Portugal can be a great place to live, as the country boasts a favorable climate, a stunning coastline, a developed infrastructure and a very beneficial location. However, although the country has a relatively lower cost of living (compared to neighboring countries in Europe) and a handful of tax/visa schemes with favorable tax brackets, the government has been scrapping these policies in favor of a fairer atmosphere for locals. In this article, you will find an overview of taxation requirements in Portugal, a list of the country's basic taxes and tax rates, and your potential tax liabilities as an expat.
As Portuguese residents, expats will be required to pay income tax on earnings, purchases, real estate, and other income sources. With that, depending on your status in the country, you used to be eligible for a number of tax exemptions under the Non-Habitual Residence (RNH) scheme. However, the government has made significant changes to this regime, with the new right-wing administration rehabilitating the program in 2024 (now called IFICI), but only for highly qualified and skilled professionals, such as college teachers or tech workers.
The tax system in Portugal
The Portuguese tax system is not particularly complicated. There are state taxes and local taxes. Taxes in Portugal follow a progressive bracket system and are calculated taking into account your income, expenses and property ownership. The more you earn, the more taxes you pay.
Íæż½ã½ãs who reside in Portugal need to register as taxpayers before they can earn an income in the country. Registering as a taxpayer in Portugal is very straightforward: you will simply need to fill in a form and submit it at your local tax office. To locate your local tax office, refer to the (Portuguese Tax Authority).
Good to know:
The tax year in Portugal runs from January 1 to December 31. State taxes comprise income tax, corporate tax and capital gains tax, while local taxes are handled at a local level.
Do expats have to pay tax in Portugal?
The answer to this question depends on your residency status in the country as well as how much time you spend here.
If you stay in Portugal for more than 183 days in a calendar year, you will be identified as a tax resident. In this case, you will need to pay income tax on your earnings — whether they come from local sources or from abroad.
Income tax in Portugal
All Portuguese residents have to pay income tax on both Portuguese and worldwide income. It is best to check in advance if your home country has any non-double taxation agreements with Portugal to avoid paying more tax than necessary.
Currently, IRS (tax on income or Imposto sobre o Rendimento das Pessoas Singulares) percentages can range from 0% (if you earn the minimum wage) to 47.17% (if you make over 20.221 €/month), with plenty of other brackets in between. Furthermore, you'll be paying a flat 11% of your paycheck towards your future public retirement fund (Segurança Social), while the remaining taxes (IRS) will depend on how much you make. These tax rates apply to everyone working for a Portuguese company.
As for freelance workers, they will need to register their activities at their nearest Finance Department or online through the aforementioned and issue invoices called Recibo-Verde (green receipt). Freelancers earning less than 15,000€/year are usually exempt from paying VAT (value-added tax) and do not need to pay the IRS on a monthly basis to the government (though they'll have to do their taxes every year between May and June and pay any arrears owed to the state). On the other hand, freelancers making over 15,000€/year will have to add the VAT to their invoices and pay 23% of their income to the IRS. However, they will be reimbursed once it's time to do their taxes (May to June), depending on their specific tax deductions and household specifications. Regardless of how much a freelancer makes, they also need to pay the pension fund contribution every month, according to the amount they made throughout the previous trimester. To determine the amount you'll need to pay, first calculate 70% of your average monthly income over the past quarter, and then apply a 21.4% social security tax. For example, if you made 6,000€ between January and March (average 2,000€/month), you'll pay 299,60€ (2000*0,7*0,214) per month over the following trimester. Regarding freelance work, we strongly advise consulting with a Portuguese tax adviser or accountant since there are many nuances that will impact how much you'll pay in taxes, including the nature of your activity and how much you make to the dates you issue your invoices and your deductible work expenses.
Unlike the US, when under contract with a company in Portugal, you don't need to do your own taxes, as your employer will be responsible for automatically deducting your taxes from your wage and handing the amount to the government. Needless to say, and in order to abide by the law, everything must be mentioned in your pay slip. However, you are still required to file an annual tax return every year between April and June (regarding the income from the previous year). The system will then take into account your deductible expenses and income bracket to determine whether you need to pay any arrears or receive a tax refund from the state. As in most other countries, tax deductions are available for a wide range of expenses, such as educational and health expenses, pension contributions, and charitable donations. You can complete your tax forms online through the Portal das Finanças or in paper form. To calculate the amount of tax that you need to pay, you can use the .
Income tax in Portugal applies to different income sources, including:
- Employment;
- Self-employment;
- Investments/capital gains (assets, shares, etc.);
- Rental properties;
- Properties sales;
- Pensions.
Good to know:
Couples living together in Portugal can submit a joint tax return. Then, the relevant tax rate is calculated by dividing the collective income in two. Just make sure to simulate how much you will pay/be refunded in case you do a joint tax return versus individually, as you can choose the option that is more beneficial.
Property tax in Portugal
Property tax (IMI – Imposto Municipal sobre Imóveis) is paid by property owners in Portugal. IMI is managed by your local municipality and is calculated based on the value of your home. Keep in mind this doesn't necessarily apply to the amount you paid for the property but to the VPT (Valor Patrimonial Imobiliário), an index that takes into account the size of the property, how old it is, and where it's located. Considering housing prices in Portugal are through the roof, the VPT is usually lower than the current property market values (translating to lower taxes). If you live in an urban area, IMI rates vary from 0.3% to 0.45% of the home value. If you own a property valued under 125,000€, you may benefit from a three-year exemption (which can be extended for 2 more years) — but you do have to live in the said property yourself. Also, your household income must not exceed 153,300€ in order to be eligible for this exemption.
Note that IMI only applies to property owners, and tenants don't need to pay this tax.
AIMI (Adicional Imposto Municipal Sobre Imóveis) is an additional property tax that was introduced in 2017. AIMI applies to homeowners whose property is valued (VPT) at 600,000€ or above. These are the current tax brackets for the AIMI:
- Property with a VPT between 600,000€ and 1,000,000€: 0,7%;
- Property with a VPT between 1,000,000€ and 2,000,000€: 1,00%;
- Property with a VPT over 2,000,000€: 1,50%;
Regarding rental income, taxes are paid by homeowners who have decided to rent out their property. In this case, you will be taxed on the profits from renting out your house or apartment. The rental income rate is set at 25%, but landlords can get a tax discount if they rent out their property for 5 (15%), 10 (15%), or 20 years (5%).
Corporate taxes in Portugal
Companies in Portugal pay taxes (IRC) at a flat rate of 20%. Municipality payments also apply (up to 1.5%, depending on location). There is also an additional charge called Derrama Estadual if a business makes over a certain amount in taxable profits:
- Up to €1,500.000: 0%
- Between €1,500.000 and €7,500.000: 3%
- Between €7.500.000 and €35.000.000: 5%
- Over €35.000.000: 9%
As the government in Portugal offers strong support to small and mid-sized companies, they can pay a reduced tax rate (16%) on their first taxable profits of 50.000€. Plus, small businesses (with an annual turnover of under 200,000€) can use a simplified tax scheme and choose to pay taxes on their turnover instead of profit.
Inheritance tax in Portugal
There is no inheritance tax in Portugal. Instead, inheritance gains are taxed under the stamp duty at a flat rate of 10%.
Value-Added Tax in Portugal
Value-added tax (VAT) in Portugal is levied at three levels:
- The general rate stands at 23% (taxable goods and services);
- The intermediate rate stands at 13% (food and drink goods and services);
- The reduced rate stands at 6% and is meant for certain essentials: basic food items, books, medicine, transportation, accommodation, etc..
Taxes for Non-Habitual Residents (RNH) and Golden Visa Schemes in Portugal
Although Portugal used to boast a pretty friendly tax scheme for foreign residents, the government has made significant changes to the Non-Habitual Residents (RNH) scheme in 2024. This code provided tremendous tax benefits for digital nomads establishing themselves (and their businesses) in the city for a period of 10 years. Right now, though, the new program is called IFICI and only applies to highly qualified and skilled professionals, such as college teachers or tech workers. If your line of work falls within one of the designated categories, you can still enjoy a flat 20% tax on your income, a percentage that Portuguese workers (or foreign workers without the digital nomad visa) reach when earning over 2,432€/month. That being said, if you make more than that amount, you'd be saving on taxes by adhering to the visa.
At the same time, and in order to crack down on the country's housing crisis currently affecting the nation's biggest cities, the Portuguese government has recently signed a clause that excludes investments in Lisbon, Porto and the Algarve from the Golden Visa Scheme. While many foreign investors used to buy 500,000€ worth of property in order to get access to the visa, allowing them to live legally in the country and apply for citizenship after 10 years, purchasing property in Lisbon, Porto and the Algarve region will no longer allow you to apply for the Golden Visa. Furthermore, and although you can still get a Golden Visa by investing 500,000€ in subscription units of mobile investment funds, these can't be related to the housing sector.
We do our best to provide accurate and up to date information. However, if you have noticed any inaccuracies in this article, please let us know in the comments section below.
