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If you’re moving to Portugal or earning income here, understanding how Personal Income Tax (IRS) works is essential. This guide gives you a clear, straightforward overview of the tax rates, rules, and key points foreigners need to know, so you can handle your Portuguese taxes with confidence.
The Portuguse Tax System
According to the Portugal’s tax system, resident individuals in Portugal must pay income tax on their worldwide income, while non-residents are only taxes on income sourced within Portugal.
A person is consider a resident in Portugal if they spend more than 183 days (whether consecutive or not) in the country. And during a given calendar/tax year or maintain a place of abode in a manner that suggests habitual residence.
Typically, the obligation for income tax in Portugal begins on the first day of stay in the country and ends on the last day of stay.
Types of Portuguese Income
In Portugal, residents are taxed on six main types of income. Each category has its own rules and tax treatment, so it’s important to understand how your earnings are classified:
- Employment Income (IRS)
- Corporate or Business Income (IRC)
- Dividend Income
- Interest Income
- Rental Income
- Capital Gains
1. Personal Income Tax (IRS)
Portugal’s IRS ranges from 13% to 48%, applied progressively as income increases. Taxpayers can also benefit from various deductions, helping reduce their taxable income and overall tax bill.
2. Business Income (IRC)
In Portugal, business income earned through a company is taxed under the corporate tax system (“Imposto sobre o Rendimento das Pessoas Coletivas” – IRC) at a standard rate of 20% on taxable profits. Some small and medium-sized enterprises may also benefit from reduced rates on part of their taxable income if they meet the qualifying criteria.
For smaller operations, sole traders and businesses with annual revenue below €200,000 can choose the simplified regime, where tax is based on turnover instead of profit, making the process easier and more efficient.
3. Dividend Income Tax
Dividend income refers to the share of a company’s profits paid out to its shareholders. In Portugal, residents are generally taxed at a flat 28% on dividends. However, this doesn’t always have to be the final rate.
Depending on your situation, you may benefit from double tax treaties that reduce the tax burden, or you can opt to have your dividends taxed under the progressive IRS rates, which may be advantageous for some taxpayers.
4. Interest Income tax
Interest income covers the money you earn from sources like savings accounts, bonds, fixed-term deposits, or other lending arrangements. In Portugal, this type of income is usually taxed at a flat 28% for residents.
However, just like with dividends, you’re not locked into that rate. Taxpayers can choose to have their interest income taxed under the progressive IRS brackets, which can be beneficial if their overall income places them in a lower tax range.
5. Portugal Rental Income Tax
Many foreigners who purchase property in Portugal as an investment choose to rent it out—whether short-term or long-term—especially if they don’t plan to live in the country full-time. Rental income earned in Portugal is generally taxed at a flat 28% for individuals.
However, landlords can significantly reduce their taxable income by deducting a wide range of eligible expenses. These deductions help ensure that only the net profit from the rental activity is taxed.
Common deductible expenses include property management and real estate agency fees, repairs and maintenance, insurance premiums, local property taxes (IMI), among others.
6. Capital Gains Tax
If you’re planning to sell property in Portugal, be prepared to pay Capital Gains Tax on the profit. This applies not only to real estate but also to other assets like stocks and bonds. Both residents and non-residents are generally taxed at a flat 28%.
The good news is that there are ways to reduce or even avoid this tax. If you sell your main residence and reinvest the proceeds into another primary home in Portugal or elsewhere in the EU, you can qualify for a full exemption.
On top of that, assets held for more than two years may benefit from a 50% reduction on the taxable gain, offering an additional advantage for long-term investors.
Social Security Contribution Obligations in Portugal
Social security contributions—known as “Contribuições para a Segurança Social”—are mandatory payments made by both employees and employers to fund Portugal’s social protection system. These contributions support key benefits such as healthcare, pensions, parental leave, and unemployment support.
Employees pay 11% of their gross salary, which is automatically deducted each month. Employers must also contribute on behalf of their staff, with a rate of 23.75% applied to the employee’s gross salary. Together, these contributions ensure access to the country’s social security programs and long-term benefits.
Filing Your Tax Return in Portugal
If you live or earn income in Portugal, you’ll need to submit an annual tax return each year. The process is straightforward, and most people now file online through the Finanças Portal. For married couples and civil partners, there’s also the option to file a joint tax return, as long as both partners are residents. If one partner is a non-resident, joint filing is not allowed.
When do you submit your tax declaration?
You must declare the income earned in the previous year between 1 April and 30 June. This three-month window applies to all taxpayers, regardless of income type.
How do you file a tax return in Portugal?
Most people file online using their Finanças Portal account, but you can still submit your return in person at a local Serviço de Finanças office if needed. Many expats also choose to use an accountant—especially for more complex tax situations—with basic assistance available at accessible rates.
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Frequently Asked Questions
Who is considered a tax resident in Portugal?
A person is deemed a tax resident if they spend more than 183 days in Portugal in any given calendar year or maintain a place of abode indicating habitual residence.
What is the tax year for Personal Income Tax in Portugal?
The tax year aligns with the calendar year, and individuals are required to file their annual tax return by June 30th.
What are the progressive tax rates for residents in Portugal?
Tax rates for residents vary from 14.5% to 48%, depending on the level of income.
Are non-residents taxed differently?
Yes, non-residents are subject to specific tax rates, such as 25% on certain types of income like wages and 28% on investment income and net rental income.
Are there any tax deductions available for individuals in Portugal?
Yes, deductions from taxable income are available for expenses related to health, education, social security, and pension plans, among others.
How is capital gains tax treated in Portugal?
Capital gains on the disposal of real estate are subject to tax, with exemptions available for certain circumstances, such as reinvesting in another main residence.
Can married couples file joint tax returns in Portugal?
Yes, married couples and life partners have the option to file joint tax returns, except in cases where one spouse is a non-resident.
What is the deadline for paying Personal Tax in Portugal?
The deadline for income tax payment is typically August 31s
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