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Employment Taxation for Expats in Portugal

Submitted: July 2014

Residence

You will be considered habitually resident once you have stayed Portugal for more than 183 days in a calendar year. You will also be considered resident if on 31 December you have a residential property in the country, and it is clear that you intend to live there for a period longer than 183 days. As a resident you will be taxable on your worldwide income and gains. If you remain non-resident you will only be taxed on your Portuguese-sourced income. The wording of double tax treaties can effect whether you are treated as a resident or not. You must apply for a residence card (Autorização de Residēncia) from the Delegation of SEF (Serviço de Estrangeiros e Fronteiras) if you are going to be employed in Portugal.

 

Tax rates and allowances

The tax year runs from 1 January to 31 December. Your employer will withhold tax from your wages or salary. You must supply them with your taxpayer number (Número de Idendificação Fiscal – NIF). They will also deduct your social security contributions. How much tax you pay will depend on whether you are considered resident or non-resident. Residents are taxed at the progressive rates shown in the table below. Certain residents who are regarded as ‘non-habitual’ residents are taxed at a flat rate of 20%. Non-residents’ employment income is taxed at a flat rate of 25%. 

The following table shows the tax rates for single residents:

Taxable Income €Rate
Up to 7,00014.5%
From   7,001 to 20,00028.5%
From 20,001 to 40,00037%
From 40,000 to 80,00045%
Over 80,00048%

In addition, for 2014 you will have to pay a surtax of 3.5% of the tax payable for incomes greater than €6,790, and a solidarity surtax of 2.5% of the tax payable for incomes greater than €80,000. You will also have to pay social security contributions of 11%. You will be required to submit an annual tax return regarding employment income to the tax office by 31 March (on paper) or 30 April (electronically) of the following financial year. For married residents, the combined income is divided by two, and the progressive rates are applied to each half.

 

Self-employment

If you are self-employed you will be taxed on the profits of the business. These are calculated and submitted with your tax return after the end of your first year by 30 April. The tax department will assess your return and tell you how much tax you actually have to pay. In your second year you will have to pay tax three times a year on 20 July, 20 September and 20 December, based on the assessed profit of the previous year. In your third year this amount will be adjusted on the basis of your second year, and so on. The amount of tax you will have to pay is based on the progressive rates in the table above.

If your business income is less than €200,000, you do not need to calculate your taxable income on the basis of a profit and loss account, but can instead calculate it on the basis of turnover only. The tax department use different percentages for different kinds of business. If you are running a low margin business such as a hotel, bar, restaurant or shop, you can choose to be taxed on 4% of your turnover. If you are a landlord (high margin), you can choose to be taxed on 95% of your turnover.

 

 




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