Skip to main content

Navigating Portuguese tax returns doesn’t have to be complex. This guide provides the essential information for both residents and non-residents required to file taxes in Portugal. Ensuring you understand deadlines, processes, and accurately submit your tax return online.

Key takeaways

  • Portuguese personal income tax (IRS) is mandatory for residents spending over 183 days annually in Portugal. Or those who maintain a habitual residence there, with the tax year coinciding with the calendar year and a submission deadline of 30 June.
  • Non-Habitual Resident (NHR) status in Portugal, offering reduced tax rates and exemptions, is still available under a transitional period. As long as people utilise, for example, rental contracts from 2023 to prove their residence in Portugal.
  • Taxpayers are obliged to adhere to various tax rates, deductions, and credits, submit accurate and timely returns to avoid penalties. And it is recommended to seek professional advice for tax planning and compliance.

Understanding the Portuguese tax return system

Illustration of a tax form with the title 'Portuguese Tax Return'

Portugal’s personal income tax, known as Imposto sobre o rendimento das pessoas singulares (IRS), is managed by the Portuguese Tax and Customs Authority (PTA). Understanding local tax laws is vital for individuals moving to Portugal, as it aids effective tax management and optimisation. The tax year in Portugal aligns with the calendar year, running from 1 January to 31 December.

Tax residents in Portugal are individuals who remain in the country for over 183 days within a 12-month period; or maintain and intend to occupy a habitual residence. The country employs a pay-as-you-earn income tax system and allows for payment in instalments of tax not automatically deducted from income. Keeping the tax address current is mandatory for taxpayers, as non-compliance penalties could amount.

Key dates for your diary

In Portugal, the tax return submission period is from 1 April to 30 June, with 30 June being the final deadline date. Filing tax returns after this date might result in fines. You can either submit all information before 30 June; or follow the automatic regimes in line with the below dates:

  • 31st January: rental income
  • 15th February: household composition
  • 25th February: expense invoices
  • 15th to 31st March: deductions from expenses
  • 31st March: consignment (charitable donations)
  • 1st April to 30th June: tax return submission
  • 31st July: liquidation note
  • 31st August: tax payments

Who should file a tax return in Portugal?

All tax residents in Portugal are required to file a tax return if their annual income exceeds the general tax allowance of EUR 4,104, considering the income of all household members. If you are a resident individual in Portugal, you are required to pay income tax on your worldwide income. However, non-residents are only taxed on their income sourced in Portugal.

Non-resident individuals must file a tax return in Portugal only for income earned within Portuguese territory that has not been subjected to withholding tax at the source. Cross-border workers must ensure they are correctly registered with the Tax and Customs Authority to avoid dual taxation.

On the other hand, individuals can be exempt from filing tax returns in Portugal. This scenario is more probable if you are not classified as a tax resident in Portugal, a status that can apply even if you spend fewer than 183 days in the country.To ensure you don’t get a fine for misunderstanding something, it’s best to speak with our team. We can provide you with the advice needed to understand the tax return system in Portugal.

Step-by-step guide to filing your tax return

Illustration of a person updating personal information on a digital device for tax return

Prior to filing the tax return, taxpayers should check that the Tax Portal correctly lists their tax address and other relevant details. Neglecting to update personal information such as a change of address or marital status can lead to complications, and errors in the tax return process.

To mitigate risks associated with relying solely on physical documents, it’s recommended to scan and securely store digital copies of all tax-related documents on a cloud platform.

A provisional tax return, along with a preliminary assessment, is provided on the Tax Portal which should be verified for accuracy by the taxpayers.

The annual tax return is filed online via the Tax Portal by completing the form, ensuring all data is accurate, conducting a simulation of the tax calculation, and then submitting the finalised return.

Documentation checklist

To initiate the tax return process, taxpayers need to gather all the necessary documents required for a comprehensive filing. Essential documentation includes:

  • Identification details
  • Proof of all types of income
  • Documentation of deductible expenses
  • Records pertaining to property ownership

If taxpayers do not already have online access, they must request a password for the Tax Portal, which is mailed to the address registered with the tax authorities.

Navigating the online tax portal

To access the online Tax Portal, taxpayers need to authenticate using their Finances Portal access data, Citizen Card with PIN codes and a card reader, or Digital Mobile Key. For filing a tax return with other individuals, such as a spouse or children, authentication data for each person must be available.

Income tax rates and calculations

Illustration of a scale with money bags representing income tax rates and calculations

Personal income tax in Portugal includes various income categories such as:

  • employment
  • self-employment
  • investment
  • rental
  • capital gains
  • pensions

In 2024, residents are taxed on their global income with progressive tax rates that range from 13.25% to 48%. Non-residents are subject to a flat income tax rate of 25% on their taxable Portuguese-source income in 2024. Taxpayers with a taxable income exceeding €80,000 pay an additional solidarity rate of 2.5%, which increases to 5% for income over €250,000 in 2024.

Individuals can take advantage of the following tax deductions and allowances in Portugal:

  • General allowance of €4,104 or annual Social Security contributions; whichever is higher
  • Deductions for dependents
  • Deductions for expenses related to healthcare, education, and housing
  • Tax benefit for investments in renewable energy and energy-efficient appliances, allowing a 20% deduction up to a maximum of €500
  • Possible deductions for certain expenses related to rental income, which is typically taxed at a flat rate of 28%

Personal income tax brackets

Residents in Portugal are subject to progressive tax rates on their worldwide income, which can range from 13.25% to 48%. The personal income tax brackets for residents in 2024 are as follows:

  • 13.25% for incomes up to €7,703
  • 23% for incomes between €7,703 and €20,261
  • 28.5% for incomes between €20,261 and €25,000
  • 35% for incomes between €25,000 and €36,856
  • 37% for incomes between €36,856 and €80,882
  • 48% for income over €81,199

For married taxpayers or those in de facto marriages who are jointly taxed, their combined taxable income is effectively split in half, and each half is then taxed according to the individual tax brackets.

Corporate income tax insights

The standard corporation tax rate in mainland Portugal is 21%. The Autonomous Regions of Madeira and Azores have a reduced corporate tax rate of 14.7%. Madeira Island offers additional incentives, such as the Madeira International Business Center with a reduced corporate tax rate of 5% for qualifying activities.

Small and medium-sized enterprises (SMEs) enjoy a reduced corporate tax rate of 17% on their first €50,000 of taxable income. SMEs located in the inland territories of Portugal benefit from a lower rate of 12.5% on the first €50,000 of taxable income. There are different corporate tax rates for resident corporations as opposed to non-residents, with preferential rates available for certain SMEs.

Tax benefits and deductions

Illustration of various tax deduction categories with icons representing health, education, and support

Portugal offers various tax credits for taxpayers, including:

  • Health expenses (subject to a limit of EUR 1,000)
  • Education expenses (subject to a limit of EUR 1,100 under qualifying conditions)
  • Support of certain entities
  • VAT incurred on services (subject to a limit of EUR 250)
  • VAT incurred on public transportation

These tax credits are subject to specific limits and conditions.

Married taxpayers or those in civil partnerships in Portugal can choose to file jointly by including all income from household members, potentially affecting their tax benefits and deductions.

Reinvesting the proceeds from the sale of a property into a new permanent residence, can provide a capital gains tax exemption. When the new home is purchased within a prescribed timeframe.

Taxpayers in Portugal should be diligent in claiming all eligible deductions and credits, to avoid paying higher taxes than necessary. Failing to do so is a common error.

Maximising deductions

Taxpayers in Portugal can claim the following deductions:

  • 15% of health expenses up to €1,000
  • 30% of education and training expenses up to €800
  • Mortgage interest up to €586 for primary residences; if started before 31 December 2011
  • Health insurance premiums capped at €85 for individuals and €170 for married couples or legal partnerships
  • Deduction cap of €250 per person for 35% of general family expenses like supermarket bills.

Families can take advantage of deductions such as €600 for each dependent, and an additional €126 for dependents under three years old. While those aged 65 and over can increase their health expense deduction limit to €1,250. The Youth PIT (IRS Joven) program provides preferential tax rules for young people aged 18 to 26 who are not considered dependents. Contributions to life insurance and retirement savings plans (PPR) offer tax deductions, with limits based on age and contract type. Also PPR contributions can be deducted up to €1,500, benefiting older contributors with higher limits.

Married couples or those in domestic partnerships must evaluate the tax benefits of filing jointly, as it can lead to substantial savings!

Understanding tax consignment

Tax consignment in Portugal permits taxpayers to assign 0.5% of their income tax to support certain institutions while not impacting their tax refund or owed amount. A diverse range of institutions, including:

  • Environmental NGOs
  • Cultural entities
  • Religious institutions
  • Private Social Solidarity Institutions

There are over 4,500 available options for taxpayer’s contributions!

Taxpayers have the flexibility to channel their tax consignment, distributing the allocated 0.5% among various eligible entities. The financial aspect of tax consignment remains neutral to the taxpayer. With the chosen allocation deducted from the state’s total tax collection; and a receipt provided for clarity and transparency.

Special tax regimes and exemptions

Illustration of a magnifying glass focusing on 'Non-Habitual Resident (NHR) tax regime'

The Non-Habitual Resident (NHR) tax regime in Portugal provides qualifying individuals with the following benefits:

  • A 20% flat rate of tax on employment or self-employment income; from a high-value activity
  • Portuguese-source income
  • Exemption of most foreign-source income from Portuguese taxation for 10 consecutive years
  • For new entrants to the NHR regime from 2020 onward, a flat 10% tax rate on pension income is applied.

The NHR regime is no longer accepting new applicants from 2024, but those who already have it can make use of its advantages.

Non-Habitual Residents (NHR) and tax implications

The Non-Habitual Resident (NHR) program offers the following benefits:

  • Lower tax rates on high-value-added activities
  • Qualified residents are taxed at a flat rate of 20% on income from high-value activities
  • Various tax exemptions on foreign-source income

For non-habitual residents, capital gains from the sale of securities are taxable at 28%, while foreign-source pensions and other retirement scheme payments are taxed at a flat rate of 10%. Eligibility for the NHR tax regime requires new tax residents to not have been tax residents in Portugal during the previous five years, and the application must be submitted by March 31 of the year following the taxpayer’s qualification as a tax resident.

The NHR regime in Portugal has the following conditions and benefits:

  • Transitional period in effect until 31 March 2025; if, for example, able to utilise a rental contract (or similar document) from 2023.
  • Those already registered prior to December 31, 2023, or who met the conditions by that date, retain the benefits.
  • The NHR status offers benefits on inheritance tax for a period of ten years.

Individuals with existing NHR status before the program’s closure will continue to receive tax advantages until the end of their 10-year term.

Additional taxes and duties

Stamp Duty in Portugal is charged on gratuitous transfers of both movable and immovable property. It is applied at 10% for non-exempt beneficiaries. Non-exempt beneficiaries of Stamp Duty include:

  • Any individuals other than the spouse
  • Unmarried partners
  • Descendants
  • Ascendants

Portugal abolished the Inheritance Tax in 2003, which has contributed to the country’s attractiveness for expatriates.

Lifetime gifts in Portugal may be subject to property tax, wealth tax, and potential capital gains tax upon subsequent sale of the gifted property. In Portugal, Value Added Tax (VAT) is a fundamental tax that is imposed on imports, goods, and services. It plays a significant role in the country’s taxation system. Double Taxation Agreements ensure protection against the risk of double taxation for non-residents and expats with tax obligations in multiple jurisdictions.

The role of VAT and stamp duty in tax returns

The standard VAT rate in Portugal is 23%, which generally applies to most goods and services. Reduced VAT rates include a 13% rate for food products, wine, certain fuels, and musical instruments and a 6% rate for basic foodstuffs, certain books and newspapers, specific pharmaceutical products, medical equipment, and hotel accommodation.

Some goods and services are VAT exempt in Portugal, including health services, public education, and financial services. There are three VAT rates in Continental Portugal: 6% reduced rate, 13% intermediate rate, and 23% standard rate. Maintenance and repair services for vehicles, as well as accommodation and food services, are eligible for a 23% VAT deduction, with a cap of €250 per household.

Cultural services like theatre admission are taxed at the standard 23% VAT rate while hotel accommodation benefits from the reduced 6% rate, encouraging tourism. Stamp Duty, known as Imposto de Selo, is applied at a fixed rate of 0.8% on the registered fiscal value of property transactions. Mortgage-related Stamp Duty, Imposto sobre a Concessão de Crédito, is levied at a fixed rate of 0.6% of the mortgage value in Portugal.

Property tax considerations

IMI (Imposto Municipal sobre Imóveis) is the municipal property tax in Portugal. Here are some key points to know about IMI:

  • IMI rates for urban properties range from 0.3% to 0.45%, while rural properties are charged at a rate of 0.8%.
  • The tax is calculated based on the property’s taxable value.
  • IMI rates differ based on when the property was valued. Properties appraised before 2004 face rates of 0.4% to 0.8%, while properties valued after 2004 are charged between 0.2% and 0.5%.

Homeowners may receive IMI reductions such as a €20 deduction per dependent and three-year exemptions for those with properties valued under €125,000 and used as their own residence. Property Transfer Tax (IMT) in Portugal ranges from 0% to 10% depending on factors like purchase price and location; additional taxes like Stamp Duty may apply.

AIMI is an additional tax on high-value Portuguese properties, charged at the following rates:

  • 0.4% for corporate-possessed properties
  • 0.7% for individuals
  • 1% on the value exceeding €1 million
  • 1.5% on the value exceeding €2 million

Avoiding common mistakes

Submitting inaccurate information on tax forms, failing to organise tax-related documents, neglecting to report bank interest, dividends, capital gains accurately, or keeping improper financial records may result in audits, delays, or discrepancies in tax returns. Penalties for late or incomplete filings range from €200 to €2,500, with late payment fines between 10% and the double value of the owed tax, capped at €55,000 plus interest. It is critical to pay tax, including payroll taxes, by the due dates (31 August or 31 December based on the assessment dates).

Incorrectly classifying rental income and expenses can affect the owed tax amount; creating difficulty if requested to pay high amounts. A common but critical mistake to avoid is forgetting to submit the tax return online; via the portal!

Cross-border workers must correctly register and may need a tax residence certificate to avoid dual taxation.

Planning ahead: for the following year

To prepare for subsequent taxation years, expatriates should plan early to take advantage of tax benefits during the initial years of Portugal’s Non-Habitual Resident (NHR) regime. As the NHR incentive has a 10-year duration, it is crucial to develop a long-term tax strategy to ensure a smooth transition to standard Portuguese tax rates thereafter.

Long-term financial and tax planning extends beyond the NHR period and can provide benefits for up to 20 years, potentially mitigating the impact of higher progressive tax rates in Portugal. Enlisting the services of a tax professional with expertise in international taxation can ensure regulatory compliance and assist in the strategic planning necessary for tax optimisation in Portugal.

Summary

In conclusion, Portugal’s tax system is complex, but with careful planning, individuals can effectively manage and optimise their tax situations. From understanding the nuances of the tax system, key dates for tax returns, income tax rates and calculations, to maximising deductions and understanding special tax regimes and exemptions, individuals can navigate the tax terrain effectively.

Proper consideration of additional taxes and duties, avoiding common mistakes, and planning ahead for the following year are crucial to a successful tax strategy in Portugal.

If you liked this article leave a comment or reply here

💬 PSA: between April & June our Portuguese team have limited meeting availability due to the Tax Return Submission Period 🇵🇹