Portugal’s individual income tax, refers to as “Imposto sobre o Rendimento das Pessoas Singulares” (IRS). Also this is levi on income from diverse sources, encompassing employment, self-employment, pensions, and investments. The Portuguese income tax system follows a progressive scale, featuring different tax brackets and rates ranging from 14.5% to 48%.
Tax Residence Concept
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.
Personal Income Tax Portugal
To effectively understand Portugal’s tax rates, it’s crucial to differentiate between non-residents and resident individuals. The tax obligations, rates, and applicable rules vary significantly base on an individual’s residency status.
Portugal Tax Rate for Non-Residents
Non-residents in Portugal are subject to specific tax rates, without considering any exemptions. Or reduce rates outlined in a double taxation agreement. The applicable rates vary depending on the nature of the income:
- 25% Tax Rate for Wages, Fees, Royalties, Commission, Pensions, and Certain Indemnity Compensations:
- 28% Tax Rate for Investment Income and Net Rental Income:
It’s important to note that these rates are generally applicable, and any exceptions or reductions outline in a double taxation agreement would take precedence.
Portugal Tax Rate for Residents
In Portugal, taxable income is divide into six main groups: employment, self-employment income, investment income. And also real estate income, net capital gains, and pension income. Generally, the taxation of these incomes follows a progressive rate structure. However, certain types of income, such as investment income and net capital gains from the disposal of securities. And may be subject to autonomous taxation at a flat rate of 28%, bypassing the standard progressive rate.
In Portugal, the progressive income tax system permits deductions from taxable income, including expenses related to health, education, social security, and pension plans. Moreover, specific tax credits are available based on marital status, the number of dependents, and the overall level of income.
In the context of real estate transactions in Portugal, only 50% of the capital gain is subject to tax at the regular progressive rate. However, certain exemptions apply, especially when the property being sold is the seller’s main residence. If the sale proceeds are uses to acquire another main residence in the EU, the capital gain becomes tax exempt. Additionally, individuals ages over 65 or those who are retire may qualify for a capital gains exemption if the sale proceeds are reinvested in an insurance contract, an open pension fund, or a capitalization public scheme.
Personal Income Tax Rate
Double Taxation Agreements with Portugal
The international Double Taxation Agreement (DTA), also known as a Double Taxation Treaty (DTT) or Double Taxation Convention (DTC), is an agreement between two countries that aims to prevent double taxation of income or assets that may arise when a taxpayer resides in one country but earns income or holds assets in another country.
Establishing residence in Portugal means that all income earn by third-country nationals may be subject to taxation, leading to double taxation (both Portugal and the income source country have, presumably, the right to tax).
This situation can only be avoid through the double tax treaties celebrate between countries. A foreign national from a country that sign a tax treaty with Portugal will see his foreign-source income benefit from lower withholding tax.
Portugal has enter into DTAs with several countries around the world to eliminate double taxation and promote economic cooperation (see below).
Social security contributions, known as “Contribuições para a Segurança Social,” are mandatory payments make employees and employers to find social security benefits in Portugal.
The contributions provide access to healthcare, pensions, unemployment benefits, and other social welfare programs.
Employees in Portugal contribute to social security at a rate of 11% of their gross salary. This amount is automatically deduct from their monthly wages, helping fund social security programs and services.
Employers also have a responsibility to contribute to social security on behalf of their employees. The employer’s contribution rate is 23.75% of the employee’s gross salary. This contribution is separate from the employee’s deduction and is paying directly by the employer to support the social security system.
Annual Tax Return: Personal Income Tax Portugal
The personal income tax year in Portugal aligns with the calendar year, and individuals are require to file their annual tax return by June 30th. This deadline can extend to December 31st, especially if there is any foreign income, upon request. The deadline for income tax payment is August 31st.
For marriage couples and life partners, there is an option to file a joint tax return, except when one of the spouses is a non-resident. In such cases, the non-resident spouse is only obligate to file a return. And if they own property in Portugal or have a source of Portuguese income. Opting for a joint tax return can advantageous, particularly when the combination income of the couple results in a lower tax rate when divide by two. This option allows couples to potentially benefit from a more favorable tax outcome.
Tax audits in Portugal
Tax audits are conduct by the Portuguese Tax Authority to verify the accuracy and compliance of taxpayers’ tax returns and financial records. Audits can random selection or triggered by specific risk factors or anomalies identified by the tax authority. During an audit, tax officials may request additional documentation, perform on-site inspections, and conduct interviews to assess the taxpayer’s compliance with tax regulations.
It is important to maintain accurate records and ensure transparency in tax-related matters to minimize the risk of tax audits.
Penalties for tax non-compliance
Failure to comply with tax filing and payment obligations in Portugal may result in penalties and interest charges. Penalties can vary depending on the severity of the non-compliance, including late filing, late payment, or failure to report income accurately. It is essential to meet the tax deadlines and ensure accurate reporting to avoid unnecessary penalties and potential tax audits.
Additional Taxes on Individuals
Additional Taxes on Individuals” typically refer to extra levies or charges imposed on individuals beyond the regular income tax. These supplementary taxes may vary base on specific circumstances or transactions, and they are designs to fund particular government programs, services, or initiatives.
Portugal Inheritance Tax
In Portugal, there is no specific inheritance tax, known as “Imposto sobre as Sucessões e Doações,” impose on the transfer of assets to beneficiaries upon an individual’s death. Unlike some other countries, Portugal does not levy a tax base on the value of the inherited assets or the estate left behind. Instead, Portugal applies stamp duty, known as Imposto do Selo, which is a tax on certain legal acts and documents, including property transfers.
Value Added Tax (VAT)
The Value Added Tax (VAT) regulations in Portugal align with the guidelines established by the European Union (EU):
Reduced Rate (6%): This rate is applied to specific goods and services deemed essential or falling within categories that warrant a lower level of taxation. Examples may include certain food items, water, medical supplies, and cultural events.
Intermediate Rate (13%): Goods and services that do not qualify for the reduced rate but are not subject to the standard rate fall into this category. This rate, at 13%, is typically applied to items such as certain food and beverages, agricultural supplies, and other specified goods and services.
Standard Rate (23%): The general VAT rate in Continental Portugal is 23%, and it applies to most goods and services. This includes a broad range of products and services that do not fall under the reduced or intermediate categories.
Property Transfer Tax (IMT)
The Municipal Property Transfer Tax (IMT) is a tax imposes on property transactions, such as the purchase or transfer of real estate in Portugal. IMT is a one-time tax paid by the buyer of the property and is calculated based on the purchase price or the property’s market value, whichever is higher. The IMT rates range from 1% to 8% for residential properties and can reach up to 6.5% for commercial properties.
Municipal Property Tax (IMI)
The Municipal Property Tax (IMI) is an annual tax imposes on the ownership of real estate properties in Portugal. The tax is levied by local municipalities and is based on the taxable value of the property.
The taxable value is determined by the Portuguese tax authority (AT). And takes into account factors such as the property’s location, type, size, and market value. The rates typically range from 0.3% to 0.45% for urban properties and 0.8% for rural properties. Municipalities have the autonomy to establish their own IMI rates within the legal limits.
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We know Portugal. Due to our extensive local knowledge, we believe that concentrating our services in a single country destination is the best way to give you the most thorough and useful information.
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Frequently asked questions on Personal Income Tax Portugal
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 31st.