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.
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.
Income tax rate
up to €7,112
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.
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.
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).
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.