Personal Income Tax in Portugal

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Personal Income Tax in Portugal

Disclaimer: Tax law is complex and every effort has been made to offer information that is current, correct and clearly expressed. The information in this summary is intended to be no more than a general overview of the position and certain details have been deliberately omitted. The contents of this page should not be taken as an authoritative statement of Portuguese tax law and practice. Neither the author nor the publisher is responsible for the results of actions taken on the basis of information contained in this summary, nor for any errors or omissions. This text is not intended to render legal, accounting or tax advice. Readers are encouraged to seek professional advice concerning specific matters before making any decision.

• The tax system in Portugal is administered by the Portuguese Tax Authority (Direcção-Geral dos Impostos)

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 inscrição) 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)
• 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.

Residents

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.

Non-residents

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.

Other Taxes

There is currently no wealth tax in Portugal.

The transfer of assets located in Portugal during the donor's life (gifts) or after the donor's death (inheritances) is taxed by the same tax – stamp duty.

Gifts and inheritances are subject to a tax rate of 10 percent (if real estate is transmitted as a gift, there is also a tax of 0.8 percent). However, if the transfer of the property is made during the donor's life the spouse, ascendants and descendants are exempt from stamp duty and only have to pay 0.8 percent of the real estate value.

Further Information

• Direcção-Geral doe Impostos Portuguese Tax Authority (in Portuguese)

Information provided by F.Castelo Branco & Associates 
Av. Da Liberdade 249 1º, 1250-143 Lisbon
Tel: 213 587 500 / Website: www.fcb-legal.com / e-mail
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