Portugal Taxation of Individual Income

Disclaimer: The overview that follows is a generic summary in relation to which Belion firms make no representations or warranties. It is not advice, should not be treated as such, and you must not rely on it as an alternative to legal advice or to the relevant legislation.

Resident individuals are liable to income tax on their worldwide income and non-residents on their Portugal-sourced income only. A person is deemed to be a resident in Portugal either if more than 183 days (whether or not consecutive) are spent in the country in any given calendar/tax year, or if a place of abode is kept in the country in a way that indicates its being used as a habitual residence. As a rule, the liability to income tax Portugal starts on the first day of stay in the country and ceases on the last day of stay, there is however a few exceptions to this rule.

The tax year for personal income tax purposes is the calendar year and the deadline for filing the annual tax return is June 30th extendible to December 31st if there is every any foreign income, upon request. The deadline for the payment of income tax is August 31st.

Married couples and life partners also do have the option to file a joint tax return, unless one of the spouses is a non-resident, in which case the latter only has to file a return if he or she owns property in Portugal or has a source of Portuguese income. Filing a joint tax return may be beneficial in the event that the total income of the couple may benefit from a lower tax rate when divided by two.

Non-residents

Except for exemptions or reduced rates applicable under a double taxation agreement, non-residents are taxed at either 25%, on wages, fees, royalties, commission, pensions and certain indemnity compensations, or 28% on investment income and net rental income.

Resident Individuals

Taxable income falls into the following 6 categories: employment, business and professional, investment, real estate, net capital gains and pension income. Income is generally taxed at progressive rates, except for some types, which may be taxed autonomously (not contributing to the tax bracket computation) at flat rates, notably investment income and net capital gains from the disposal of securities, generally taxed at 28%.

In the computation of income tax Portugal some deductions from taxable income up to certain (relatively low) limits are available, such as expenses in connection with health, education, social security and pension plans; and certain tax credits are applicable in connection with marital status, number of dependants and overall level of income. 

On the disposal of real estate only 50% of the capital gain is subject to tax, at the normal progressive rate, except where the property is one’s main residence and the sale proceeds are used to buy another main residence in the EU (or in an EEA member country that is a signatory to a tax information exchange agreement), in which case the gain is tax exempt. Provided the seller is over 65 years old or is retired, the capital gains made on the sale of the main residence will also be exempt if the sale proceeds are reinvested in an insurance contract, in an open pension fund or in a capitalisation public scheme. 

A 50% exemption of income from patents and industrial designs applies under certain circumstances.

Except in the case of non-habitual residents, 9 progressive rates of taxation apply in 2022, the income tax brackets being as follows:

• If one's annual income is less than €7,116, it will be taxed at 14,5%;
• If between €7,116 and €10,736, at 23,0% less €604,86;
• If between €10,736 and €15,216, at 26,5% less €980,63;
• If between €15,216 and €19,696, at 28,5% less €1,284.99;
• If between €19,696 and €25,076, at 35,0% less €2,565,21;
• If between €25,076 and €36,757, at 37,0% less €3,066.79;
• If between €36,757 and €48,033, at 43,5% less €5,455.84;
• If between €48,033 and €75,009, at 45,0% less €6,176.56;
• If higher than €75,009, at 48,00%, less €8,426,51, plus a surcharge of 2,5% on the slice of income between €80,000 and €250,000, and a surcharge of 5,0% on the slice of income that exceeds €250,000.

If you are ever in any doubt regarding any of the above then we would always recommend that you make use of a reputable Portugal salary tax calculator, or any other applicable calculators that are designed to help you make greater sense of your financial situation.

Limited exemptions or reduced rates of taxation are available under special circumstances, such as:

• The regime applicable to some payments from insurance companies;
• The "non-habitual residence regime"; and
• Income that benefits from a double taxation agreement, of which Portugal has signed 79. 
  

Employment

Social security contributions on gross wages and fees from a resident entity are payable at 34.75% ad valorem, 11% being deducted from the wages or fees (and deductible from the taxable income) and the remaining 23.75% being payable by the employer.

Self-employment

The way contributions on income derived from services rendered by a self-employed professional or a sole trader are calculated is as follows:

• The monthly contribution is calculated on the basis of the relevant income, which is 70% of the value of services rendered in the previous quarter divided by 3.
• The social security contribution is then payable either at 21.4% (plus 7% or 10% by a resident employer) in the case of a self-employed professional, or 25.2% in that of a sole trader.
• The self-employed professional or sole trade may choose to increase or decrease this monthly contribution by 25%.
• For instance, with a quarterly self-employment income of €15,000, a self-employed professional would have a monthly relevant income of €3,500 (€15,000/3*0.7), paying a monthly contribution of either €749, or €561.75 if opting for the 25% decrease, or, still, €936.25 if opting for the 25% increase.

People who are 66 or older are entitled to an old age pension and may request an exemption from Social Security contributions on self-employment income if their occupational pension from private employment is compatible with carrying out a self-employment activity.

In Portugal there is no capital duty or wealth tax, and an inheritance or gift received by the spouse, a descendant or an ascendant is tax exempt, there being otherwise stamp duty at the rate of 10%. Real estate is subject to an annual municipal tax and to tax on the transfer of property, except for qualifying rehabilitated property. 

Value Added Tax (VAT)

VAT rules follow those of the EU and the applicable rates in Continental Portugal are as follows: 6% reduced rate, 13% intermediate rate and 23% standard rate.

Other Indirect Taxes

Other indirect taxes include excise duties in line with the applicable EU directives, and taxes on alcohol, oil, tobacco and vehicles. Stamp duty is payable on acts, contracts, documents, titles, books, papers and other listed items which are not generally subject to VAT.

Other significant taxes include real property transfer tax ("IMT") and municipal annual property tax ("IMI").