Understanding Taxes in Portugal

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Being resident in Portugal normally means being tax resident here as well, especially if you spend more than 183 days per year here. Residency and tax residency are both complicated issues, and there are exceptions, both most people living in Portugal will be tax resident here. Most visas like the D7 or D2 require you to be in Portugal for the majority of the year anyway, making you tax resident here as well. 

Many expats living in Portugal will also have signed up to the NHR (non-habitual residency) regime, the 10-year tax program that gives newcomers to Portugal different tax rates on certain types of income. If you only have one form of income, regardless of whether you qualify for NHR or not, your taxes may be reasonably straightforward (i.e. you have a pension and, under NHR, you pay a 10% flatrate on it). If you do some freelance work as well, for example, that may not qualify for NHR and would be calculated differently. If you have rental income from a property abroad, that may qualify for NHR and be eligible to be taxed in the country the property is in and not in Portugal. 

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Basically, taxes in Portugal, particularly for expats who often have several forms of income, can be complicated to calculate, which is why you should always enlist the services of an accountant. 

Portuguese income tax bands

Like many European countries, Portugal has a progressive tax system. This simply means that the rates increase the more income you earn. 

For example: if you earn €7,000 per year you’ll be taxed at 14.5% whereas if you earn €10,000 per year you’ll be taxed at 14.5% on the first  €7,112 and 23% on everything between  €7,112 and €10,000. 

Taxable incomeIncome tax rate
up to €7,11214.5%
€7,113–€10,73223%
€10,733–€20,32228.5%
€20,323–€25,07535%
€25,076–€39,96737%
€39,968–€80,88245%
€80,883+48%

For incomes above €80,000, an additional solidarity tax applies: 2.5% on income between €80,000 and €250,000 and 5% on income above €500,000.

Similar to a tax-free personal allowance, there is a deduction allowance. In 2021, this was €4,104. 

Social Security

If you’re working, either employed or self-employed, you’ll also have social security to pay. Employees pay 11% (and their employer pays 23.75%) while those who are self-employed pay 21.4%. 

The NHR tax regime

Many newcomers to Portugal will be eligible for Portugal’s NHR or non-habitual residence regime. This is a different group of tax rates, which are often lower than normal Portuguese tax rates and, in some cases, allow you to pay some taxes abroad rather than in Portugal. In some cases, it’s possible to avoid paying taxes altogether (in the case of some forms of income like dividends and royalties). 

Anyone who’s resident in Portugal can sign up for NHR, as long as they haven’t been on the scheme before or been resident in Portugal in the previous five years. The “tax holiday” lasts for ten years after which you move onto standard Portuguese tax rates. 

Pensioners, for example, pay a flatrate of 10% tax on their pensions, as of March 2020. Freelancers, depending on whether their work is considered “high value,” can qualify for a 20% flatrate. However, not every form of income qualifies for NHR. If you’re a freelancer, for example, your profession may not be considered high value and capital gains on shares do not qualify for NHR. 

It’s also possible that NHR is not actually the best option for you taxwise and you may be better off under normal tax rates instead. This is where a good accountant comes in useful.

A more in-depth article about NHR can be found here

Capital Gains Tax 

Another tax that you’ll need to consider, particularly if you own property here, is capital gains. 

When you sell your property in Portugal, you pay tax (or capital gains) on the profits. The rate at which you’ll pay depends on a number of factors, but the first is whether you’re resident in Portugal or a non-resident. 

  • Non-residents pay capital gains on 100% of the gain at a flat rate of 28% or 25% if you’re buying and selling the property through a company. 
  • Residents pay capital gains on 50% of the gain at the progressive tax rates listed above: 14.5% up to 48%. Because you only pay capital gains tax on 50% of the gain, this means the top rate is effectively 24% and not 48%. 

For both residents and non-residents, you are able to offset some costs and reduce the amount of capital gains you have to pay. 

Example costs include:

  • Improvements made in the previous 12 years (receipts needed). 
  • Inflation

Both residents and non-residents from the EU have the option of avoiding capital gains altogether (or reducing it) by reinvesting the proceeds into another property in Portugal or the EU. This needs to either be done within three years of selling the property or two years before. 

Those over 65 also have the option of reinvesting the proceeds into a pension fund or life assurance plan, but the deadline for this is much shorter: within six months following the sale. 

Taxes for non-residents

If you’re not a resident in Portugal, typically only income that’s earned in Portugal will be eligible for Portuguese taxes. Example income would include rental income from a property in Portugal or the sale of a property here.

Submitting tax returns

The Portuguese tax year runs from January 1st until December 31st. Tax returns are submitted between April 1st and June 30th in the calendar year following the previous tax year.

Written by

Hi, I'm James. I'm the main writer at Portugalist and the author of the book Moving to Portugal Made Simple. I started Portugalist because I felt there was a real lack of good quality information about Portugal and I wanted to change that.

This article was originally published in June 2021.

10 thoughts on “Understanding Taxes in Portugal”

  1. Hi.
    We are hoping to emigrate to PT from the UK and use a combination of my work pension and rental income from our UK home as our primary source of income. Would I need to apply for NHR to prevent this being taxed in PT as it will already have been taxed in the UK?
    Thanks

    Reply
    • Hi Rob,

      NHR could be a good option for those income types. This article lays out some of the different types and how they might theoretically be treated: https://www.portugalist.com/non-habitual-tax-regime/

      You can apply for NHR once you have become resident in Portugal.

      Reply
  2. Hi James, thanks for your page and the large amount of info in it however im wondering if you are self employed does it come under income tax aswell?

    thanks

    Reply
    • Hi Gavin,

      Something I need to do a separate article on. The figures above will be helpful. Social security is slightly different, but all of the above should give you a good idea. Speaking to an accountant is definitely recommended, though.

      Reply
  3. Hi James, I sent a question a few months ago and I cannot find the thread unfortunately. We have NHR status and have a business in the UK which we still run at the moment. I need guidance on the taxes I have to pay to PT (if any) on the income of the UK business and property we have in the UK. Can you give me a contact please so I can discuss this.
    Thank you
    Jayne

    Reply
  4. Hello,

    Thank you, it’s really useful!

    I heard that if your year income is less than 12 500€ you are free to pay taxes, is it correct?

    Could you please clarify situation if I’m self-employed person who makes, for example, 20 000€ Income during the year how much taxes should I pay with social security?

    All the Best,
    Artur

    Reply
    • Hi Artur,

      I think you're referring to IVA (VAT) https://www.jornaldenegocios.pt/economia/detalhe/limite-da-isencao-de-iva-passa-para-12500-euros ? It's not the same as income tax.

      The chart above and section on social security should give you all the figures you need.

      Reply

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