An introduction to taxes in Portugal

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Taxes in Portugal

Please note that this article is over six months old. While Blevins Franks takes care to make sure that information is accurate on the date of publication, some content may change over time. You should not rely on the accuracy of legislation and tax information in this article; take professional advice for your circumstances.

Taxes in Portugal are much kinder than in some other parts of Europe and a big incentive to UK nationals who are looking to retire abroad.

Here, we provide a summary of taxation in Portugal – and the tax benefits it offers – for those who are thinking of moving there or have already relocated.

Non-habitual residence

By far, one of the more tax-attractive incentives to make a move to Portugal is the non-habitual residence (NHR) regime. If you have not been a resident of Portugal in the last five years, you can apply for NHR at your local tax office and receive an entire decade of tax relief.

Being registered as a non-habitual resident will allow you to take most of your foreign income, certain capital gains, interest and dividends tax-free for the first ten years you are living here. UK government service pensions and rental income will remain taxable in the UK. Residents who are employed or self-employed in ‘high added value’ professions will also benefit from a flat income tax rate of 20%.

Note that since 2020, the NHR regime includes a flat 10% tax on foreign pension income, including lump sum withdrawals – however this still compares very favourably to the usual income tax rates, particularly for those with higher incomes.  If you registered under non-habitual residency before April 2020, you continue to receive pension income tax-free for the ten-year period.

Portuguese income taxes

The income tax you are liable for very much depends on your residential status. If you are a resident in Portugal, worldwide employment earnings, pension, rental, and most other income will be calculated across the whole year for your tax bill. For non-residents of Portugal, only income sourced from Portugal will be taxable here, although you will still likely be liable to pay tax in the source country for all other income.

The income tax scale rates range from 14.5% to 48%, across nine income bands:

Taxable income €Tax rate %
0 – 7,11614.5%
7,116 – 10,73623%
10,736 – 15,21626.5%
15,216 – 19,69628.5%
19,696 – 25,07635%
25,076 – 36,75737%
36,757 – 48,03343.5%
48,033 – 75,00945%
75,009 +48%

A key exception is investment income, such as interest, shares, securities and bonds, which attract a flat rate of 28%. Portuguese resident can opt to pay tax at the scale rates instead if that works out cheaper for you.

The rate increases to 35% if the bank account or investment is within a jurisdiction classed as a ‘tax haven’.

Learn more about Portuguese income taxes by downloading our free tax guide.

Taxes on capital gains in Portugal

One key change introduced as part of the 2022 budget is that, with effect from January 2023, short-term capital gains (i.e., gains derived from assets held for less than one year) will be taxable as income. They will be added to your other income for the year and taxed at the scale rates above, if your income exceeds €75,009 in the year, including these capital gains. Thankfully, this particular rule will not be introduced until 1st January 2023.

This also applies to gains from tax havens, increasing the rate from 35% to 48% (or up to 53% if the income is over €250,000).

Life insurance policies will not specifically be affected by these new measures, as you have the option to elect for a flat 28% tax on your withdrawals.

The tax rules on capital gains are pretty generous for Portuguese residents. Only half of the revenue from the sale of real estate is liable to tax, and you will receive inflation relief after owning the property for two years. There are also exemptions available, so it is worth seeking financial advice from a cross-border tax specialist.

There is no tax on gains from selling precious metals or digital currencies like Bitcoin. However, a series of transactions may suggest that a seller is actively trading, causing the tax authority to challenge.

Generally speaking, capital gains are dealt with on a “first in, first out basis” in Portugal. This means, for example, if you bought shares on different dates which you then sell together, you are considered to have sold the oldest shares first when calculating the gain (the base cost being whatever the price was on the date of purchase).

Fiduciary structures in Portugal

One of the main provisions introduced in the latest budget is regarding fiduciary structures. If the value of a fiduciary structure is comprised of 50% or more from Portuguese real estate, capital gains tax will apply upon disposing of the physical site where the property is located.

If a corporate entity manages a fiduciary structure, residence will be determined based on where management and primary control of the structure take place.

These rules provide extension and clarity to the indirect capital gains rules introduced in 2018.

Wealth tax on high-value property in Portugal

Portugal’s Adicional Imposto Municipal Sobre Imóveis (AIMI) continues to apply to high-value property in Portugal. However, you will only be liable for this tax if your stake in the property is above the value of €600,000 and can only be taxed on any amount above this figure.

Inheritance and gift tax

Inheritance tax in Portugal only applies to property and assets inherited or gifted outside the direct family and remains fixed at 10%. This is another tax benefit of living in Portugal, though UK nationals should note that they may well remain liable to UK inheritance tax.

Ideally, you should seek specialist tax planning advice before moving to Portugal to ensure you are fully aware of all opportunities available to you. However, even if you have already made Portugal your home, regularly reviewing your financial planning will ensure everything is optimised for your family’s goals and long-term security.

Taxes in Portugal – take advice tailored to your circumstances

Ideally, you should seek specialist tax planning advice before moving to Portugal to ensure you are fully aware of all opportunities available to you. However, even if you have already made Portugal your home, regularly reviewing your financial planning will ensure everything is optimised for your family’s goals and long-term security.

Blevins Franks has been providing a holistic financial service for more than 45 years, helping UK nationals make the most of their retirement and have financial peace of mind for living in Portugal.

Contact us today.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

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