Taxes in Portugal and Tax Resident Status

Since 1992 Feod Group has been providing a wide range of immigration, business and legal services in Portugal and other EU countries

Offices:
  1. ✓ Tax Consulting and Optimization
  2. ✓ Services for developing tax planning strategies
  3. ✓ Selection of the best tax regimes and benefits in Portugal
  4. ✓ Comparison of taxes across different jurisdictions (EU, USA, and UK)

 

Portugal's Tax System

 

Portugal stands out among low-tax jurisdictions due to its competitive tax system, which attracts many foreigners, skilled professionals, and entrepreneurs.

The tax system in Portugal includes both national and local (municipal) taxes. It’s also important to note that tax rates and levies can vary between mainland Portugal and the island of Madeira, which should be considered when planning financial operations.

The tax year in Portugal coincides with the calendar year, running from January 1 to December 31.

A key aspect of the tax system is the residency-based taxation principle.

Tax Resident of Portugal

A tax resident is an individual or legal entity subject to taxation in a country based on their residence, permanent abode, or place of registration for a legal entity.

According to Portuguese tax law, an individual is considered a tax resident of Portugal if they meet one of the following conditions:

What is the difference between tax resident and non-resident in Portugal?

⇒ By becoming a tax resident in Portugal, you will pay Portuguese tax on all your income from sources around the world.
⇒ Non-residents will be subject to Portuguese tax only on income derived from Portuguese sources.

Special Tax Status in Portugal: NHR Regime

 

For a long time, Portugal has offered a favorable tax program called the Non-Habitual Resident (NHR) regime, which was popular among new residents.

Under the NHR program, a fixed tax rate of 20% applies to certain income from Portuguese sources (specific professions and self-employment), compared to the progressive tax rate of up to 48% under the general income tax regime.

Additionally, new residents are exempt from taxes for 10 years on most types of personal income derived from foreign sources or income taxed in another country.

However, in November 2023, the Portuguese Parliament approved the termination of the Non-Habitual Residency (NHR) regime, effective January 2024.

Individuals who previously obtained NHR status will continue to benefit from the regime and can retain the 20% tax rate on their income until the end of the 10-year period.

NHR 2.0: Portugal’s New Tax Regime in 2024

The Portuguese government has announced the introduction of a new favorable tax regime. This regime is now available only to those working in specific sectors.

Replacing the previous NHR, the new regime applies to individuals employed or self-employed in roles such as higher education teaching, scientific research, technology, and startups:

If you meet the criteria, you will receive:

  1. 1. A fixed 20% tax rate on income from employment/self-employment
  2. 2. Exemption from taxes on foreign income, such as employment income, rental income, dividends, and more.

Contact our specialists for more detailed information and consultation!

Taxes in Portugal in 2024

Personal Taxes in Portugal

Income Tax in Portugal (Personal Income Tax)

Personal income tax in Portugal is known as Imposto sobre o Rendimento das Pessoas Singulares (IRS).

Portugal recognizes six categories of income:

  1. Employment income (Category A)
  2. Business/professional income (Category B)
  3. Investment income (interest, dividends, and royalties) (Category E)
  4. Rental income (Category F)
  5. Capital gains (Category G)
  6. Pensions (Category H)

Portuguese tax residents are taxed on their worldwide income at progressive rates ranging from 13.25% to 48%.

Non-residents are only liable for income tax on income earned in Portugal at a flat rate of 25% on their taxable compensation.

Income Tax Rates in Portugal for 2024

For 2024, the tax rates for the first five income categories have been reduced to assist low and middle-income earners.

For example, while income from €11,284 to €15,992 was taxed at a rate of 26.5% in 2023, in 2024, income from €11,623 to €16,472 will be taxed at 23%.

Personal Income Tax Rates in Portugal for 2024:

Personal Tax Allowances and Deductions in Portugal

When calculating personal income tax in Portugal, certain deductions from taxable income are available up to specific limits. These include expenses related to healthcare, education, social security, and pension plans. Additionally, certain tax allowances apply depending on marital status, the number of dependents, and overall income level.

Employers are required to make monthly contributions at a standard rate of 23.75% of their employees’ gross monthly salary. Employees contribute 11%.

Inheritance and gift tax in Portugal is regulated based on the location of the property and the degree of kinship. Specifically, the tax rate is 0.8% for inheritances and gifts involving mainland Portugal. For the Madeira region, the inheritance and gift tax rate is set at 0%.

Our qualified lawyers and tax specialists provide expert knowledge and assistance in developing the most beneficial strategies for businesses and individuals!

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    Property Taxes in Portugal

     

    Property taxes in Portugal can vary depending on the type of property, its location, and its intended use. The main property taxes include:

    This tax is applied each time a property is transferred. It must be paid by the buyer before signing the final purchase agreement.

    The rate ranges from 0% to 6%, depending on various criteria:

     

    The tax rate ranges from 0.3% to 0.8%, depending on the municipality and the type of property. Portuguese municipalities set their own property tax rates.

    Certain properties may be exempt from paying IMI. For example, properties used as a permanent residence or rented out can be exempt from property tax for up to three years. The specific conditions for exemption can vary by municipality.

    Rental income is taxed at a flat rate of 28% for both residents and non-residents of Portugal who own property.

    Corporate Taxes in Portugal

     

    Legal entities are considered tax residents in Portugal if they are registered in Portugal or if their management activities are conducted from Portuguese territory. This includes all types of commercial companies.

    The rates of fees and taxes in mainland Portugal differ from those in the free economic zone of Madeira and the autonomous region of the Azores.

    Corporate tax rates for different types of companies in Portugal vary depending on the level of taxable income.

    In mainland Portugal, the corporate tax rate ranges from 17% to 21%.

    On the island of Madeira, the corporate tax rate is reduced to between 11.9% and 14.7%.

    For international activities conducted within the Madeira International Business Centre, a minimum corporate tax rate of 5% applies, creating favorable conditions for the development of international business projects.

    Dividends and interest are taxed at a flat rate of 28%. However, the taxpayer can opt to be taxed on dividends and interest at progressive rates ranging from 13.25% to 48%. If dividends are paid by a tax resident of an EU country, only 50% will be taxed according to the progressive tax tables.

    If dividends or interest income is received from a blacklisted jurisdiction, this income will be subject to a penalty tax rate of 35%.

    Dividends paid by a Portuguese legal entity to a non-resident company are subject to a withholding tax of 25%.

    VAT is called Imposto Sobre o Valor Agregado (IVA) in Portugal. VAT is payable by all businesses with a turnover exceeding €10,000 on taxable goods and services.

    On the islands of Madeira and the Azores, separate, lower IVA rates apply:

    Standard rate: 23% (22% in the autonomous region of Madeira and 18% in the autonomous region of the Azores)

    Intermediate rate: 13% (12% in Madeira; 9% in the Azores)

    Reduced rate: 6% (5% in Madeira; 4% in the Azores)

     

    READ ALSO:
    Company registration in Madeira

    Taxes for Sole Proprietors and Freelancers in Portugal

     

    A sole proprietorship in Portugal is the simplest form of business organization, ideally suited for small businesses that do not require significant investments.

    As a sole proprietor, you will be responsible for the following taxes:

    🔸 Personal Income Tax for the Self-Employed

    Sole proprietors and freelancers in Portugal consider their income as personal income and pay Portuguese personal income tax rather than corporate tax.

    Category B: Income from self-employment from a profession or business in Portugal is taxed at rates ranging from 13.25% to 48%.

    Various deductions and allowances are also permissible.

    🔸 Social Security Contributions, including healthcare, unemployment benefits, and pension

    Self-employed workers are responsible for making their own contributions to the social security system. Social security contributions vary, but the overall contribution rate for the self-employed in Portugal is 21.4%.

    The monthly contribution is calculated based on the relevant income, which is 70% of the value of services provided in the previous quarter, divided by 3.

    🔸 VAT

    The general rate is 23% on taxable goods and services.

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      Taxes in Portugal 2024 - FAQ
      What does it mean to be a tax resident of Portugal?

      Being a tax resident of Portugal entails that an individual is subject to taxation in this country.
      An individual is classified as a tax resident of Portugal if they: spend more than 183 days in Portugal during a calendar year; or spend a shorter period in Portugal but own property that is used as their personal residence.

      What are the obligations after obtaining tax resident status in Portugal?

      Being a tax resident in Portugal comes with several obligations, including the filing of annual tax returns. A tax resident is required to provide information on income earned both within Portugal and abroad. These declarations must encompass all sources of income, and the tax resident is obligated to pay the relevant taxes on their worldwide income.

      What tax benefits are available in Portugal?

      Portugal offers a range of tax benefits that can significantly reduce income tax obligations. When calculating income tax, various deductions from taxable income are taken into account within certain limits. These deductions can cover expenses related to healthcare, education, and social security. Additionally, tax benefits are applied based on the taxpayer’s marital status, number of dependents, and overall income level.
      For example, all residents are entitled to a general tax deduction of €4,104 per year + an additional deduction of €600 for each dependent.

      What are the tax implications for cryptocurrency income in Portugal?

      Portugal has made amendments to its legislation, under which income from cryptocurrencies is subject to taxation for individuals, but there is a specific threshold for exemption from taxation.

      Feod Group Services

       

      Article author

      Anastasia Taran Head of Corporate Services
      Ukraine
      In 2013, she graduated in law from the National University «Odessa Law Academy» with honors and received a Master of Law degree. Anastasia Taran has experience in international and contract law, as well as corporate and tax law in Europe. Within the framework of Feod Group, she specializes i...
      In 2013, she graduated in law from the National University «Odessa Law Academy» with honors and received a Master of Law degree. Anastasia Taran has experience in international and contract law, as well as corporate and tax law in Europe. Within the framework of Feod Group, she specializes in immigration and corporate law of European countries, particularly:
      • family and corporate immigration solutions.
      • establishing a business in Europe.
      • personal and corporate taxation in Europe.
      • opening accounts in European banks.
      • obtaining a tax resident status.
      read more
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