Portugal tax guide: rates, exemptions and payment terms

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

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.

Portugal golden visa holders can obtain a special Non-habitual Resident (NHR) status in Portugal for 10 years. A NHR get a tax exemption on income earned in other countries and their tax on income earned in Portugal is reduced to 20%. Without preferential status, the income tax rate in Portugal can be as high as 48%.

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

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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.

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

When to pay taxes? The fiscal year in Portugal coincides with the calendar year and runs from January 1st to December 31st. Therefore, it is necessary to submit returns 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%. But only income received from a source in Portugal is taxed. For example, if a Portuguese client pays for the services of an individual entrepreneur.

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 or civil union spouses can file a joint tax return. But this is optional. If you submit separate tax returns, each spouse indicates 50% of the income received by dependent family members.

A fine of €200 to €2,500 is provided for violation of the deadlines for filing a tax return. If taxes are paid late, a penalty of 10 to 100% of unpaid tax will be charged, but not more than €55,000.

If the taxpayer has violated the deadline for filing a tax return for the first time and has never received fines from the Portuguese tax authority, he is exempt from the fine.

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

Additional solidarity rate applies to personal income tax if the payer’s annual income exceeds €80,882:

• 2,5% — on an income of €80,882 to €250,000;

• 5% — on an income over €250,000.

The surcharge is calculated separately and is not added to the income tax rate.

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: in the case of gifts and inheritances when selling a business or a shareholding. The rates apply to all taxpayers, residents and non-residents of Portugal:

• 5% — sale of a business or share;

• 10% — gifts;

• 10% — inheritance.

Social contributions cover family, pension and unemployment benefits. All employees of Portuguese companies make contributions. The applicable rate is 11%, which is deducted from the employee’s salary.

The corporate tax is paid by all companies operating in Portugal. 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 and applies only to the part of the profit that exceeds 1.5 million euros.

Municipal company tax of up to 1,5%.

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 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 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 organizations;

• 23,75% for commercial companies.

A view of the business centre of Lisbon. If an investor opens a new business in Portugal or invests in an existing company, they can get a Portugal residence permit for the whole family

When buying real estate in Portugal, an investor can apply for a residence permit. Find out other benefits you can get and how profitable Portugal real estate purchases can be.

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.

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 object:

• 0.3 to 0,5% — of the value of an urban property;

• 0,8% — of the value of a rural property.

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, for three to five years, buildings subject to reconstruction at the city’s expense are exempt from the tax.

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.

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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 years of age, 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.

No tax is charged if the property is inherited by a spouse, children, parents, or grandchildren.

Crypto tax in Portugal is currently not subject to taxation. Individuals do not have to pay VAT or capital gains crypto taxes on their purchases and sales of crypto assets.

The Portuguese government intends to legislate cryptocurrency transaktion and make the country particularly attractive to cryptocurrency investors.

While new cryptocurrency tax laws are not officially introduced, cryptocurrency investments continue to gain ground in the country real estate sector with the first sale of property paid for in Bitcoin without conversion to euros.

The transaction is unprecedented in Portugal and Europe. The three-bedroom apartment, which was worth €110,000, was sold for 3 Bitcoins in Braga, a major city in northwest Portugal.

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 a company pays tax in the country from which it receives income and in the country of residence draws up a tax deduction. If the tax rate is higher in the country of residence, a taxpayer will have to pay the difference.

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;

• Saint Kitts and Nevis;

• Saint Lucia;

• Turks and Caicos.

The Non-Habitual Resident (NHR) status can only be obtained by persons who were not tax residents and did not pay taxes in Portugal for at least five years before applying for a beneficial status.

How to get a beneficial tax status in Portugal

At the same time, an applicant must meet at least one of the conditions:

• live in Portugal for at least 183 days in the last year;

• have a home in Portugal that is used as a permanent place of residence;

• be a highly qualified specialist.

Non habitual residents pay tax on income from professional activities at a flat rate of 20% and not on a progressive scale. A fixed rate of 10% also applies to pensions.

A global income, e.g. dividends, interest, royalties, capital gains, the rental yield from properties located in another country, is not taxed in Portugal.

The Non-Habitual Resident status is issued only once for 10 years. Therefore, it cannot be extended. We described the nuances and procedure for obtaining status in the material “What are the benefits of the NHR tax status in Portugal”.

The reduced income tax rate for businesses. If a small and medium business company is engaged in agriculture, manufacturing or commerce, it may pay income tax at a reduced rate:

• 11,9% in Madeira and the Azores;

• 12,5% in interior regions;

• ​​17% in mainland Portugal.

The reduced rate only applies to the first €25,000 of the company’s profit. After that, the rest of the profit is taxed at the standard 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 license, it can pay income tax at 5%. The preferential rate applies to income from transactions with other licensed companies or foreign organizations.

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”.

Madeira is an autonomous region of Portugal. The archipelago is located in the Atlantic Ocean: a flight from Lisbon to Funchal takes about three hours

1

Live in Portugal 183 days a year

2

Get a NIF — a taxpayer number

3

Register as a tax resident

1

Live in Portugal 183 days a year

2

Get a NIF — a taxpayer number

3

Register as a tax resident

Living in Portugal for 183 days a year is impossible on a regular tourist visa. This will require a residence permit.

Foreigners first receive a temporary residence permit. It is issued when applying for a job in a Portuguese company, for studying at a Portuguese university or when marrying a citizen of Portugal. Wealthy people can also get a residence permit by investment.

The Portugal residence permit program has been operating since 2012. To participate, investors can buy real estate or investment fund shares, open their own business or invest in an existing one, create a deposit in a bank, finance scientific research and cultural projects. The minimum investment amount for the program depends on the option.

Holders of Portuguese residence permit cards can move to live in Portugal and change their tax residence. 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 European Union.

Individual cost calculation of the residence permit in Portugal

Get the cost calculation

Número de Identificação Fiscal (NIF) is a unique nine-digit taxpayer number. Its presence is mandatory for any transactions in Portugal: from buying property to going to the supermarket.

To get a tax identification number, just contact the tax office in person or through a tax representative. The procedure takes no more than half an hour, and the taxpayer receives a certificate in paper form or a plastic card with a number.

The change of tax residence does not occur automatically, even if a person has lived in Portugal for more than six months. To do this, you need to contact the tax office. The application indicates the NIF and the address of registration in Portugal.

To apply for a beneficial NHR tax status, you must also contact the tax office. But this must be done before March 31st of the year following the year when the person changed his tax residence to Portuguese. How to apply for the NHR tax status.

Same taxes for residents and non-residents in Portugal:

• 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.