Understanding Tax in Portugal for Expats

Moving to Portugal comes with many benefits, from its warm climate to its high quality of life. However, it’s essential for expats to understand the country’s tax system is essential to ensure they meet their obligations and make the most of available tax advantages.

Whether you are working, retiring, or investing in Portugal, knowing how tax residency, income tax rates, and double taxation agreements apply to you can help you plan effectively. This guide outlines the key aspects of taxation in Portugal, so you can navigate the system with confidence.

Understanding tax residency in Portugal is crucial for expats, as it determines how much of your income will be subject to Portuguese taxation. Your residency status will affect whether you are taxed only on income earned in Portugal or on your worldwide income.

Since tax residency affects your obligations both in Portugal and in your home country, it’s advisable to check double taxation agreements (DTAs) and seek professional tax advice to optimise your situation.

You are considered a tax resident in Portugal if you meet either of the following criteria:

Even if you don’t meet these criteria, the Portuguese tax authorities could still assess you as a tax resident based on your main economic and personal ties to the country. For example, if you work for the Portuguese state, you will be considered a tax resident, regardless of which country you work in.

Becoming a tax resident in Portugal means you will be subject to Portuguese income tax on your worldwide earnings, not just income earned within the country. As such, you will need to submit an annual tax return to the Portuguese tax authorities.

As a tax resident, you may be eligible for the Non-Habitual Resident (NHR) scheme, which can offer significant tax advantages.

If you move to Portugal partway through a tax year, you might qualify for split-year treatment, which will mean you are only taxed as a resident for the portion of the year that you meet the residency criteria. This can impact your tax liabilities and potential benefits under Portuguese tax law.

Understanding Portugal’s income tax system is essential for expats, as it determines how both your local and international earning are taxed. Tax rates vary depending on residency status, income type, and eligibility for special programmes such as the Non-Habitual Resident (NHR) scheme.

Portugal operates a progressive income tax system, meaning the more you earn, the higher the tax rate you pay. For 2025, the tax brackets are:

An additional solidarity tax applies to high earners, with a 2.5% rate on income between €81,199 and €250,000 and 5% on income above €250,000

Tax residents are taxed on worldwide income, meaning earnings from employment, pensions, rental properties, or investments outside Portugal must be declared.

Non-residents are taxed only on Portuguese-sourced income, typically at a flat rate of 25%.

Double taxation agreements (DTAs) are in place between Portugal and other countries, and are designed to prevent individuals from being taxed twice on the same income. These agreements will outline where different types of income should be taxed and often provide tax relief in either Portugal or the expat’s home country.

Portugal has DTAs with over 70 countries, including the UK, the US, Canada, and most EU nations. The way these agreements work depends on the specific country’s treaty, but they typically follow one of three approaches. Under the exemption method, income will be taxed only in the country where it is earned. The credit method will allow income to be taxed in both countries but enables the country of residence to grant a tax credit for taxes paid abroad. Some DTAs also impose reduced tax rates, which ensure that specific types of income, such as dividends or pensions, will be taxed at a lower rate in one of the countries.

For employment income, DTAs generally state that tax is due in the country where the work is performed. However, if an individual stays for less than 183 days in a tax year and meets other conditions, their income might only be taxable in their home country.

Pension income is treated differently depending on the agreement. Some treaties allow pensions to be taxed only in the country of residence, while others tax them at source.

Rental income is usually taxed in the country where the property is located, but a tax credit may be available in Portugal. Dividends, interest, and royalties also fall under tax treaties, with many agreements reducing tax rates when these payments are made across borders.

To avoid double taxation and benefit from treaty provisions, expats in Portugal will need to first determine their tax residency and ensure they are classified correctly under Portuguese law. You’ll need to obtain proof of your tax residency, such as through a residency certificate from the Portuguese authorities.

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You‘ll then need to file the necessary forms with the tax authorities. Many tax treaties will require you to submit forms in both countries to claim the benefits. You’ll need to declare all your income on your tax return, regardless of whether it’s liable to have tax paid on it.

Expats in Portugal must submit an annual tax return, known as the IRS, through the Portuguese tax authority, Autoridade Tributária e Aduaneira. The Portuguese tax year runs from 1 January to 31 December, with the filing period taking place between 1 April and 30 June for income earned in the previous year. Any tax owed must typically be paid by 31 August.

If you fail to submit your tax return on time, you could see a fine of €200, up to €2,500. If you’re late paying your fine, you could face a further fine of 10% of the amount owed, up to double the total amount, with a cap of €55,000. However, this will vary depending on the specific situation.

Portugal’s tax system can be complex, especially for expats managing income from multiple countries. It can be best to consult with a tax specialist who has expertise in Portuguese and international tax laws, to help ensure you stay compliant, maximise tax benefits, and avoid any unexpected liabilities. A professional adviser will be able to provide tailored guidance on residency rules, double taxation agreements, and any available tax relief schemes that apply to your situation, which can make the process smoother and more efficient.

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