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Taxes in Portugal for expats: Everything you need to know
Do you need to know what taxes foreigners have to pay in Portugal? We break down each type of tax and the available tax benefits in the country.
Portugal has become a favourite destination for people from other countries seeking stability, opportunities and quality of life. Knowing what Portugal taxes for expats do apply will help you to comply with your legal obligations. In addition, you’ll be able to take advantage of the benefits that the Portuguese tax system offers, especially through specific programmes such as the non-habitual resident regime (RNH).
Whether you’re moving for work or simply to enjoy the climate and culture, it’s essential to understand the tax implications of this country. In this article we break down the most important aspects related to taxes for foreigners in Portugal, considering the particularities of each profile, from individuals to companies.
Types of foreigners in Portugal
The Portuguese tax system distinguishes between tax residents, non-residents and specific profiles such as investors or pensioners. This approach allows Portugal taxes for expats to be tailored to the personal and professional circumstances of each individual or entity. Below, we look at the main types of foreigners and how taxes are applied in each case.
Persons
In Portugal, foreign natural persons are classified into several categories according to their length of stay and type of activity. Each has different characteristics and tax obligations. Here ‘s a list of the different kinds of people:
- Tax resident: If you spend more than 183 days a year in Malaysia, you’re considered a tax resident. This means that you ‘ll have to declare all your income, regardless of its origin (both in Portugal and abroad). The progressive income tax (IRS) scale varies from 14.5% to 48%, depending on annual income.
- Non-residents: Taxed only on income generated in Portugal. For example, if you work here temporarily or rent a property, you’ll pay tax exclusively on that income, at specific rates such as 25% on wages or 28% on rents. This is the most common case of digital nomads in Portugal.
- Beneficiaries of the non-habitual resident scheme (RNH): This scheme offers tax incentives to foreigners who establish their residence in Portugal. It includes benefits such as a flat rate of 20% for high-skilled employment or business income and exemption from tax on foreign passive income tax on passive foreign income provided there’s a double taxation treaty. This regime is designed to attract talent and capital to the country.
- International students and scholarship holders: Portugal also receives a large number of international students, especially in programmes such as Erasmus or specialised masters. Although subject to the IRS, many students report low incomes, which reduces their tax burden.
- Pensioners: This country has positioned itself as a haven for foreign pensioners thanks to the RNH. For a period of ten years, foreign pensions may be exempt from taxation or taxed at a reduced rate of 10%, depending on bilateral agreements between Portugal and the country of origin.
Companies or properties
Portugal balances its taxes for foreigners with incentives to attract talent, capital and innovation. Each foreigner profile has specific requirements and benefits, so it’s essential to know your tax situation before settling in the country. For example, foreigners also interact with the Portuguese tax system as owners of businesses or real estate. Here are the main implications:
- Foreign companies established in Portugal: Companies are subject to corporate income tax (IRC) at a general rate of 21%. In regions such as Madeira and the Azores, rates may be lower due to local tax incentives. Technology start-ups and innovation projects can access additional tax benefits.
- Real estate: Portugal is an attractive destination for foreign real estate investors. Owners must pay the Municipal Property Tax (IMI), which varies between 0.3% and 0.45% of the rateable value, depending on the location. If you decide to rent out your property, the income will be subject to a flat tax of 28%.
- Investment projects and the Golden Visa: This programme grants residency in exchange for specific investments, such as the purchase of real estate for a minimum of €500,000 ($527,522) or the creation of employment. While investments generate tax obligations, they also offer benefits, such as the possibility of obtaining citizenship.
Taxes for foreign individuals in Portugal
In Portugal, foreign individuals must pay certain taxes and thus comply with a number of tax obligations, which vary according to their tax residence status and the source of their income. Below, we explain the main taxes you need to pay:
- Social contribution: If you’re self-employed or employed in Portugal, you must also contribute to the social security system, with rates varying from 11% to 21.4% depending on activity and income.
- Capital gains tax: This tax is levied on gains realised on the sale of property or investments in Portugal. Residents are taxed according to the IRS sliding scale, while non-residents face a flat rate of 28%.
- Personal Income Tax (IRS):
| Types of natural person | Features | Fees |
|---|---|---|
| Residents | Foreigners who spend more than 183 days a year in Portugal must declare all their overall income. | This tax operates on a progressive scale, ranging from 14.5% to 48%, depending on annual income. For example, a person earning €30,000 per year ($31,633) could be taxed at around 28%. |
| Non-residents | They’re only taxed on income generated in Portugal, such as salaries, rents or commercial activities. | The general rate for non-residents is 25%, while rental income is subject to 28% |
Tax or fiscal benefits for foreigners in Portugal
Portugal has implemented a set of strategic fiscal measures to position itself as an attractive destination for skilled professionals, pensioners and entrepreneurs. These benefits are designed to encourage the arrival of international talent, capital and expertise, thus boosting its economy and diversifying its social fabric. Below, we highlight the main benefits available to foreigners:
| Tax benefit | Features | Fee |
|---|---|---|
| Non-Habitual Resident Scheme (RNH) | This programme allows foreigners to be taxed at a flat rate of 20% on high-skilled employment or business income. | 20% |
| Tax exemption for foreign pensioners | Pensions of foreign origin can be taxed at a reduced rate of 10% for a period of ten years, making Portugal an attractive retirement destination. | 10% |
| Double taxation treaties | Portugal has agreements with many countries to avoid double taxation, which means that certain income already taxed in the home country may be exempt in Portugal. | Possibility of exemption. |
Taxation of foreign properties or businesses in Portugal
Foreigners owning property or businesses in Portugal must comply with a number of tax obligations designed to ensure a fair contribution to the country’s tax system. These include taxes related to the purchase, sale and ownership of real estate, as well as levies on income generated from commercial activities or rents. These regulations seek to regulate economic activity and ensure that owners and entrepreneurs meet their tax responsibilities.
- Municipal Property Tax (IMI): This annual tax is levied on all properties in Portugal. Fees vary between 0.3% and 0.45% of the rateable value of the property, depending on the location. For example, a property valued at €200,000 ($210,890) would have an annual IMI of between €600 and €900 ($632 and $949).
- Property Transfer Tax (ITT): When buying a property, foreigners must pay this tax, which ranges from 1% to 8%, depending on the value of the property and its purpose (residential, commercial or land).
- Corporate income tax (IRC): Foreign companies operating in Portugal are subject to a 21 % tax on their annual profits. However, rates may be reduced in Madeira and the Azores due to regional incentives.
- VAT (Value Added Tax): If your company provides services or sells products in Portugal, you must charge VAT, which has a standard rate of 23%, although it may be 13% or 6% for certain products or services.
Tax or fiscal benefits for foreign companies in Portugal
The Portuguese government offers several tax benefits designed to attract foreign companies and capital. In this way, the taxes you have to pay as a foreigner in Portugal will be reduced if you decide to invest in technology or if you establish yourself in its free zone, among others. Here are the most important ones:
- Free trade zones and regional benefits: Madeira, for example, offers a reduced corporate tax rate of 5% for companies that set up in its International Free Trade Zone and meet certain requirements, such as creating local employment.
- Tax deductions for start-ups: Foreign companies investing in technology, research or development can access significant tax deductions on their corporate taxes.
- Incentives for sustainable projects: Portugal encourages green investments with tax benefits for companies committed to renewable energy, energy efficiency or sustainable initiatives.
- Golden Visa and real estate benefits: Investors buying property in specific regions of the country can benefit from IMT exemptions or IMI reductions, in addition to obtaining residency permits through the Golden Visa programme.
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Taxes on foreign investments in the stock market in Portugal
If you plan to invest in the Portuguese stock market as a foreign person, this implies compliance with certain tax obligations that vary according to the type of asset and the income generated. Below, we explain the most common taxes for foreigners in Portugal, applicable to stock market investments:
- Capital gains tax: Gains realised on the purchase and sale of shares or other financial instruments are subject to capital gains tax. The general rate applied to tax residents is 28%, while for foreigners it may vary depending on the double taxation treaties between Portugal and their country of origin.
- Dividend tax: Dividends received by foreign investors are taxed at a flat rate of 28% in Portugal. However, in many cases, this rate can be reduced if there’s a tax treaty between the two countries limiting double taxation.
- Withholding tax rate: Income earned from stock market investments, such as interest or dividends, is subject to a withholding tax, which ensures immediate compliance with tax obligations in Portugal.
- Double taxation treaties: Portugal has signed agreements with numerous countries to avoid double taxation. These treaties may benefit foreign investors by reducing or eliminating certain taxes on their profits or income derived from the Portuguese stock exchange.
Frequently Asked questions about Portugal taxes for expats
Foreigners in Portugal are subject to income tax (IRS), municipal property tax (IMI) and, in some cases, inheritance and gift tax. Those who own businesses or property must also comply with VAT and corporate taxes if applicable.
If you’re a tax resident in Portugal, you must declare all your global income, both in Portugal and abroad. However, there are exceptions under the double taxation treaties and the NHR regime. Non-residents are only obliged to declare income obtained in Portuguese territory.
When acquiring a property, you must pay the Real Estate Transfer Tax, which varies according to the value of the property and its location. Also Stamp Duty, equivalent to 0.8% of the purchase price. Thereafter, you’ll have to pay IMI annually.
Double taxation treaties prevent foreigners from paying tax twice on the same income. For example, if a foreigner earns dividends from Portuguese companies, he can benefit from a reduction in the tax rate applicable in his country of residence.
Foreign companies can benefit from tax incentives when setting up in Portugal, such as tax exemptions in certain free zones, reduced corporate tax rates for SMEs and deductions for investment in technological innovation and development.
