Taxes in Portugal, Taxation in Portugal, Taxes system in Portugal
Personal Income Tax
The Portuguese tax year follows the calendar year, closing 31 December.
Income is taxed in Portugal
All income received by a resident in Portugal, such as salaries, capital gains and real estate income, including income obtained abroad, is taxed in Portugal by the Personal Income Tax (Imposto sobre o Rendimento das Pessoas Singulares, IRS). Note that for income earned abroad, there are several tax treaties that may be applicable to avoid double taxation.
Regarding non-residents, only income obtained in Portugal is subject to taxation, at a general tax rate of 25 percent. However, income derived from real estate is subject to a tax rate of 15 percent. Some types of capital gains, such as those derived from transfer of shares, are also subject to a tax rate of 10 percent. Depending upon income classification, these can be subject to a definitive withholding tax rate.
The tax rates for the Personal Income Tax are progressive ranging from 10.5 percent up to 42 percent.
A resident for income tax purposes in Portugal
Several aspects define an individual as a resident or non-resident for tax purposes in Portugal. The general rule is that if a person spends more than 183 days per year in Portugal, they are considered a resident. However, in some cases a person who spends less than 183 days per year in Portugal may also be considered a resident in Portugal. This includes:
A person who has permanent residence in Portugal at 31 December of the tax year in question
Anyone who is part of a family whose head of household is resident in Portugal
Individuals who at 31 December are crewing any ship or aircraft belonging to a Portuguese entity
Any person working in a foreign country for the Portuguese State
Deductions and allowances
It is possible to make a number of limited income deductions in Portugal, such as:
a general deduction for each taxpayer and each of their young or old dependants
health expenses (unlimited in some situations)
education and training expenses
old person's day/night care burdens
burdens related to real estate and renewable energies
burdens related to life and health insurance policies
international double taxation
some special tax exemptions and/or reductions
There are also some specific deductions depending on the kind of income obtained.
Social Security charge
There is a mandatory social security charge that must be paid, either by the employer or the employee. The social charge rate for an employee is 11 percent, while an amount of 24.75 percent is paid by the employing entity. For self-employed workers, this social charge rate varies depending on circumstances.
The income tax return
To register as a tax payer in Portugal it is necessary to fill in a registration form (ficha de inscriçao) and take it to the local tax office. Please note that the tax registration should be requested by the tax payer before any activity is carried out in Portugal.
To download the registration form: Click here (PDF; select "N.o Identif.Fiscal-Pessoa Singular Ficha de Inscriçao")
To find a local tax office: Click here
The annual income tax return must be completed and delivered to the Tax Authorities within the following periods:
for employees, from 1 February to 15 March of the year following the one in which the income was earned
for all other incomes, from 16 March until 30 April of the following year
Note that self-employed workers must declare the beginning of their activity to the Portuguese Tax Authorities. If they have an authorised accountant, the annual tax return for the previous year may be delivered by the end of June.
Non-residents who earn income in Portugal must designate a tax representative in this country.
Penalties for non-compliance
If a person does not comply with their tax obligations, they will be subject to a penalty.
If the income tax return is not completed or is returned late, the amount of the penalty can range from €100 to €2,500. If the tax is not paid in time, the penalty can be from ten percent of the tax to double its value (up to a maximum of €55,000) plus interest. The amounts may vary depending upon the specific circumstances.
Capital Gains Tax
Capital gains derived from the transfer of real estate or shares, or other investments, are also considered as income and, as such, they are also taxed by the Personal Income Tax. However, capital gains arising from transfer of real estate or shares from a Private Limited Company (LDA) are exempt from taxation if the assets were acquired before 1989.
In case of residents in Portugal, the capital gains derived from the transfer of property are only taxed on half of their value and the applicable tax rate depends upon the resident's aggregate income.
If a person sells their permanent residence and reinvests the capital gain obtained in the acquisition of another permanent residence in Portugal, the capital gain is not taxed. For this exemption to apply, there are some requirements that must be fulfilled.
Capital gains derived from the transfer of shares are subject to a tax rate of ten percent. Instead of applying this tax rate, the tax payer may choose to aggregate this with their income.
The capital gains derived from the transfer of shares are not subject to taxation if those shares are from a Public Limited Company (SA), if they are delayed for more than one year, and as long as no more that half of the asset is not in real estate.
In the case of non-residents, capital gains derived from the transfer of real estate are taxed in total and they are subject to a tax rate of 25 percent. Capital gains derived from the transfer of shares are subject to a tax rate of ten percent of the total income.
(IRC - Imposto sobre o Rendimento das Pessoas Colectivas)
Taxable profit up to EUR 12,500.00 is taxed at a reduced rate of 12.5% and the excess is taxed at 25% in Portugal. A municipal surtax is levied on taxable profits at rates up to 1.5% (depending on the municipality), resulting in a maximum possible aggregate tax rate of 26.5%.
There are anti-avoidance measures to prevent businesses being split up artificially between different companies to take advantage of the 12.5% rate.
General Regime: Resident corporations are subject to Portuguese corporate income tax (IRC) on their worldwide income. Resident companies are those which have their head office, or place of effective management, in Portugal.
Non-resident companies with a permanent establishment in Portugal are liable for IRC on the income attributable to that permanent establishment. A non-resident company with no permanent establishment in Portugal is taxed on the following types of income sourced in Portugal: real estate, capital gains, dividends, services, interest and royalties.
Portugal tax year usually coincides with the calendar year (1 January to 31 December). However, in some cases such as branches of non-resident companies, different tax years may be adopted.
Permanent establishments of non-resident companies are taxed at the rates applicable
to resident companies (i.e. 25%), plus a 1.5% municipal surcharge (effective rate of
26.5%). When there is no permanent establishment, tax is levied at rates varying
between 15% and 25% according to the source of income.
CAPITAL GAINS TAX
Worldwide capital gains obtained by resident companies are included in taxable income and taxed at the standard flat rate of 26.5%. The gain (or loss) is calculated by the difference between the sales proceeds and the acquisition cost which may be updated using official inflation coefficients. If the proceeds of the sales are reinvested in other fixed assets, 50% of the gain obtained (net of the related losses) will be excluded from taxation. For this purpose, reinvestments made in the preceding year, the year of sale and the two subsequent years will be taken into account.
When only part of the consideration is reinvested, only the corresponding part of the gain qualifies for the relief.
Gains derived from the disposal of shares by qualifying holding companies (SGPS) are not subject to taxation. However, capital losses arising on the sale of shares, as well as interest incurred on loans used to purchase shares, are not deductible for IRC purposes at the SGPS level.
BRANCH PROFITS TAX
All income attributable to the Portuguese branch (permanent establishment) is subject to corporation tax. No tax is imposed on the eventual remittances of profits to the head office.
FRINGE BENEFITS TAX (FBT)
In general, benefits provided to employees are added to their remuneration and taxed accordingly. There are, however, some exceptions such as lunch allowances, travel allowances and the use of a car (provided such use is not formally agreed in the employment contract).