Portugal: how taxes works?

Parent Category: ROOT Published: Tuesday, 16 March 2021 Print
Flag of Portugal

Taxes in Portugal

 

Portugal is a tax haven for ex-pats. Taxes in Portugal are one of the lowest in Europe.

It’s no wonder why this country is a popular holiday destination for travelers from the USA, UK, and none EU countries.

Last year, Portugal Tax Authority (PTA) said Bitcoin, Litecoin, and other cryptocurrencies would not be subject to value-added tax (VAT). This also includes all payments in crypto. Therefore, you are tax-free if your business accepts any digital currency.

 

How Tax In Portugal Works

The Portuguese tax year begins on the 1st of January to 31st December every year. Portuguese taxable habitants and ex-pats must submit their annual income tax before April the following year after the end of the previous tax year.

As a foreigner moving to Portugal, you need to register as a taxpayer and obtain a NIF (Numero de Identicacao Fiscal) before you can get a job, receive any form of income, or start a business in Portugal. You must be a taxpayer before you can work in Portugal.

Taxes in Portuguese are collected by the central and local levels of government. It is being calculated based on earning, property or expenditure. Taxes in this beautiful country are pretty easy and straightforward.

Everyone that has spent 183 days in the country is viewed as a Portuguese tax resident by the state. Portuguese Residents can also apply for a special tax regime as nonhabitual residents if they have not been taxed as a resident for five years.

The simplest approach is if you are in Portugal for 183 days or more in a single calendar year, you will typically be classed as a Portuguese tax resident. If you’ve not stayed in Portugal for up to 183 days, you may also be seen as a taxable resident if:

 

  • you possess a permanent residency permit on the 31st of December in that tax year;
  • the head of your family or household is a tax resident in Portugal;
  • you own a ship/plane or are part of the crew on a ship, yacht, or aircraft owned by a Portuguese entity;
  • you work for the Portuguese government no matter your current location.

 

Individual Taxes

Taxable income falls into 6 major categories. They include:

 

  • employment;
  • investment;
  • real estate;
  • net capital gains;
  • business & professional;
  • pension.

 

Individual taxes in the state are taken at progressive rates, except for some types. 

Portuguese residents are taxed on their worldwide salary varying from 14.5% to 48% at progressive rates. However, there are some factors and special circumstances that limit the application of individual taxes.

The table below contains Portuguese income tax rates.

Income/year

Tax rate

Less than €7,091

14.50%

€7,091 - €10,700,

23%

€10,700 - €20,261

28.50%

€20,261 - €25,000,

35%

€25,000 - €36,856

37%

€36,856 - €80,640

45%

€80,641+

48%

 

Expatriate Taxation

Unlike residents that are taxed on their worldwide income, non-residents are taxed only on their Portuguese-sourced income. This includes business payment for all business transactions in Portugal and money obtained by a company or permanent establishment (PE).

Expats are taxed at a flat rate of 25% on all taxable earnings. This 25% is charged on all wages, fees, commission, royalties, or pensions. The taxable income can be divided into two if the taxpayers are married, opt for joint taxation, and if they are not judicially separated.

There are however exceptions for special or reduced rates in Portugal. Some of the exceptions for 25% expatriate taxation are the double taxation agreement applicable or investment income, capital gain, or net rental income. The Portuguese government charges ex-pats 28% of all investment income, capital gain, or net rental income for all business transactions performed in Portugal.

 

Corporate Tax Rate

Portuguese corporate taxation varies and depends on the location. In Mainland Portugal, The tax rate for corporate entities is 21%. While the Corporate tax rate in Madeira is 20%, and in the Azores is 16.8%.

However, some corporate enterprises are immune from corporation tax and other minor taxes for charitable foundations, Church institutions, donations, and sports clubs.

Incorporated companies that have their headquarters in Madeira can obtain an International Business Centre license (MIBC). All corporate entities licensed with MIBC are charged a corporate tax rate of only 5% of all taxable profit obtained from all business or economic activities that perform any transaction with non-residents.

Living in Portugal almost makes you tax-free unlike other places in the EU, USA, or the UK where the tax rates are heavy. However, there are penalties if you are filing tax returns late in Portugal. You can be charged anywhere from €200 to €2,500 for late tax returns. Late tax payment penalties are also high. You could be charged either 10% of the amount owed or double the amount owed. The maximum fine for late tax payment is €55,000.

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