How the Portuguese tax system works and what you need to know before moving to the country
According to data on immigration in the year 2022 released by the Portuguese Foreigners and Borders Service (SEF), the number of immigrants living in the country has increased for the seventh consecutive year and has already surpassed the 750,000 mark.
Still according to the survey, the communities that grew the most in this period were the Brazilian and Indian ones. There are already 233,138 Brazilians and they lead the list of foreigners living in the country.
One of the most important aspects, and one that deserves the attention of everyone moving to Portugal, is tax obligations. Knowing about the Portuguese taxes that are currently in force is essential to maintain tax compliance and avoid possible problems with the tax authorities.
Only the Central Government and municipalities are authorized to create taxes in the country. This system was adapted according to the European Union standard and reduces the number of taxes that may be levied on the assets of Portuguese tax residents.
There are three taxes that affect income in Portugal: the Personal Income Tax (IRS), the Corporate Income Tax (IRC) and the Derrama rate.
The IRS is very similar to the Income Tax on Individuals in Brazil and is charged according to the taxpayer’s income. In Portugal, IRS rates are divided into levels.
Check the list of values that are being practiced in 2023:
|Level||Standard Rate (A)||Average Rate (B)|
|Up to € 7,479||14.5%||14.5%|
|From € 7,479 to € 11,284||21%||16.69%|
|From € 11,284 to € 15,992||26.5%||19.58%|
|From € 15,992 to € 20,700||28.5%||21.61%|
|From € 20,700 to € 26,355||35%||24.48%|
|From € 26,355 to € 38,632||37%||28.46%|
|From € 38,632 to € 50,483||43.5%||31.99%|
|From € 50,483 to € 78,834||45%||36.67%|
|More than € 78,834||48%||–|
The amount of taxable income, when greater than € 7,479, is divided into two parts, as follows: one, equal to the limit of the largest of the levels that it fits, to which the rate in column B corresponding to that level applies; another, equal to the surplus, to which the rate in column A for the next higher level applies. (Wording of Law No. 24-D/2022, of December 30)
Source: No. 1 of article 68 of the 2023 State Budget.
The IRC IRC is the one that focuses on the earnings of companies operating in Portugal. The incidence happens from the profits generated. Institutions that are headquartered in another country, but carry out activities in Portugal, are also subject to the tax – in this case, the incidence of IRC is only on the percentage of income obtained by the company within Portuguese territory.
Taxation rates vary according to the location where the company operates, and the value generated from the income. The autonomous territories of Madeira Island and the Azores have different laws and fees from those practiced in continental Portugal (term used to designate the Portuguese territory located in the region of the Iberian Peninsula).
In the Continental region, the normal corporate tax rate is 21%.
Small and Medium-sized Enterprises (SMEs) have a reduced rate of 17% on the first 50,000 euros of profit obtained (the rest is taxed at the normal rate).
In Madeira Island and the Azores, the rates follow the following percentages:
- 14.7% on Madeira Island;
- 16.1% in the Azores.
It is important to mention that, according to Recommendation 2003/361/EC, SMEs are classified as follows:
- Medium-sized company – has between 51 and 250 employees; the maximum annual turnover is € 50 million, or the annual balance sheet total must not exceed € 43 million;
- Small-sized company – staff of 11 to 50 people and the annual turnover or annual balance sheet does not exceed € 10 million;
- Microenterprise – has less than 10 employees and the annual turnover or annual balance sheet does not exceed € 2 million.
Charged by municipalities, this tax impacts companies and is defined according to the size of the business in question. Click here to consult the municipal Derrama rates that are in effect in 2023.
Companies operating in Portugal are also taxed by the State Derrama – an additional tax on taxable income, which varies according to the amount of the gain in question:
- Profit between € 1,500,000 and € 7,500,000 – 3% additional fee;
- Profit between € 7,500,000 to € 35,000,000, 5% additional fee;
- Profit greater than € 35,000,000 – 9% additional fee.
Net Worth Taxes
In this category of taxes, there are also three types of taxation that may occur: the IMI (Municipal Tax on Real Estate), the IMT (Municipal Tax on the Onerous Transfer of Real Estate) and the IS (Stamp Duty).
The IMI would be the equivalent of the IPTU, in Brazil, or the Property Tax, in the United States. Taxation is municipal and applied to buildings and constructions.
The collection of IMT varies according to the value of the property deed, and in some cases, the buyer is exempt from payment. Residences purchased on the Continent with values below € 93,331 are exempt. For properties purchased in the Autonomous Region of Madeira or the Azores, exemption applies up to the amount of € 116,664.
The Stamp Duty, considered the oldest still in force in Portuguese territory, is a fixed percentage charged on contracts or commercial transactions. This percentage may vary according to the origin of the operation. Check out some of the most common fees:
- Acquisition of property with a high value or by donation – 0.8% rate;
- Rent or sublease, levied on one month’s income –10% rate;
- Transfer of ownership of establishments – 5% rate
- Collective investment entities that invest exclusively in the money and deposits market – 0.0025% rate
- Other collective investment entities – 0.0125% rate
Check below the most common taxes levied on cars in Portugal, both at the time of purchase and as a result of vehicle circulation within the country:
IUC (Single Circulation Tax)
The IUC is an annual tax levied on all vehicles registered in the country.
ISV (Vehicle Tax)
This fee is only paid upon purchase of the vehicle. It is usually already included in the sale price of the car.
Tax residency in Portugal
Another important issue for those moving to Portugal is tax residency. Under Portuguese law, a foreign citizen is considered a tax resident after having stayed more than 183 days in the territory within a period of 12 months. Therefore, the individual must comply with tax obligations in the country. This means that the taxpayer must submit, annually, the IRS statement.
It is worth noting that there are also situations in which non-residents in Portugal may be required to declare the IRS. This happens, for example, in the case of people who live in other countries, but have income in Portuguese territory.
In 2009, with the aim of attracting qualified professionals and investors to Portugal in order to foster economic growth, the government created the Non-Habitual Resident Tax Regime (RNH).
This tax system is aimed at new residents, those people who have just moved to the country, and is valid for those who have not resided in Portuguese territory in the last five years.
As described in Ordinance No. 230/2019, the following professions can access this special tax regime:
I – Professional activities (codes of the Portuguese Classification of Professions – CPP):
112 – General director and executive manager of companies
12 – Directors of administrative and commercial services
13 – Directors of production and specialized services
14 – Directors of hotels, restaurants, commerce and other services
21 – Specialists in the physical science, mathematics, engineering and related techniques
221 – Physicians
2261 – Dentists and Stomatologists
231 – Professor of university and higher education
25 – Specialists in information and communication technologies (ICT)
264 – Authors, journalists and linguists
265 – Creative and performing arts artists
31 – Intermediate level science and engineering technicians and professions
35 – Information and communication technology technicians
61 – Skilled farmers and workers in agriculture and animal production, market-oriented
62 – Skilled forest, fishing and hunting workers, market-oriented
7 – Skilled workers in industry, construction and crafts, including in particular skilled workers in metallurgy, metalworking, food processing, woodworking, clothing, handicrafts, printing, precision instrument making, jewelers, artisans, workers in electricity and electronics.
8 – Operators of installations and machines and assembly workers, namely operators of fixed installations and machines. Workers in the professional activities referred to above must have at least qualification level 4 of the European Qualifications Framework or level 35 of the International Standard Classification of Education or have five years of duly proven professional experience.
II – Other professional activities:
Administrators and managers of companies that promote productive investment, provided that they are involved in eligible projects and with contracts for the granting of tax benefits concluded under the Investment Tax Code, approved by Decree-Law No. 162/2014, of 31 October.
Further information on professions that fall under RNH is available in the following information leaflet released by the government: https://info.portaldasfinancas.gov.pt/pt/apoio_contribuinte/Folhetos_informativos/Documents/IRS_RNH_PT.pdf
Check below what is necessary for the foreigner to enroll in the Non-Habitual Resident Tax Regime:
- Be considered a tax resident in the year in which you are trying to access non-habitual resident status.
- Not having been considered a Portuguese tax resident in the previous 5 years.
- Have been in Portugal for more than 183 days, consecutive or interspersed;
- Be in Portugal on December 31st of the year in which you apply or, also on December 31st, be a crew member of a ship or aircraft based in Portuguese territory.
- Hold public office representing Portugal abroad.
The foreigner can only apply for registration to be considered RNH after having registered as a resident in the country through the issuance of the Fiscal Identification Number (NIF). The deadline for applying is March 31 of the year following registration.
According to the Portuguese Tax and Customs Authority (AT), “a citizen who is considered a non-habitual resident acquires the right to be taxed as such for a period of 10 consecutive years starting from the year, inclusive, of his registration as a resident in Portuguese territory, provided that in each of those 10 years he is considered a resident. This 10-year period is non-extendable”
Do you have any questions about the Portuguese tax system or want to know how to declare taxes in the country? Expert in the global market, Drummond Advisors has a team specialized in all tax obligations in Portugal. Get in touch with us, we’ll be happy to help!
Written by Aline Ribeiro, Communication Consultant at Drummond Advisors