Taxes in Portugal: How to pay and what you owe

Discover all you need to know about paying taxes in Portugal with this guide! We’ll walk you through what you owe and how and when to pay it.

Ellie

7 minute read

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17 Jul 2024

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Living

Amongst the list of things you’ll need to prepare for during your move to Portugal, taxes are likely one of your bigger concerns. Understanding the tax system of a new country can seem daunting, and it’s hard to know where to begin. To help you wrap your head around the Portuguese tax system, this article will walk you through:

• Who has to pay tax in Portugal
• What taxes you’ll need to pay
• How to file your annual tax return
• Tax deductions and credits in Portugal
• The Non-habitual regime (NHR)

Any person over the age of 18 and considered to be a tax resident of Portugal must pay taxes. You’re considered a tax resident of Portugal if you spend 183 or more days of the year in Portugal. There’re some other ways you can be viewed as a tax resident of Portugal:

• You’re employed by the Portuguese government— whether or not you reside in Portugal
• You have a permanent residence in Portugal at the end of the tax year (December 31st)
• You work on a boat or aircraft owned by a Portuguese party
• Your head of household is a Portuguese tax resident

Tax residents are taxed based on their worldwide income. Income tax in Portugal is progressive, meaning the more you earn, the more you pay.

Do non-residents have to pay tax in Portugal?

You’re considered a non-resident if you spend fewer than 183 days a year in Portugal. Non-residents will be taxed at a flat rate of 25% on income earned in Portugal. Non-residents also need to pay a capital gains tax of 28% on any property or assets sold in Portugal.

As an international, there’re a handful of taxes you must pay if you work and live in Portugal. We’ll look at the most common taxes paid by individuals who do so to give you an idea of what you can expect to pay.

Income tax

All Portuguese tax residents will pay personal income tax, but the amount you pay will vary depending on your annual income. The Portuguese government implements a progressive tax rate, so you can be taxed anywhere between 13.25% – 48% of your income.

Typically, your taxes will be paid automatically via your employer, but you must file a tax return every year. If you’re married, you’ll need to submit a joint tax return with your spouse, after which your cumulative income will be halved to decide your tax rate.

If you earn more than €80,000 per year, you’ll also have to pay a solidarity tax of 2.5% to 5% of your income.

Self-employed income tax

The tax you’ll pay on your income as a self-employed worker in Portugal will depend on your business. If you’re a freelancer, solo trader, run an unincorporated business, or work as part of a partnership, you’ll pay income tax as usual. You’ll also need to pay your own social security contributions.

If you run a limited company in Portugal, you must pay corporate tax on all its earnings.

Self-employed workers paying personal income tax must pay it in three instalments throughout the year. You’ll also need to file an annual tax return, typically the basis of the tax you pay in the coming year.

It’s a good idea to consult a financial advisor if you plan to be self-employed in Portugal to ensure you avoid fines or overpaying your taxes.

Corporate tax

If you run a limited company in Portugal, you’ll need to pay corporate tax on the earnings of your company. Corporate tax is charged at a flat rate of 21%. You’ll also need to pay municipality taxes of up to 1.5%. If your company earns more than €1.5 million annually, there’re additional taxes.

Small and medium-sized businesses pay a reduced rate of 17% on the first €50,000 earned, and start-ups pay just 12.5% on the first €50,000 earned. If your company has an annual turnover of less than €200,000 annually, you can pay tax on turnover rather than profit.

Corporate tax returns must be filed no later than the last day of the 5th month that follows the end of the tax year. If your business’ tax year runs from January to December, your taxes should be filed by the end of May.

Social security contributions

As a taxpayer in Portugal, you must pay a social security contribution equivalent to 11% of your gross income. This will be deducted by your employer.

If you’re self-employed, social security contributions must be paid monthly between the 10th and 20th on income earned the month prior.

You can pay your social security contribution at a treasury office, an ATM, via your Portuguese bank account, or with direct debit.

Municipal taxes

The Imposto Municipal sobre Imóveis, or IMI, is the name given to the Portuguese municipality tax. You only have to pay this tax if you own a property in Portugal. Renters do not have to pay the IMI in Portugal. How much you pay depends on the area you live in and the value of your home. Typically, you’ll pay around 0.3% to 0.45% of your home value in IMI. In rural areas, this rises to 0.8%.

If your home is valued above €600,000, you’ll pay a wealth tax called Adicional ao Imposto Municipal de Imóveis, or AIMI.

If your home is valued at less than €125,000, is located in an urban area, and you live in it, you may be exempt from paying the IMI for up to 3 years.

Inheritance tax/stamp duty

The inheritance tax was abolished in Portugal in 2004. However, you’ll still have to pay a flat rate stamp duty of 10% on Portuguese assets you inherited. Spouses, descendants, and parents are exempt from paying this tax. Stepchildren may also be exempt if they’ve been legally adopted.

Ownership of the assets is only given after you’ve paid the 10% stamp duty, and you cannot sell the assets you inherit to pay the stamp duty. Stamp duty must be paid within 6 months.

Capital gains tax

The money you earn from the sale of your property is considered a capital gain, and this income is taxable in Portugal. How much you pay in capital gains tax will depend on your residency. Both residents and non-residents will pay a flat rate of 28%, but the amount of income taxed upon will vary. Tax residents in Portugal are charged capital gains tax on 50% of the money earned from the sale of the property. Non-residents are taxed on 100% of the money earned from the sale.

Submitting your tax return in Portugal is a straightforward process. Your return must be completed online with the Tax Office. You’ll log in using your password and tax identification number (NIF), a digital mobile key, or a citizen card. If you’re submitting a tax return with other people, you’ll need to have the sign-in and authentication details of all parties to hand.

You must submit your tax return for the previous year between April 1st and June 30th. Submitting your tax return in Portugal is free of charge.

There’re a few tax deductions available to tax residents in Portugal that you may be able to claim against the tax you pay.

• A general allowance of €4,104
• A €600 deduction is applicable per dependent living in your household. This increases to €126 for each dependent under 3 years old, and an additional €150 may be deducted for second and following dependents aged between 4 and 6.
• If you pay union fees, 150% of the amount paid (up to 1% of your income)
• Employee social security payments if higher than €4,104

As a Portuguese tax resident, you may be able to claim back a certain amount of your expenses throughout the year.

• 15% of healthcare expenses (up to €1,000)
• 15% of rental costs (up to €502)
• 15% on certain VAT invoices (€250 per family)
• 35% of family expenses (€250 per taxpayer)
• 100% of VAT paid on monthly public transport passes or tickets
• 20% of contributions made to retirement saving plans (between €300 to €400, depending on your age)

The NHR was a tax regime that aimed to bring more skilled workers to Portugal, with the incentive of a flat tax rate of 20%. These individuals wouldn’t need to pay taxes in Portugal for income earned elsewhere as long as the income was earned in a country with which Portugal had a dual tax agreement. The NHR regime came to an end in January 2024. However, there’s currently a transitionary period in which some individuals may still qualify for the NHR regime if they apply before March 31st, 2025.

The individuals who can still apply until March 31st 2025, must meet one of the following requirements:

• Have an employment contract signed by December 31st, 2023
• Have a lease agreement for a property signed by October 10th, 2023
• Have a contract to purchase a property in Portugal signed by October 10th, 2023
• Have children enrolled in a school in Portugal by October 10th, 2023
• Have a residence visa or permit valid from December 31st, 2023
• Be a member of a household of anyone who meets the above criteria

If you meet any of those requirements, your NHR status is valid from the day you become a tax resident, whether in 2024 or 2025, until December 31st, 2033.

What’s replacing the NHR regime?

The Fiscal Incentive for Scientific Research and Innovation (IFICI) program will replace the NHR tax regime. Similarly to the NHR, this is a flat rate personal income tax rate of 20% on income earned in Portugal over a consecutive period of 10 years for eligible candidates.

If you have an additional source of income from another country, it may be exempt from taxation in Portugal under the IFICI.

Unlike the NHR regime, pensions earned in another country aren’t exempt from taxation in Portugal and will be taxed at the normal progressive tax rates of 13.25% – 48%.

To qualify for the IFICI, you’ll need to meet the following requirements:

• You’ve recently become a tax resident of Portugal
• You haven’t been a tax resident of Portugal for the past 5 years,
• You have never benefitted from the NHR regime in the past
• You work in an eligible career ^

^ While the government has yet to establish which specific roles are eligible for the IFICI, its “Accelerate the Economy” program states that those employed in categories A (employment income) and B (business/professional income) should be eligible.

As the IFICI and NHR are still in a transitionary period, it’s a good idea to check for up-to-date information to see if you can qualify for this regime.

Now that you’re completely informed with all you need to know about taxes in Portugal you’re ready to kickstart your Portuguese lifestyle! Haven’t found a place to stay yet? HousingAnywhere has plenty of listings to suit your needs across Portugal.

This article is for informational purposes only. Please consult the appropriate authorities for the latest developments or a lawyer for legal advice.