The tax system in Portugal

While Portugal’s tax system may seem complex, with many different types to pay, most are simple and charged at a flat rate. What’s more, self-employed people pay only income tax rates rather than corporate rates. And for internationals looking to move to Portugal, the country offers tax breaks as an incentive for professionals in certain highly desirable fields.

Below, you’ll find information on the following:

The Portuguese tax system

The Tax and Customs Authority (Autoridade Tributária e Aduaneira) administers Portugal’s tax system. The country imposes federal and local taxes, generally calculated based on the taxpayer’s income, expenditure, and property ownership.

Federal taxes include income tax on earnings for employed and self-employed workers, corporate tax and VAT for businesses, capital gains tax on property sales and other assets, and inheritance taxes on estates. The main locally administered tax is IMI (Imposto Municipal sobre Imóveis), Portugal’s equivalent of council tax.

The Portuguese tax year runs alongside the calendar year, from 1 January to 31 December.

What is new about taxes in 2024?

As part of its 2024 State Budget, the Portuguese government increased the earnings thresholds on each income tax bracket by 3% and lowered the tax rates payable on the first five income tax brackets, meaning workers should face a lower tax bill than before.

The government also removed the temporary VAT exemption for essential food items, which was introduced in 2023. It introduced a lower corporate tax rate for start-up businesses (more on this later).

Another significant change under the 2024 State Budget is the closure of the ‘Non Habitual Resident’ (NHR) tax system. This system, which offered 10 years of tax breaks for qualifying expats, has come to an end at the close of 2023.

Who pays tax in Portugal?

Your tax liability as an expat in Portugal depends on your residency status, which is defined by your time living and working in the country. If you live in Portugal for 183 or more days in a calendar year, you’ll be considered a resident and must pay income tax on your worldwide income. If you live in Portugal for fewer than 183 days, you’ll only need to pay on income earned within Portugal.

Income tax rates for residents in Portugal are progressive, meaning the more you earn, the more tax you pay. Non-residents are taxed at a flat rate of 25% of their income.

How does tax work for expats?

Foreigners in Portugal must register as taxpayers before they can earn money. You can register by completing a form and submitting it to your local tax office, which you can find on the Portuguese Tax Authority’s online portal (Portal das Finanças).

If you need help registering, you can contact an expat-friendly service to help you with the process. Some options include:

• Anchorless
• All Finance Matters
• Bordr
• e-residence

NHR tax system

In 2024, Portugal replaced its ‘Non Habitual Resident’ (NHR) scheme with a new program focusing on attracting international workers to specific job sectors where the country has a shortfall (i.e., teachers). Expats who qualify for the scheme can pay their income tax at a flat rate of 20%.

Double taxation treaties

Portugal has treaties in place with all EU countries and several outside it. Worldwide Tax provides a list of the treaties currently in place.

Types of tax in Portugal

Income tax

Portuguese residents must pay personal income tax on their earnings. Most workers pay taxes automatically via their employer under the pay-as-you-earn (PAYE) system, but everyone must complete an annual tax return.

Married couples in Portugal must submit a joint tax return. The couple’s collective income is halved to calculate the relevant tax rate.

Income taxes apply to earnings in the following six categories:

• A: Employment income
• B: Self-employment income
• E: Investment income
• F: Rental income from properties let in Portugal
• G: Capital gains from selling properties, assets, or shares
• H: Pensions in Portugal, including private pension plans

Income tax is levied at progressive rates from 13.25% (for earnings of less than €7,703) to 48% (for earnings of more than €81,000). Taxpayers who earn more than €80,000 a year must pay an additional solidarity tax ranging from 2.5% to 5%.

Individual taxpayers can benefit from a series of allowances against their taxable income. These include a general allowance of €4,104 and deductions for dependents. The window for completing your tax return for 2023’s income is from 1 April to 30 June 2024.

Income tax for self-employed workers

Self-employed workers (i.e., sole traders, freelancers, people who run unincorporated businesses) in Portugal will have their income assessed as personal earnings and pay Portuguese income tax rather than corporate tax.

Corporate tax

Businesses pay corporate tax in Portugal at a flat rate of 21% of their taxable profits. Local municipality surcharges of up to 1.5% apply, as do additional charges on earnings of more than €1.5 million.

Small and medium-sized companies can pay a reduced corporate tax rate of 17% on their first €50,000 of taxable profit. From 2024, companies considered start-ups can benefit from an even lower rate of 12.5% on their first €50,000 of income.

Small businesses with an annual turnover of less than €200,000 can pay business taxes through a simplified regime, through which they pay tax on their turnover rather than their profit.

The deadline for completing Portuguese corporate tax returns is the last day of the fifth month following the end of the tax year. So, if the company’s tax year runs from January to December, the deadline would be the end of the following May.

VAT in Portugal

VAT (Imposto Sobre o Valor Agregado – IVA) was established in Portugal in 1986. It comes with three chargeable brackets:

• General rate: 23% on taxable goods and services
• Intermediate rate: 13% on food and drink goods and services
• Reduced rate: 6% on certain essential necessities including certain foods (e.g., meat, fruit, vegetables, cereal), books, newspapers, medicines, transport, and hotel accommodations

Separate IVA rates apply in the islands of Madeira (22%/12%/5%) and the Azores (16%/9%/4%).

VAT for businesses

Businesses in Portugal with more than €14,500 turnover on taxable goods and services must register for and pay VAT. This threshold will rise to €15,000 in 2025.

Companies must have a VAT number to pay tax. This is called a NIPC (Número de identificação de pessoa coletiva). VAT bills are payable either monthly or quarterly. 

Municipal property tax

IMI (Imposto Municipal sobre Imóveis) is Portugal’s equivalent of council tax. Your municipality charges it based on the value of your home and the perceived wealth of the area in which you live.

Income from IMI pays for ongoing upkeep and maintenance of the local area, including services such as trash and recycling, road repairs, and park maintenance. IMI varies from around 0.3% to 0.45% of the value of the home in urban areas. In rural areas, a rate of 0.8% applies.

Residents with homes valued at more than €600,000 need to pay IMI at an additional level. This is known as AIMI (Adicional ao Imposto Municipal de Imóveis), what many consider to be Portugal’s equivalent of a wealth tax.

Homeowners in urban areas with properties worth less than €125,000 can benefit from a three-year exemption on IMI, as long as they live on the property themselves.

Capital gains tax

Portugal charges capital gains tax on the sale of property or other assets at a flat rate of 8% for individuals and 25% for companies and non-residents. Residents pay taxes on 50% of their gains.

Exemptions apply for residents selling their primary home and buying another property in Portugal or elsewhere in the EU, as well as those selling a property they purchased before 1989.

Rental income

If you decide to lease a Portuguese property that you own, you will be taxed on any profits you make from rental income. A flat tax rate of 15% applies.

Inheritance tax

The Portuguese government abolished inheritance tax several years ago, but a stamp duty called Imposto do Selo may apply at 10%.

If you have to pay inheritance tax in Portugal, you must do so within three months from the date of death. This is a strict deadline, and you may have to pay a fine if you’re late.

Portugal has double taxation treaties with more than 60 countries, including Germany, Hong Kong, and the United Kingdom, to help reduce the burden paid by expats. Therefore, you can offset the tax paid in Portugal against any you owe in your home country.

Road tax

Drivers in Portugal must pay two taxes. ISV (Imposto Sobre Veículos) is payable when the property is registered. Rates are based on the vehicle’s CO2 emissions. Electric cars are exempt. The second tax, IUC (Imposto Único de Circulação), is a road tax that is payable annually. You can work out your bill by entering information about your car on the IUC website.

Tax avoidance and evasion in Portugal

The Portuguese government is increasingly looking to crack down on tax evasion. New rules introduced in 2023 mean companies must report a complete inventory when filing their taxes rather than simply supplying details of raw materials and products for sale.

Tax fines and penalties

You’ll face a penalty if you don’t submit your tax return. Individuals who file their return late or incompletely face fines ranging from €200 to €2,500. Interest on late payments ranges from 10% of the outstanding tax to double its value (up to a maximum of €55,000).

Corporate tax fines are much higher. Companies filing late returns face daily interest charges of 4% of the tax due. Penalties are between 30% and 100% of the taxes due, capped at €45,000 (in negligence cases) or €165,000 (if the delay was deliberate).

Tax advice in Portugal

Filing a tax return can be complicated, especially if you’re self-employed or own a business. Therefore, it makes sense to seek advice from an accountant or tax expert, such as:

• All Finance Matters
• Tytle

You can also get advice on tax and social security issues from an English-speaking accountant through the international directory of the Institute of Chartered Accountants in England and Wales (ICAEW).

Useful resources

• Portugal’s Tax Authority – official website of the agency that regulates taxes, with individual offices around the country
• Portuguese Social Security department – information for independent workers or freelancers in Portugal
• 2024 State Budget – changes to the Portuguese tax system for 2024