In Portugal, the tax system is based on a progressive income tax system, where the more an individual earns, the higher the tax rate they will pay. In addition to income tax, there are several other taxes that individuals and businesses may be subject to, such as value-added tax (VAT), property taxes, and capital gains taxes. Let’s see in detail how the system works and what you need to do to keep your taxes in order.
When do you become a tax resident in Portugal?
In general, you are considered a tax resident in Portugal if you meet one of the following conditions:
- You spend more than 183 days in Portugal in a calendar year, whether continuously or intermittently.
- You have a permanent home in Portugal, which is defined as a dwelling that you own, rent or have free use of by law, as of December 31 of the year in question.
- You have a dependent spouse or minor children who are tax residents in Portugal.
If you meet any of these conditions, you are considered a tax resident in Portugal for the entire calendar year. This means that you must declare your worldwide income and assets in your Portuguese tax return and pay taxes on that income to the Portuguese tax authorities.
What is a NIF number and how to get one?
NIF stands for "Número de Identificação Fiscal" which is the tax identification number in Portugal. It is a unique 9-digit number assigned to individuals, businesses, and other entities for tax purposes.
The NIF number is used for various purposes, including:
- Registering with the Portuguese tax authorities and paying taxes.
- Conducting business transactions, such as opening a bank account or signing a rental agreement.
- Applying for social security benefits and other government services.
- Registering for public services, such as healthcare or education.
All individuals and entities with tax obligations in Portugal must have a NIF number. This includes Portuguese residents, non-residents with Portuguese source income, and businesses operating in Portugal.
If you plan to work, live, or conduct business in Portugal, you will need to obtain a NIF number.
To get a NIF number in Portugal, you will need to follow these steps:
1. Request an appointment: Contact the nearest Portuguese tax office (Finanças) or visit their website to request an appointment for the issuance of a NIF number.
You will need to bring the following documents to your appointment:
- Passport or ID card
- Proof of address (e.g., rental agreement or utility bill)
- If you are a non-resident, you will need to appoint a fiscal representative in Portugal, who must also be present at the appointment and provide a valid ID
2. Attend your appointment: Attend your appointment at the tax office and present your documents. The tax office will issue your NIF number on the spot.
3. Register with Social Security (optional): If you plan to work in Portugal, you may also need to register with the Portuguese Social Security system. This registration can be done at the same time as your NIF application.
It is also possible to apply for a NIF number online through one of the companies providing such services. These companies usually provide you with a representative so you don’t have to look for one yourself. Migronis can also help to get a NIF number, as well as open a bank account.
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What taxes do expats and investors pay in Portugal?
Expats and investors in Portugal are subject to various taxes, including the following:
Personal Income Tax (IRS): Expats who are tax residents in Portugal are subject to personal income tax on their worldwide income. Non-residents are only taxed on their Portuguese-sourced income. The tax rates and brackets are the same as those for Portuguese citizens.
Corporate Income Tax (IRC): Companies with a permanent establishment in Portugal are subject to corporate income tax on their worldwide income. The standard tax rate is 21%.
Value-Added Tax (VAT): Expats and investors who purchase goods or services in Portugal are subject to VAT. The standard VAT rate is 23%, but reduced rates of 6% or 13% may apply to certain goods and services.
Property Taxes: Expats and investors who own property in Portugal are subject to Municipal Property Tax (IMI), which is calculated based on the property’s taxable value, and Stamp Duty (Imposto do Selo), which is a one-time tax on the purchase of a property.
Capital Gains Tax (Imposto sobre Mais-Valias): Expats and investors who sell assets in Portugal, such as real estate, stocks, and bonds, are subject to capital gains tax. The tax rate ranges from 14.5% to 48%, depending on the type of asset and the length of time it was held.
In addition to these taxes, there are also various tax incentives and exemptions available for expats and investors in Portugal, such as the Non-Habitual Resident (NHR) tax regime, which provides significant tax benefits for eligible individuals who become tax residents in Portugal.
Real estate taxes
In Portugal, real estate taxes are known as Municipal Property Tax (Imposto Municipal sobre Imóveis or IMI). The tax is levied annually by the local municipalities and is calculated based on the tax value of the property. The tax value is determined by the tax authorities and is generally lower than the market value of the property.
The IMI tax rate varies depending on the location and value of the property. The tax rate ranges from 0.3% to 0.45% for urban properties and from 0.8% to 0.8% for rural properties. There is also a surcharge of up to 1.5% for properties with a tax value above €1 million.
In addition to the IMI tax, property owners in Portugal may also be subject to Stamp Duty (Imposto do Selo) when purchasing a property. The tax rate is 0.8% of the purchase price of the property or the tax value, whichever is higher.
If you rent out your property in Portugal, you will be subject to the following taxes depending on what kind of property you have:
Personal Income Tax (IRS): Rental income is considered taxable income and is subject to personal income tax. The tax rate ranges from 14.5% to 48%, depending on the amount of rental income earned.
Value-Added Tax (VAT): If you are renting out a property for commercial purposes, you may be required to charge VAT on the rental income. The standard VAT rate is 23%.
Municipal Property Tax (IMI): If you rent out a property in Portugal, you are still responsible for paying the IMI tax. However, in some cases, the tenant may be responsible for paying the tax.
Stamp Duty (Imposto do Selo): If you are renting out a property, you may be required to pay Stamp Duty on the rental contract. The tax rate is 10% of the annual rental income.
EXAMPLE
I have a 2 bedroom apartment in Lisbon that costs €500 000 which I rent out for €1500 a month. How much taxes will I pay?
Assuming that you have no other sources of income in Portugal and that you are not registered for VAT, here is an estimate of the taxes you may need to pay:
Personal Income Tax (IRS):
The taxable rental income for the year would be €18,000 (€1,500 per month x 12 months). Assuming you have no deductions or expenses to offset the rental income, you would be taxed at the following rates:
- Up to €7,112: 14.5% (€1,030.60)
- From €7,113 to €10,732: 23% (€936.88)
- From €10,733 to €20,322: 28.5% (€2,314.62)
- From €20,323 to €25,075: 35% (€1,111.78)
- From €25,076 to €36,967: 37% (€1,318.03)
- Above €36,968: 48%
Based on this, the total amount of Personal Income Tax payable would be approximately €6,712.91.
Municipal Property Tax (IMI):
The tax value of your property is likely to be lower than its market value, but assuming it is equal to the purchase price of €500,000, the IMI rate in Lisbon is currently set at 0.45%, which means you would need to pay €2,250 annually.
Stamp Duty (Imposto do Selo):
If you are renting out the property for €1,500 per month, the annual rental income would be €18,000. The Stamp Duty rate is 10%, so you would need to pay €1,800 annually.
I invested in a fund in Portugal, what taxes can I expect to pay?
Non-residents who choose to invest in a fund do not pay tax in Portugal on the yield received from these investments. However, they have to pay this tax in the country of their actual tax residency. If a person lives in Portugal, the tax on income from fund investments will be 10%.
Here are some of the other taxes you may need to pay:
Capital gains tax: If you sell your fund shares and make a profit, you may be subject to capital gains tax in Portugal (see detailed information below).
Dividend tax: If the fund distributes dividends, you may be subject to dividend tax in Portugal. The tax rate is currently set at 28%, but there may be a reduced rate or exemption under certain conditions, such as if you are a resident of Portugal or if you are a resident of a country that has a double tax treaty with Portugal.
Wealth tax: If you are a tax resident in Portugal and your total net assets exceed €600 000, you may be subject to the Wealth Tax, which is a tax on the value of your assets. The tax rate ranges from 0.2% to 1.5% depending on the value of the assets.
It’s important to note that the tax rules and rates can vary depending on the type of fund and your specific circumstances, and tax laws and regulations can change. Therefore, it’s always best to consult with a tax professional to understand your tax obligations and the specific rules that apply to your situation.
Read also: Q&A The Portuguese Golden Visa program is about to end. What now?
How does the capital gain tax work in Portugal?
Capital gains tax in Portugal is applied to the sale of certain assets, including real estate, stocks, and bonds. Here is how capital gains tax works in Portugal:
Tax rate:
The tax rate for capital gains tax in Portugal varies depending on the type of asset and the amount of gain. For real estate, the tax rate is a flat rate of 28% on the net capital gain. For other assets, such as stocks and bonds, the tax rate is 28% on the net gain for individuals and 25% for companies.
Calculation of capital gains:
Capital gains tax in Portugal is calculated as the difference between the purchase price of the asset and the sale price of the asset, minus any transaction costs and other expenses related to the sale. For real estate, the purchase price may include any improvements or renovations made to the property. Additionally, there is an allowance for inflation, which is deducted from the gain.
Reporting and payment:
If you are a resident of Portugal and sell an asset subject to capital gains tax, you must report the sale and pay the tax on your annual tax return. If you are a non-resident and sell a property in Portugal, you must appoint a fiscal representative to represent you to the Portuguese tax authorities and pay the tax.
What is NHR and how does it work?
NHR stands for "Non-Habitual Resident" and is a special tax regime in Portugal that provides certain tax benefits for foreign individuals who become tax residents in Portugal. The NHR regime is designed to attract high-net-worth individuals and pensioners to the country.
Under the NHR regime, foreign individuals who become tax residents in Portugal are eligible for several tax benefits, including:
Exemption from taxation on foreign income: Foreign source income, such as pensions, dividends, capital gains, and rental income, may be exempt from Portuguese taxation for a period of up to 10 years, provided that the income is subject to taxation in the source country under the terms of a tax treaty with Portugal.
Reduced taxation on Portuguese income: Income derived from Portuguese sources may be subject to a reduced tax rate of 20% for certain professions, such as artists, architects, engineers, and scientists.
Wealth tax exemption: Foreign assets are exempt from wealth tax in Portugal.
To be eligible for the NHR regime, you must meet certain criteria, including:
- You must not have been a tax resident in Portugal in the previous five years.
- You must become a tax resident in Portugal and register as a non-habitual resident with the Portuguese tax authorities.
- You must spend more than 183 days in Portugal in a calendar year, or have a permanent home in Portugal as defined by Portuguese tax law.
Remember that the NHR regime is subject to certain conditions and restrictions, and it may not be the most beneficial option for everyone. It’s recommended to consult with a tax professional to determine whether the NHR regime is right for your specific circumstances.
How does NHR work?
