The Portuguese tax system for foreign nationals
The important thing for a foreign national to understand before delving deeper into Portugal’s tax system is who is liable for tax in the first place. A distinction must be made between tax residents and non-residents, but even those residing outside of Portugal may be liable to pay taxes depending on a number of circumstances.
To be considered a tax resident an individual must meet one of the following criteria:
- A person must reside a minimum of 183 days per year in Portugal to be considered a tax resident.
- A person who resides less than 183 days in Portugal per year (a non-resident) may also qualify as a tax resident if they maintain a habitual residence in the nation throughout the entire year.
This means a non-resident may be liable for tax if they maintain residence, so it is crucial to make sure that, even if you do not plan to live in Portugal at the moment, you understand the Portuguese tax system and what taxes your tax liability.
For those thinking about living in Portugal and surviving on passive or pension income, it is imperative they first understand their standing as Portuguese residents and how they may be taxed.
A personal income tax reform injected a partial residence concept so that there is a straight connection between the period of physical presence within Portugal’s borders and a tax resident status.
Hence, taxpayers will be defined as residents in Portugal from the first day of their stay in the nation while non-tax residents will be defined so as of the last day of their stay in Portugal, with a few exceptions.
It is important to note that not only do individuals have to define their status as Portuguese residents and taxpayers, but so do corporations.
A corporation deemed as a permanent establishment within Portuguese shores is considered a Portuguese resident corporation, making it liable for corporate income tax as well as other taxes.
A permanent establishment in Portugal must have offices within the nation and conduct its business for at least 183 days a year, similar to the number of days in the individual tax resident definition. Corporations are taxed on Portuguese income as well as worldwide income, and any person wishing to take up self-employment in Portugal must consider the taxes their company may face to ensure financial feasibility and safeguarding their invested capital.
So let’s dig into some details regarding personal and corporate income tax.