Tax guide for Americans in Portugal

Thinking of moving to Portugal? You're not alone. With its stunning scenery and deep-rooted culture, it's no surprise that expats from all over the world are choosing to call Portugal home.

But before you settle in, it's important to understand the tax system - not only to stay compliant but also to avoid paying more than necessary.

Overview of Portugal

Who has to pay taxes in Portugal?

Portugal taxes residents and non-residents, but the rules differ depending on your status.

• Residents must declare their worldwide income - even if it's earned outside Portugal.
• Non-residents pay tax only on income from Portuguese sources (such as local employment or rental income).

Some expats may also qualify for the Non-Habitual Resident (NHR) program, which offers tax benefits. The first step is to determine whether you are considered a resident for tax purposes.
You must file a tax return if you:

• Earn more than €7,112 per year from employment.
• You are self-employed or run a business.
• Receive rental income from property in Portugal.
• Receive dividends, interest, or capital gains.
• Receive a pension, including foreign pensions (if you're a resident).

How to determine tax residency

Your tax residency status determines what income you must report and where you must pay tax. If you're planning to live or work in Portugal, it's important to know whether you're a resident or non-resident.

Portugal resident qualifications

You'll be considered a tax resident in Portugal if you meet at least one of these conditions:

• You're in Portugal for 183+ days in a tax year (they don't have to be consecutive).
• You own or rent a home in Portugal and use it as your main residence.
• You work on a ship or aircraft based in Portugal or carry out public duties abroad for Portugal.

Non-resident qualifications in Portugal

If you spend 183 days or less in Portugal in a tax year, you are considered a non-resident for tax purposes and are only taxed on income earned in Portugal.

Non-residents are taxed at a flat rate, which may be higher than the progressive rates for residents.

Qualifications for Non-Habitual Residency in Portugal

Portugal's Non-Habitual Resident (NHR) program offers tax breaks to expats, retirees, and professionals moving to Portugal. It's designed to attract foreign talent and investment by reducing the tax burden for 10 years.
To qualify for the Non-Habitual Resident Program, the following conditions must be met:

1. Not have been a tax resident in Portugal for the last five years.
2. Become a tax resident by staying 183+ days or having a permanent home.
3. Apply for NHR status upon arrival or by December 31 of the following year.

Types of taxes in Portugal

Portugal has several taxes that residents and non-residents must be aware of, including income tax, social security, capital gains, inheritance, and property taxes.

Income tax is the most significant, with residents taxed at progressive rates (13% to 48%) on worldwide income and non-residents taxed at a flat 25% on income earned in Portugal. The Non-Habitual Resident (NHR) program offers special tax benefits to eligible expats.

Here's how Portugal's income tax system works based on residency.

2025 Resident income tax rate in Portugal

Portugal has a progressive income tax system for residents, meaning that the more you earn, the higher the tax rate applied to your income. As of 2025, the tax brackets will be as follows:

NOTE! A solidarity tax of between 2.5% and 5% applies to taxpayers earning more than €80,000 per year. 

Non-resident income tax rate in Portugal

Non-residents in Portugal are taxed only on Portuguese source income at a flat rate of 25% for most income, including employment and business income.

However, certain types of income may be taxed differently or at lower rates. For example:

• Dividends and interest: 25%.
• Rental income: 10%-28% (varies depending on circumstances)
• Real estate capital gains: 28%
• Retirement Income: 25%

Non-Habitual Resident income tax rate in Portugal

The NHR program offers 10 years of tax benefits, making Portugal attractive to expats, professionals, and retirees.

Key NHR benefits:

• 0% flat tax on Portuguese income for certain highly qualified professionals (doctors, engineers, artists).
• Foreign income (pensions, dividends, royalties) may be exempt from Portuguese tax.
• Foreign pensions are taxed at a flat rate of 10% (US government pensions remain taxable only in the US).

Filing a tax return in Portugal

Both residents and non-residents are required to file a tax return if they meet certain income thresholds. Understanding deadlines, filing options, and penalties is key to staying compliant and avoiding fines.

When to file a tax return

The tax year in Portugal runs from January 1 to December 31, and tax returns are due from April 1 to June 30 of the following year.

How to file a tax return

1. Obtain a NIF (tax identification number): Register with the tax authorities.
2. Gather documents: Income statements, deductions, and foreign tax certificates.
3. File online: File your tax return through the Portal das Finanças. 

Penalties for late or incorrect filing

• Late filing. Fines range from €25 to €3,750, plus interest on unpaid taxes.
• Errors or omissions. This may result in fines, with higher penalties for negligence or fraud.
• Providing false information. This can result in severe fines and legal consequences.

Other taxes in Portugal

In addition to income taxes, Portugal has several other taxes that expats and residents should be aware of. These include taxes on self-employment, consumption (VAT), wealth, and inheritance. Understanding these taxes can help you plan your finances and avoid unexpected liabilities.

Self-employment taxes in Portugal

If you're self-employed in Portugal, you must pay income tax and social security contributions.

• Income tax: Taxed under category B at progressive rates (up to 48%).
  Simplified regime. A fixed percentage of income is taxed (75% for most services).
  Organized accounting. Required if income exceeds €200,000/year.
• Social Security: Contributions are 21.4% of taxable income, with partial exemptions for new businesses.

Pro tip: Expats should check if they qualify for NHR tax exemptions on foreign income.

Corporation tax

Corporations in Portugal pay corporate income tax at a standard rate of 21% on profits. Small and medium-sized companies may qualify for a reduced rate on a portion of their taxable income.

Value Added Tax

VAT (IVA) is levied on goods and services in Portugal, with rates varying by region:

Wealth tax in Portugal

Portugal's AIMI tax applies to high-value real estate, not total assets. It applies to properties worth more than €600,000 for individuals and €1.2 million for couples.

• 0.7% on properties above the threshold
• 1% on values over €1 million
• 1.5% on properties over €2 million

Some exemptions apply, such as business properties and long-term rental properties. If you own high-value property, it's important to review your tax obligations.

Inheritance tax in Portugal

Portugal's inheritance tax system is simple and favorable for expats and retirees. Immediate family members (spouse, children, and parents) pay no tax on inherited assets.

Other beneficiaries are subject to a 10% stamp duty on real estate, bank accounts, and other assets. Some exemptions apply, including life insurance payouts and, in certain cases, inheritances received by non-residents under tax treaties.

Portugal property tax

Portugal levies several taxes on the ownership, purchase, and transfer of real estate:

• IMI (Annual Property Tax). Paid annually based on the taxable value of a property: 0.3% to 0.45% for urban properties and 0.8% for rural properties. Vacant properties may have higher rates.
• IMT (Property Transfer Tax). Paid by buyers when purchasing real estate. Rates range from 0% to 6% for primary residences, 1% to 8% for secondary residences, and 5% for rural properties. Homes under €97,064 may be exempt.
• AIMI (Property Tax). This applies to properties worth more than €600,000, as discussed above.

Crypto tax in Portugal

Portugal no longer fully exempts crypto gains from taxation.

• Short-term gains (held less than one year) are taxed at 28% for non-residents and progressive rates (up to 48%) for residents.
• Long-term gains (held over one year) may be tax-free for residents.
• Crypto earned as income (mining, staking, or payments) is taxed according to income tax rules.
• Buying and selling crypto remains VAT-exempt under EU regulations.

Social Security in Portugal

Social security contributions are mandatory and fund health care, pensions, and unemployment benefits. Employees pay 11% of their salary, while employers contribute 23.75%.

US expats may be exempt from paying contributions if they continue to contribute to the US system, thus avoiding double payments.

The Tax Treaty between the US and Portugal

The US-Portugal tax treaty helps expats avoid double taxation by allowing US citizens in Portugal to claim foreign tax credits for Portuguese taxes paid. Likewise, Portuguese residents with US income can offset their US tax obligations.
The treaty determines which country taxes certain types of income:

• Employment income: Taxed where the work is performed.
• Pension income: Taxed in the resident country (Portugal’s NHR program may apply a 10% tax rate).
• Dividends, interest, and royalties: May be taxed in both countries, but withholding rates are reduced.

For dual residents, tie-breaker rules determine tax residency based on permanent residence, financial interests, or nationality.

Totalization Agreement between the US and Portugal

The US-Portugal Totalization Agreement prevents duplicate social security contributions and ensures that expats receive benefits from both systems.

Key benefits:

• Avoid double payments. US expats working in Portugal can continue to pay into US Social Security and be exempt from Portuguese contributions (and vice versa) for up to five years with a certificate of coverage.
• Combine contributions. Work history from both countries can be combined to qualify for Social Security benefits.
• Coordination of benefits. Contributions are not lost and retirement or disability benefits are fairly calculated.

Most popular tax forms for US expats

US expats in Portugal must file certain tax forms to comply with US tax laws.

1. Form 1040: Required for all US citizens, reporting worldwide income. Expats may claim the Foreign Earned Income Exclusion (Form 2555) or Foreign Tax Credit (Form 1116) to avoid double taxation.
2. FBAR (FinCEN 114): Must be filed if foreign financial accounts exceed $10,000 at any time.
3. Form 8938 (FATCA): Required for foreign assets exceeding $200,000 for expats abroad.
4. Form 8833: Filed if US-Portugal tax treaty benefits are claimed.

Portugal tax forms for US expats

In addition to US tax forms, American expats in Portugal will need to understand Portuguese tax forms, especially if they earn income in Portugal or become tax residents.

The most important Portuguese tax forms include:

1. Modelo 3: The main individual income tax return covering employment, business, and investment income.
2. Anexo G & G1: Used to declare capital gains from the sale of property, shares, or other assets.
3. Anexo H: Declares deductions and tax benefits, such as health, education, and household expenses.
4. Anexo J: Declaring foreign income (pensions, rents, interest, and dividends), is important for NHR beneficiaries.
    

Unlocking more opportunities in Portugal

1. A crucial part of living, working, or doing business in Portugal is obtaining a Portuguese NIF (Número de Identificação Fiscal), also known as a tax identification number. This number is used in all interactions with the Portuguese tax authorities and is required for a wide range of activities, including opening a bank account, signing a contract, buying or selling property, or setting up a business.

2. Once you have your Portuguese NIF, proper tax planning is the next essential step.
Portugal Taxes Certified Accountants (CPA's) and tax advisor specialize in personalized tax advice, planning, and filing services.
From Non-Habitual Residency (NHR) to corporate taxes, they help navigate the complexities of the Portuguese tax system.
Ensure you're fully compliant while optimizing your tax situation. Visit Portugal Taxes for expert support tailored to your needs!

3. The Portugal Golden Visa program is a popular option for non-EU citizens who want to live and work in Portugal. It offers a fast track to obtaining a residence permit in Portugal through investment, such as buying real estate, creating jobs, or making a capital transfer. Working with a Portugal Golden Visa lawyer can be extremely beneficial in navigating this process.

This article was revised on 06 Nov 2024 by Pedro Gaudencio from Portugal Taxes

Disclaimer
This article is for informational purposes only and does not constitute legal advice. Always consult with a tax professional for your specific circumstances.