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Overview of Tax Issues for Expats in Portugal

Submitted: July 2014

The Portuguese tax year runs from 1 January to 31 December.

Tax Residence

You will be considered resident once you have stayed Portugal for more than 183 days in a calendar year. You may be considered resident prior to 183 days if you have a residential property in the country, and it is clear that you intend to live there. You can also be considered as a ‘non-habitual’ resident under certain circumstances. For more details, please see: Taxation - Employment Taxation for Expats in Portugal.

 

Employment/Business Taxes

Residents pay a withhollding tax; their employer directly deducts it from their pay, in addition to social security contributions. As a resident, you will generally have to complete a tax return after the end of the year. The marginal (highest) tax rate is 48%. Additional surtaxes are also charged depending on your level of earnings. If you are self-employed, you will pay income tax based on the profits of your business, after deduction of costs. If your business income is less than €200,000, you can opt to be taxed on the basis of turnover rather than profit. For more details, please see: Taxation - Employment Taxation for Expats in Portugal.

If you come to Portugal to set up in business and start a company, you will be liable to pay corporation income tax on the profits from your trade or business. The corporate income tax rate is 23%; there is a reduced rate of 17% on a small portion of the income of SMEs. Companies based in the Azores pay a lower tax rate of 17.5%. If your business income is less than €200,000, you can opt to be taxed on the basis of turnover rather than profit. New companies must complete a simple registration process, which may take less than one hour. Companies generally have to pay provisional tax during the course of a year. After the end of the year, a tax return must be produced within five months of the end of the fiscal year in which the income was generated. For more details, please see: Taxation - Business Taxation for Expats in Portugal.

 

Investment Taxes

For residents, dividend and interest income may be subject to a withholding tax. It must also be reported on your tax return, together with any interest or dividend income from abroad. Non-residents are also subject to withholding tax at a rate of 25% on Portuguese-sourced interest and dividend income. Interest and dividend income received from abroad is generally tax exempt for non-residents in Portugal. Taxable capital gains are treated as ordinary income.

Rental income worldwide is taxable for residents in Portugal. Non-residents pay tax on Portuguese-sourced rental income only. Net rental income from Portuguese property is taxed at a flat rate of 28%. For more details, please see: Taxation - Investment Taxation for Expats in Portugal.

 

Tax Treaties

Portugal has signed tax treaties with 60 countries worldwide. Portugal charges withholding tax on dividends, interest and royalties. Withholding taxes rates on payments made to taxpayers in other countries which have tax treaties with Portugal in place (or non-residents in Portugal) can be reduced. The treaties also mean that the amount of withholding tax charged on money flowing into Portugal by the originating country can be reduced. For more details, please see: Taxation – Tax Treaty Considerations for Expats in Portugal.

 

 




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