The Portuguese tax system is one of the more generous in Europe and quickly becoming a popular destination for expats from the UK and other countries.
For high-net worth individuals, the Portuguese tax system is particularly favourable and combined with other factors, including being one of the leading countries for R&D into new technologies, it’s appeal is growing.
Tax in Portugal: The basics
The Portuguese tax year follows the calendar year and ends on the December 31st.
If you are moving to Portugal you are required to register as a tax payer before you embark on any paid activity in Portugal. You need to register to become a tax payer which requires you to obtain an NIF (Numero de Identicacao Fiscal) which can be requested from a local tax office.
Portuguese tax residents, including expats, are required to submit an annual income tax return early in the following year. The deadline for submitting your Portuguese income tax annual return is between 1st April and 30th June of the calendar year following the end of the previous tax year.
For example, income received between 1st January 2018 and 31st December 2018 will need to have submitted their tax return by 30th June 2019.
Am I a Portuguese tax resident?
At a basic level, the rules for becoming a Portuguese tax resident are relatively straight forward.
The simplest approach is that if you are in Portugal for 183 or more days in a single calendar year, you will typically be classed as a Portuguese tax resident. However a number of other factors may also see you deemed as a tax resident including:
- You have a permanent residence in Portugal on December 31st in that tax year
- If the head of your household is a tax resident in Portugal
- If you are part of the crew on a ship, yacht or aircraft which is owned by a Portuguese entity
- If you work for the Portuguese state, regardless of the country you work in
Portuguese Income Tax
If you are classed as a tax resident, your worldwide income is subject to Portuguese income tax. This income could include salary, rental income and capital gains.
Portugal has various tax treaties with other countries, including a tax treaty with the UK, which ensures that you should not have to pay tax more than once on any income in multiple jurisdictions.
If you are a non-resident in Portugal, only income earned in Portugal will be liable for tax, typically at 20%. However, lower tax rates exist for income received from property.
Portuguese tax for non-habitual tax residents
In an effort to attract leading talent and also high net worth individuals, the Portuguese tax system has a favourable tax system for non-habitual tax residents.
The non-habitual residence (NHR) tax regime was introduced in 2009 and can provide tax benefits for an individual in their first ten years of residence in Portugal.
For non-habitual residents, the flat rate of 20% is applied to income received, regardless of the level of income. The current highest income tax band in Portugal charges 48% tax on income, which is a massive difference.
Aside from the flat rate 20% income tax, there is a reduced or deferred tax rate on dividends or other income from investments – and in some cases the income may be exempt from tax.
There is also no inheritance tax, gift tax or wealth tax in Portugal for non-habitual residents.
For people with pensions there is beneficial tax treatment for income received from pensions and other life insurance products.
To qualify for the non-habitual resident status you must not have been a tax resident in Portugal for any of the previous five tax years. You also need to meet the criteria for being a tax resident in the year of application – the simplest way of achieving this is to be present in Portugal for more than 183 days. Finally, you need to apply via the Portuguese tax authorities (and, of course, you need to be approved).
If you’d like to know more about this, read our detailed guide to Portugal’s Non-Habitual Residence tax regime >
Portuguese tax penalties
Failing to correctly submit your Portuguese tax return and payment on time can be costly. Penalties for late filing start at €200, but can rise to €2,500. Late payment penalties can range from 10% of the amount owed, to double the total amount – but is capped to €55,000. Any penalties may also attract interest.
However, fines and penalties depend entirely on your personal circumstances.
Portuguese inheritance tax
Inheritance tax in Portugal is incredibly favourable. Not only does it only apply to Portuguese assets, it’s also only 10% while passing your estate to a spouse or your children will mean your estate is exempt from inheritance tax.
It is important to remember that if you keep your UK domicile you will still be liable for UK inheritance tax on your worldwide estate.