/or the foreign earned income exclusion to take advantage of this treaty’s benefits.

Tax incentives in Portugal

Alongside the NHR programme mentioned above, there is a range of other tax incentives relating to tax in Portugal for foreign nationals or residents. In practice, these tax incentives usually favour investors and high-net-worth individuals.

The various incentives for intellectual property certainly fall into this group. Going beyond property tax in Portugal, the intellectual property tax incentives include:

• A rate of 10% on income from intellectual property rights created or used in Portugal
• Exemption from tax on income from intellectual property rights created or obtained outside Portugal by non-residents
• A patent box incentive with an 85% reduced rate on income from qualifying intellectual property created or obtained after 31/03/2019

Investors also benefit from the following tax incentives:

• Exemption from tax on interest, royalties and dividends paid to non-residents
• Tax deductions for investment in key locations such as the Azores and Madeira
• Exemption from capital gains tax (and similar income) arising from the sale of shares in Portuguese businesses
• Lower corporate tax rates for companies involved in exporting

Unlike many other countries around the world, Portugal has none of the following taxes for non-habitual residents:

• Wealth tax
• Gift tax
• Inheritance tax

Future tax incentives under development

When it comes to paying tax in Portugal, the country’s government is always considering various measures and proposals. At present, the Portuguese Parliament is proposing a range of tax incentives designed to attract young people and foreign nationals. Where the incentives on tax in Portugal for foreign nationals and young people take effect, they are expected to appear in the 2025 budget.

Under the current proposals, individuals aged 35 or under would be exempt from tax on the first EUR 28,000 earned in a year. Over the following ten years, the tax payable would rise gradually, beginning with a 75% exemption on income, then 50% and then 25%.

Many Portuguese officials believe these tax proposals are essential to keeping young people living and working in the country. Where Portugal ultimately passes these initiatives into law, they are expected to benefit hundreds of thousands of young people and foreign nationals.

Conclusion on tax in Portugal

In this guide, the experts have analysed tax in Portugal for foreign nationals, resident foreign nationals and residents. The content covers a comprehensive analysis of the country’s overall tax system, together with property tax in Portugal, corporate tax and international tax.

The experts have also set out the existing tax incentives such as the Non-Habitual Resident system and other exemptions and/or reliefs for investors. It is clear that Portugal is keen to keep more people in the country, while also appealing to foreign nationals, immigrants and high-net-worth individuals who can invest in the country’s economy.

From the future incentives the Portuguese government has proposed, it can be seen that the tax system is always changing. In the coming years, young people under 35 may be attracted to move to Portugal, particularly where the country passes the incentives currently under consideration. The same applies to foreign nationals buying and selling property in the country.

Whether living here or considering moving here, applicants should keep up to date with the various rules relating to tax in Portugal. This guide is a useful reference to keep and share.

Finally, personalised questions about property tax in Portugal or tax in Portugal for foreign nationals are best directed to an accountant or tax adviser. A professional can assess your personal financial situation, consider every detail and make sure everything is arranged correctly.

This may be particularly beneficial for non-EU residents, the self-employed, those running a business or those with several sources of income. Working with a tax professional helps applicants not only avoid mistakes but also make sure they do not miss any tax incentive for which they may be eligible.

Frequently asked questions