Portugal tax guide: rates, exemptions, and payment terms

Who pays taxes? Portuguese taxpayers are individuals and legal entities. Therefore, the rates depend on whether the payer is a tax resident of Portugal.

For an individual, it is enough to live in Portugal for 183 days per year to become a tax resident of the country. However, the change of tax residence does not happen automatically. To do this, you need to submit an application to the Portuguese tax office and indicate the Portuguese registration address in the application.

Portugal Golden Visa holders can move to Portugal and become Portuguese tax residents. Visa-free travel to Schengen countries, services from European banks, and work and study in Portugal are also available to them. After five years, the owner of a residence permit can apply for Portugal citizenship and become a citizen of the EU.

How to get a Portugal Golden Visa

A company needs to register a head office and get a tax number in Portugal to become the country’s tax resident.

The main taxes in Portugal are federal. These include income tax, corporate tax, VAT, capital gains tax, property transfer tax, and inheritance tax.

Homeowners and local companies pay taxes to the municipal budget. Tax residency rules depend on the property’s value and the region in which the property is located. The income from the tax goes to finance municipal services, such as garbage collection.

When to pay taxes? The fiscal year in Portugal coincides with the calendar year and runs from January 1st to December 31st. Therefore, returns must be submitted to the tax service from April 1st to June 30th of the year following the reporting one.

Income tax is levied if a person receives:

• salary as an employee of a Portuguese company;

• payment for activities performed as an individual entrepreneur;

• interest and royalties on investments;

• rent payments;

• pension, including from private pension savings.

A flat rate applies to non-residents — 25%. However, only income received from a source in Portugal is taxed. For example, if a Portuguese client pays for the services of an individual entrepreneur.

Portugal’s residents pay income tax on a progressive scale, with the rate depending on their annual income.

Tax residents of Portugal pay income tax on a progressive scale, where the rate depends on the amount of annual income.

Portuguese tax residents can return part of the amount of tax paid. An automatic deduction is calculated for those who receive income only from Portuguese sources and only in the form of salaries or pensions.

A taxpayer can apply for a deduction for treatment costs, care for elderly relatives and relatives with disabilities, education, and life and health insurance. A deduction is also made if a person has already paid income tax in another country if Portugal has an agreement with such a country to avoid double taxation.

In the case of salaries and pensions, income tax is withheld at payment. The employer or the pension fund pays the tax. At the same time, the first €4,104 of pensions are exempt from tax. But it is mandatory to declare a pension and salary, like all other income for the year.

Married spouses or partners can file a joint tax return. But this is optional. If you submit separate tax returns, each spouse indicates 50% of the income dependent family members receive. However, if one of the spouses is a non-resident, a resident spouse files a separate tax return.

Former tax residents may claim a 50% tax exemption on up to €250,000 of employment or self-employment income if they become Portuguese tax residents again in 2024, 2025, or 2026. The tax exemption will be granted for 5 years.

For violating the deadlines for filing a tax return, a fine of €300 —3,750 is provided. If taxes are paid late, a penalty of 30—100% of unpaid tax will be charged.

Income declaration schedule

1

Until February 17th

The taxpayer enters data on the composition of the family in their account on the tax service website

2

Until February 25th

The taxpayer checks the data on income and expenses on the E-Fatura website

3

Until March 15th

The taxpayer marks which of the expenses are tax-deductible on the E-Fatura website

4

From April 1st to June 30th

The taxpayer draws up a tax returnand submits it to the tax service

5

Until July 31st or November 30th

The tax office calculates the amount of tax payable and issues an invoice

6

Until August 31st or December 31st

The taxpayer transfers the amount of tax to the bank account specified on the tax service website

1

Until February 17th

The taxpayer enters data on the composition of the family in their account on the tax service website

2

Until February 25th

The taxpayer checks the data on income and expenses on the E-Fatura website

3

Until March 15th

The taxpayer marks which of the expenses are tax-deductible on the E-Fatura website

4

From April 1st to June 30th

The taxpayer draws up a tax returnand submits it to the tax service

5

Until July 31st or November 30th

The tax office calculates the amount of tax payable and issues an invoice

6

Until August 31st or December 31st

The taxpayer transfers the amount of tax to the bank account specified on the tax service website

An additional solidarity rate applies to personal income tax if the payer’s annual income exceeds €81,199. The surcharge is 2,5% for income of up to €250,000 and 5% for income above €250,000.

Tax on dividends is levied at a rate of 28%. The rate is fixed: it applies to residents and non-residents equally. However, the rate may change if a double tax treaty applies to international payments.

If the company that pays the dividend is registered in a country on the Portuguese blacklist of tax havens, the tax rate rises to 35%.

Stamp duty is levied only in certain situations, such as gifts and inheritances, when selling a business or a shareholding. The rates apply to all taxpayers, residents and non-residents of Portugal.

Social contributions cover family, pension, and unemployment benefits. All Portuguese company employees make contributions, which are deducted from their salaries at the applicable rate of 11%.

Self-employment tax. The contributions rate applicable to self-employees corresponds to 21,4%.

For self-employed workers under the simplified tax regime, the monthly contribution basis is 1/3 of the relevant remuneration determined in each reporting period and produces effects in that month and in the following two months.

Foreign tax residents are taxed on their worldwide income, while non-residents are taxed only on income that is sourced in Portugal.

The rates for tax residents are progressive, ranging from 13.25 to 48%, depending on income level. Non-residents are taxed at a flat rate of 25% on their Portuguese-sourced income.

Portugal taxes for expats were quite favourable under the Non-Habitual Resident (NHR) tax regime, which offered significant tax benefits for the first ten years of residency. However, the Portuguese Government announced the end of the Non-Habitual Residents regime with only a few exceptions starting on January 1st, 2024.

All companies operating in Portugal pay corporate tax. If the company is not a Portuguese tax resident, it only pays tax on profits earned in Portugal.

The standard corporate tax rate in mainland Portugal is 21%. The rate is lower in Madeira and the Azores — 14,7%.

Additional income tax may be levied at the municipal, regional and federal levels. Regional rates apply to Madeira and the Azores; federal rates apply to mainland Portugal.

The surtax rate depends on the company’s profit. The state surtax applies only to the part of the profit that exceeds 1.5 million euros.

Companies pay corporate tax three times a year in equal instalments. For this, financial statements are prepared in advance, which is agreed upon by the meeting of shareholders.

Some companies also need to be audited. The rule applies to companies that fulfil at least two of the three conditions for two consecutive years:

1. The company’s annual income is more than 3 million euros.

2. The company’s net assets are estimated at more than 1.5 million euros.

3. The staff has more than 50 employees.

Schedule for reporting and payment of corporate tax

1

Until March 31st

The company prepares financial statements and approves them at the shareholders' meeting

2

Until May 31st

The company submits a tax return

3

Until July 31st

The first payment of corporate tax

4

Until September 30th

The second payment of corporate tax

5

Until December 15th

The third payment of corporate tax

1

Until March 31st

The company prepares financial statements and approves them at the shareholders' meeting

2

Until May 31st

The company submits a tax return

3

Until July 31st

The first payment of corporate tax

4

Until September 30th

The second payment of corporate tax

5

Until December 15th

The third payment of corporate tax

The Value Added Tax (VAT) applies if a company provides services, imports or sells goods. The rate depends on the type of goods and services and the region of Portugal where the company is registered.

A company submits a tax return and pays VAT once a quarter if its turnover is less than €650,000. If the company’s turnover is above the specified threshold, VAT will have to be paid monthly.

Tax on dividends is levied at different rates for tax residents and non-residents:

• 28% — for companies that are tax residents of Portugal;

• 25% — if a non-resident company receives dividends from a Portuguese company.

Stamp duty is paid by legal entities at the same rates as individuals:

• 5% — for a sale of a business or share;

• 10% — for gifts and inheritance.

Social contributions are made by all Portuguese employers, but the rate depends on the type of enterprise:

• 22,3% for government and non-profit organisations;

• 23,75% for commercial companies.

Reduced corporate tax rates. Resident small and medium-sized enterprises, SMEs, and small-medium capitalisation companies, Small Mid Cap companies, benefit from a reduced corporate tax rate of 17% on the first €50,000 of taxable income. This rate is further reduced to 11,9% in Madeira and the Azores.

SMEs and Small Mid Cap companies that conduct their activities and have their effective management in the inland areas of mainland Portugal are eligible for a CIT rate of 12,5% on the first €50,000 of taxable income. In the Azores and beneficiary territories of Madeira, this rate decreases to 8,75%.

Taxable income exceeding €50,000 is subject to the standard CIT rate.

Start-ups also enjoy a preferential CIT rate of 12,5% on the first €50,000 of taxable income, with any excess taxed at the standard CIT rate.

The Madeira Free Trade Zone has been operating since 1980. It covers manufacturing, trading, consulting, telecommunications, warehousing, marketing, intellectual property ownership, use of yachts and ships.

If a company registers in Madeira and obtains a special program licence, it can pay income tax at 5%. The preferential Portugal tax rate applies to income from transactions with other licensed companies or foreign organisations.

If the licensed company earns income from transactions with other Portuguese entities, then such income is taxed at the standard rate. However, Madeira has lower rates than mainland Portugal: 14,7% instead of 21%.

Benefits apply to dividends, capital gains and stamp duty. We discussed them in more detail in the material “How to open a business in Madeira”.

Property transfer tax (Imposto Municipal sobre Transmissões, IMT) is municipal. It must be paid once when buying a property.

If the property is located in a rural area, the tax rate is 5%. However, commercial real estate is taxed at a rate of 6,5%, regardless of location — urban or rural.

A progressive taxation scale is applied for residential urban development. It considers the cost and the purpose of the purchase as a permanent home or a rental.

If the property costs up to €101,917, the tax is 0% for permanent places of residence and 1% for non-permanent. The rest of the marginal tax brakes are the same for both property types:

• 2% for properties worth €101,917—139,412;

• 5% for properties worth €139,412—190,086;

• 7% for properties worth €190,086—316,772;

• 8% for properties worth €316,772—633,453;

• 6% for properties worth €633,453—1,102,920;

• 7,5% for properties worth above €1,102,920.

Tax must be paid after a preliminary contract for the sale of real estate is concluded, but no later than three days before the completion of the transaction.

Municipal property tax (Imposto Municipal sobre os Imóveis, IMI) is paid annually. The rate depends on the location of the property:

• 0.3—0.45% for urban properties;

• 0,8% for rural properties.

Tax is not charged if the annual household income is up to €15,295. The property must be used only for permanent residence and cost no more than €66,500.

For three years, the owners of a property worth up to €125,000 are exempt from paying tax if the owner’s annual income does not exceed €153,300. Also, buildings subject to reconstruction at the city’s expense are exempt from the tax for three to five years.

The tax can be paid one time or in parts:

• tax up to €100 must be paid before May 31st;

• tax from €100 to €500 is paid one time until May 31st or in two instalments — until May 31st and November 30th;

• tax over €500 is paid one-time until May 31st or three instalments — until May 31st, August 31st and November 30th.

Examples of properties in Lisbon

Portugal, Lisbon

€860,000 — €2,500,000

Apartments in a hotel managed by Hyatt

88 m² — 251 m²

3

3

Portugal, Lisbon

€1,900,000 — €3,400,000

Apartments in a luxury residential complex

137 m² — 245 m²

3—4

3—4

Portugal, Lisbon

€726,000 — €935,000

Apartment overlooking the river and the park in a prestigious area of Lisbon

111 m² — 142 m²

2—3

1—2

Capital gains tax for individuals and legal entities is payable, for example, on the sale of shares. However, if the shares are not listed on the stock exchange, only 50% of the profit from the sale is taxed. The tax rate is the same for foreigners and residents — 28%.

When selling property. If the seller is a tax resident of Portugal, they pay tax on only half of the profit from the transaction. The amount is added to the rest of the income for the year when preparing a tax return.

If a resident sells the primary residence and uses the proceeds to buy another property for permanent residence, the tax is not charged. But if the new property is cheaper, half the difference between the profit from the sale of the old home and the cost of buying a new one is taxed.

If the real estate is sold by a pensioner or a resident over 65, they have the right to invest the profits in a pension fund or insurance company. But this must be done within six months after completing the purchase and sale of housing.

Non-residents pay tax on the total amount of capital gains on real estate transactions.

Portugal does not have a general inheritance tax. Instead, inheritance is subject to Stamp Duty — Imposto do Selo.

Inheritance tax is levied only if the property passes into the possession of a distant relative or a person who is not a family member. In this case, a rate of 10% applies.

Transfers of assets to spouses, children, grandchildren, parents, and grandparents are exempt from this tax. This means that if you inherit from your spouse or your direct family line, you will not have to pay any Stamp Duty.

Income from the sale of crypto assets with a holding period of less than one year is taxed at a 28% rate. If held for over a year, the taxpayer is exempt from paying any tax.

Crypto holders also do not have to pay taxes for crypto-to-crypto sales and non-fungible crypto assets, such as NFTs.

However, income from the sale of crypto assets will be required to be declared as a part of the IRS, an individual income tax. The law establishing these conditions came into force in February.

The USA offers a more straightforward tax regime but with potentially higher tax rates for high earners and complex state taxes. Individuals must consider their specific circumstances and potential tax liabilities in each country when deciding where to reside or invest.

US federal income tax rates are 10—37%. Additionally, most states impose their own income taxes, which can vary widely. Residents are taxed on their worldwide income, similar to Portugal.

The federal corporate tax rate is 21%, following the Tax Cuts and Jobs Act of 2017. State corporate taxes vary, adding complexity to the total tax burden.

Capital gains are taxed at either 0%, 15%, or 20%, depending on the taxpayer’s income bracket. Short-term capital gains for assets held less than a year are taxed as ordinary income.

Inheritance tax. There is a federal estate tax for estates valued over $12.06 million as of 2022. Gift tax is also applied with a lifetime exemption of the same amount. Rates can be as high as 40%.

Social Security tax is 6,2% for employees and 6,2% for employers, with an income cap of $147,000 in 2022. Medicare tax is an additional 1,45% each for employees and employers, with no income cap.

Portugal has valid double tax treaties with 78 countries. For example, the list includes the states of the European Union, the USA, Canada, Japan, China, India and the United Arab Emirates.

Double tax treaties (DTTs) govern the payment of taxes between countries. So, a person or company pays tax in the country from which it receives income and draws up a tax deduction in the country of residence. A taxpayer will have to pay the difference if the tax rate is higher in the country of residence.

The DTT also sets special rates for dividends, interest and royalties.

In addition to DDTs, Portugal has tax information exchange agreements with:

• Andorra;

• Antigua and Barbuda;

• Bermuda;

• the British Virgin Islands;

• Gibraltar;

• the Cayman Islands;

• Liberia;

• St Kitts and Nevis;

• St Lucia;

• Turks and Caicos.

The tax treaty between the US and Portugal is designed to prevent double taxation on income earned in either country, making it easier for residents and businesses to operate across borders without being taxed twice on the same income.

Both countries use the credit method to eliminate double taxation. This means that if you pay tax on income in one country, you can claim a credit for these taxes against the tax due on the same income in your home country.

The treaty defines a resident as someone who is liable to tax in a country due to domicile, residence, place of management, or any other criterion of a similar nature.

Dual residents are dealt with through tie-breaker rules, which determine the country of residence for tax purposes based on a permanent home, the centre of vital interests, habitual abode, and nationality.

The US and Portugal have a Social Security Totalisation Agreement, which is designed to avoid dual Social Security taxation and to help fill gaps in benefit protection for workers who have divided their careers between the two countries.

Benefits and eligibility. The agreement allows workers to qualify for retirement, disability, or survivors' benefits based on combined work credits from both countries. This is particularly beneficial for individuals who do not have sufficient work credits in one country to qualify for benefits. The agreement allows them to totalise these credits across both countries to meet eligibility requirements.

Coverage and contributions. The agreement specifies which country’s Social Security system covers a worker. For instance, if you are an American citizen working in Portugal for a US company for less than five years, you generally will continue to pay only US Social Security taxes and be exempt from Portuguese contributions. This applies similarly in reverse for Portuguese citizens working in the US.

Self-employment regulations. Self-employed individuals are generally covered by the Social Security system of the country where they reside. Therefore, Portugal taxes for US expats in terms of Social Security would typically pay contributions to Portugal, not to the US.

The same taxes for residents and non-residents in Portugal are the following:

• 28% — on capital gains from the sale of shares;

• 5% — stamp duty on the sale of a business or shareholding;

• 10% — stamp duty on gifts and inheritance;

• 0,8% — stamp duty on the purchase of real estate;

• 0—0.8% — property transfer;

• 0.3—0.8% — municipal real estate tax.

Both resident and non-resident legal entities pay VAT at 4—23%.

The solidarity rate for individuals is 2,5% on income exceeding €80,000 but less than €250,000. The sum above €250,000 is subject to the solidarity rate of 5%.

Legal entities pay 1.5—9% on gains over €1,500,000.

1. To become a tax resident in Portugal, individuals must spend more than 183 days within the tax year in the country. Businesses need to register a head office and obtain a tax number in Portugal to establish tax residency.

2. Portugal Golden Visa holders can move to Portugal and become Portugal tax residents. Visa-free travel to the Schengen countries, services of European banks, work and study in Portugal are also available to them. And after five years, the owner of a residence permit can apply for Portuguese citizenship and become a citizen of the EU.

3. Portugal’s tax system is characterised by progressive income tax rates for individuals and competitive corporate tax incentives, including a reduced rate of 5% in certain cases.

4. There is no general wealth tax, except on high-value real estate, and no general inheritance tax, with transfers to direct family members being exempt.

5. Real estate owners face multiple taxes, including property transfer taxes and annual municipal property taxes, based on the property value.

6. Portugal has double tax treaties with numerous countries to prevent double taxation of income and provides for social security agreements like the Totalization Agreement with the USA, which helps regulate social security contributions for workers operating between the two countries.