The deadline for submitting income tax returns in Portugal is approaching on 30 June 2024. This marks the final date for declaring all income from the 2023 tax year, including pensions, capital gains, and rental income.
Portuguese tax residents must include all worldwide income in their annual tax return declarations, as Portuguese law requires. With increasing global tax scrutiny and enhanced transparency measures in Portuguese legislation regarding high-value accounts, it is crucial to comply accurately with these requirements.
So, what needs to be declared, and what can taxpayers expect regarding their tax liability?
Tax Rates in Portugal
For the 2023 tax year, Portugal has nine income tax brackets. The tax rate begins at 14.5% for annual income up to €7,479 and reaches up to 48% for income exceeding €78,834.
| INCOME € | TAX RATE |
| 0 – 7,479 | 14.5% |
| 7,479 – 11,284 | 23% |
| 11,284 – 15,992 | 26.5% |
| 15,992 – 20,700 | 28.5% |
| 20,700 – 26,335 | 35% |
| 26,335 – 38,632 | 37% |
| 38,632 – 50,483 | 43.5% |
| 50,483 – 78,834 | 45% |
| Over 78,834 | 48% |
Please note that the above figures are representative of the rates for income received/earned in 2023.
An additional ‘solidarity tax’ of 2.5% applies to income between €80,000 and €250,000, and 5% on income over €250,000.
Investment income, including interest, shares, securities, and bonds, is taxed at a flat rate of 28%, though residents have the option to be taxed at the standard scale rates. Income derived from ‘tax havens,’ such as Jersey, Gibraltar, and the Isle of Man, is taxed at a fixed rate of 35%.
Capital gains on property are taxed at the standard income tax rates. However, residents may qualify for exemptions and receive a 50% relief on capital gains after owning the property for two years.
UK and Foreign-Source Income
As a Portuguese tax resident, you are required to declare all UK and other foreign income in Portugal, regardless of whether tax is paid in the source country or no tax is due under the NHR regime.
Certain income types that do not attract Portuguese taxation but still need to be declared include UK government service pensions, to overseas rental income for Non-Habitual Residents. Under the NHR regime, income and gains from UK real estate are taxed only in the UK; for other residents, these gains are liable in both countries. The UK/Portugal tax treaty provides tax credits in this situation, but you pay whichever amount is higher.
Conversely, UK pensions and investment income such as bank interest, dividends, ISAs, and Premium Bond winnings are taxable solely in Portugal for residents here. Besides gains on the sale of UK shares, many of these income sources can typically be received tax-free under the NHR regime.
All worldwide income is considered when calculating your total tax liability in Portugal, whether it is taxed in Portugal or not, which may place you in a higher income tax bracket.
Joint Returns
By default, taxpayers in Portugal are assessed individually. However, married couples or those who have been living together for at least two years and are both tax residents of Portugal can opt to file a joint tax return. In this case, the combined income is divided by two, and the relevant tax rate is applied to each half-share. The resulting tax liability is doubled to determine the total taxable income. This approach can be tax-efficient, particularly when one partner earns significantly more than the other.
If one spouse is a resident of Portugal and the other is not, they must file separate returns. The resident spouse should report their worldwide income on their Portuguese tax return, while the non-resident spouse should only report income arising in Portugal.
Taxes for Non-Habitual Residents (NHR)
Individuals who qualify for the NHR special regime and work in recognised ‘high value’ professions in Portugal are taxed at a flat rate of 20% on employment income. Non-habitual residents also benefit from tax exemptions on most foreign-source income, including pensions, rental income, interest, dividends, and capital gains on real estate.
As of December 31, 2023, the Non-Habitual Resident (NHR) scheme is no longer open to new applicants. However, individuals who currently hold NHR status will continue to benefit from the regime, and those who were in the process of applying can complete their applications this year, if they meet the qualifying conditions.
The NHR scheme is being replaced by an employment-based program aimed at attracting international professionals for specific roles, including teaching and scientific research. Under the new scheme, qualifying individuals will be subject to a flat tax rate of 20%.
Learn more about the end of NHR and the tax benefits still available to you.
Payment of Tax Owed
The final payment of your Portuguese tax bill is due within 30 days of the assessment date issued by the tax office. However, if your income is taxable in both Portugal and another country, and qualifies for double taxation relief (such as gains on UK real estate), the deadline may be extended. If the other country has not yet assessed the final tax liability, payment can be delayed until 31 December.
Global Tax Scrutiny
Under the Common Reporting Standard (CRS), numerous countries are sharing taxpayer information, allowing Portuguese tax authorities to automatically receive data on taxpayers’ overseas assets and income. Countries like Spain and France have already begun investigating undeclared foreign income from British nationals, and Portugal is expected to follow suit.
In addition to automatic information exchange, Portugal has enacted a tax avoidance bill requiring banks to inform the tax office of any accounts valued over €50,000, increasing transparency significantly. Failure to submit accurate and timely returns can result in severe penalties.
Cross-Border Taxation
Cross-border taxation is highly complex. It is advisable to seek specialist advice to avoid errors or excessive tax payments. For assistance with completing your tax return, consult a tax accountant.
For guidance on effective tax planning in Portugal, Blevins Franks is the leading cross-border tax and wealth management specialist. We can help you achieve favourable tax treatment while ensuring you meet your tax obligations both in Portugal and the UK.
Contact Blevins Franks today.
