Would you like to live in a European country with a warm climate and some breathtaking views? Would you like to eat delicious food and drink fantastic wines? Would you like to stay at a cottage at the seaside that doesn’t cost too much? If so, you should consider relocating to Portugal. The country welcomes foreigners and it is especially popular with retirees from Northern Europe.
However, if you live in Portugal and you have an income, you have to pay a tax on it in the country. Please note that foreign pensions are not tax-free in Portugal even though the tax rate is not high.
Your tax obligations in Portugal depend upon your status that is determined by the time that you spend in the country within one calendar year. Foreign nationals relocating to Portugal have to register as taxpayers in the country by completing a form and submitting it to the Financial Department (Portal das Finanças).
Resident of Portugal. A resident of Portugal is a person or company that pays taxes in the country and is eligible for tax benefits. To become a resident of Portugal, you have to live in the country for more than 183 days within a calendar year. A resident company in Portugal is a company whose head office is registered in the country.
Non-resident of Portugal. A person is not considered a fiscal resident of Portugal if he/ she stays in the country for less than 183 per year. In this case, only the income made in Portugal is taxed.
Personal income is taxed in Portugal at a progressive scale: the more money you make, the higher is the tax rate. The minimum tax rate is rather low while the maximum tax rate is rather high.
When are the taxes due?
The fiscal year in Portugal coincides with the calendar year starting on January 1 and ending on December 31. The tax returns have to be filed between April and June of the year following the reporting year. That is, you have to pay the taxes for 2023 between April 1 and June 30 of 2024. Self-employed individuals can pay taxes in three installments: in July, September, and December.
What taxes are payable in Portugal
There are federal and municipal taxes in Portugal. The federal taxes include the following ones:
– Personal income tax
– Corporate income tax
– VAT
– Capital gains tax
– Property rights transfer tax
– Inheritance tax
Municipal taxes include taxes for local company owners as well as property owners. Their rates depend on the type of property and its location. Municipal taxes cover some municipal expenses such as garbage collection, for example.
Income tax in Portugal
Physical persons are taxed on the income that they make from salaries, commercial activities, lease agreements, pensions, royalties, dividends, and interests. The tax rate is fixed for non-residents: 25%.
For fiscal residents of Portugal, the tax rate is between 15% and 48%.
Income tax rates:
| Amount of annual income | Tax rate for residents | Tax rate for non-residents |
| Up to € 7,112 | 15 % | 25 % |
| € 7,113 – € 10,732 | 23 % | 25 % |
| € 10,733 – € 20,322 | 29 % | 25 % |
| € 20,323 – € 25,075 | 35 % | 25 % |
| € 25,076 – € 39,967 | 37 % | 25 % |
| € 39,968 – € 80,882 | 45 % | 25 % |
| € 80,883+ | 48 % | 25 % |
Taxes for corporate entities
Unlike the personal income tax, the corporate income tax is low in Portugal in comparison to other EU countries. The taxable base is the net profit of the company. Non-resident companies are taxed only on the profit that they make in Portugal and the tax rate is 25% for them.
Resident companies are taxed at the rate of 21%. Small- and medium-sized companies are eligible for reduced tax rates if they work in agriculture, trade, or manufacturing. For instance, the following reduced rates are applied to the first € 25,000 of corporate profit:
17% – for mainland Portugal
11.9% – for the island of Madeira
12.5% – for the Azores
If the company annual turnover exceeds € 10,000, it has to register for the VAT and pay the tax. In addition to the corporate tax, companies pay a municipal tax in Portugal. Its rate is about 1.5% depending on the municipality.
Additional taxes for corporate entities in Portugal
Companies that make large profits have to pay additional taxes in Portugal:
| Annual amount of income | Madeira | Azores | Rest of Portugal |
| € 1.5-€ 7.5 million | 2.1% | 2.4% | 3% |
| € 7.5-€ 35 million | 3.5% | 4% | 5% |
| More than € 35 million | 6.3% | 7.2% | 9% |
VAT rates in Portugal
The VAT is abbreviated as IVA (Imposto Sobre o Valor Agregado) in Portuguese and it is a tax paid by the consumer. The seller then transfers the tax to the tax service of Portugal.
The VAT was introduced in 1986 in Portugal and its rates depend on the region of the country. There is a standard VAT rate, an intermediary rate, and a reduced rate.
- Standard rate: Goods and services in general.
- Intermediary rate: Food, drinks, some goods and services.
- Reduced rate: Essential items such as meat, fruits, vegetables, cereals, books, newspapers, medicines, transportation, and hotel accommodation, for example.
VAT rates depending on the region:
| VAT rate type | Rate in Madeira | Rate in the Azores | Rate in the rest of Portugal |
| Standard | 22% | 18% | 23% |
| Intermediary | 12% | 9% | 13% |
| Reduced | 5% | 4% | 6% |
Property taxes in Portugal
You have to pay a municipal tax on immovable property (Municipal Sobre Imóveis) in Portugal. Its rate is set by the municipality where the property is located and it is between 0.3% and 0,45%. The tax is used to support the local infrastructure.
You have to multiply the value of your property in Portugal by the tax rate applied in your area to calculate your annual property tax. Suppose you have property in Cascais that is worth € 500,000. As the tax rate is 0.34% in the municipality, you have to pay € 1,700 per year as the property tax.
You can be exempted from the property tax if the income of your household does not exceed € 15,295 per year. Please note that the value of the tax-exempt property should not exceed €66,500 and it should be used as a place of your permanent residence if you are to qualify for the tax exemption.
Owners of property whose value does not exceed € 125,000 are exempted from the property tax for 3 years if their annual income does not exceed €1 53,000.
In addition, you have to pay a tax when buying real property in Portugal. The tax rate depends on the location of the property (city or countryside), its type (residential or commercial), and its value. If you buy a small cottage in the Portuguese countryside, the tax rate is going to be 5%. If you buy a luxurious mansion in Porto or Lisbon, the tax rate is going to be higher.
