Taxes for immigrants in Portugal in 2024: How to reduce your tax burden

Important changes in the Portuguese tax regulations have taken place since the beginning of this year. These changes concern foreigners relocating to Portugal in particular. If you are thinking of making such a move too, you have to acquaint yourself with the new regulations and figure out how you could save on taxes because these are comparatively high in Portugal. Below we discuss general characteristics of the Portuguese tax system and speak about the recent changes in it. The text should be of interest to those who are contemplating relocating to Portugal.

Portuguese fiscal system

The personal income tax rate is progressive in Portugal, which means that the more you earn the more you pay in taxes. The fiscal year starts on January 1 and ends on December 31 and the tax returns need to be filed between April and June of the next year.

Portugal taxes its fiscal residents’ global income. That is, you have to pay taxes in Portugal regardless of the country where you make an income if you are a fiscal resident of the country. At the same time, Portugal has signed a large number of double taxation avoidance agreements with other countries, which means that your income is not going to be taxed twice.

Fiscal residents and non-residents of Portugal

Your fiscal residence or non-residence of Portugal has a direct bearing on your tax obligations in the country. As a rule, you are considered a tax resident in Portugal if you live in the country for more than 183 days per year or if you have a house or an apartment there. If you do, your global income is taxed in Portugal.

The surest way of reducing your taxes in Portugal is not becoming a fiscal resident of the country even though there are other ways to achieve this goal too. Non-residents are taxed only on their incomes made in Portugal be it salaries, business, or lease agreements. Please note that non-residents are taxed at a fixed rate of 25% on their incomes from Portuguese sources.

Main taxes that immigrants to Portugal have to know about

The main taxes that immigrants have to pay in Portugal are the following ones: personal income tax, corporate income tax, VAT, and property tax.

Personal income tax

Every person who has an income in the form of salary, pension, dividends, etc. has to pay a personal income tax in Portugal. The tax rates vary between 14.5% and 48% depending on the amount of income.

Corporate income tax

If you are the owner of a business company in Portugal, you have to pay a corporate income tax. The standard tax rate is 21% in the country but there are some exceptions. Small businesses and businesses working in the autonomous region of Madeira enjoy certain tax benefits.  

VAT

The VAT is a consumer tax that is levied on goods and services. In Portugal, the standard tax rate is 23% but reduced rates of 13% and 6% are applied for certain groups of goods and services. The VAT rates are also lower in Madeira.

Property tax

Property tax is also payable in Portugal and the rate is between 0.3% and 0.45% of the property value. The exact rate depends on the gross value of the property.

End of NHR opportunity

Until recently, foreigners were able to apply for the Non-Habitual Resident (NHR) status in Portugal that gave them tax benefits. They could pay less in taxes for the first ten years of living in Portugal. This opportunity has been gone since January 1, 2024. However, those who acquired the NHR status before this date are still eligible for tax benefits for 10 years from the date of acquiring the status. For instance, if you became a non-habitual resident of Portugal in December 2023, you can pay taxes at reduced rates until December 2033.

Tax incentives for immigrants involved in scientific research and innovative activities in Portugal

Even though the Portuguese authorities have dismantled the NHR program, they have introduced some new tax incentives for foreigners. Since January 2024, you can qualify for reduced tax rates if you meet one of the following criteria:

  1. 1- Hold a position or engage in business operations in one of the autonomous regions of Portugal: Madeira or the Azores. The local authorities determine the exact tax conditions for foreigners working in the regions.
  2. 2- Work as a university instructor, conduct scientific research, work for Portuguese organizations engaged in arts and science, or for technological and innovative centers.
  3. 3- Have a skilled job or hold a position in the management of a company where highly qualified specialists work.
  4. 4- Hold a position in a company that makes investments in certain areas of the economy, that is involved in certain technological areas or that has been exporting more than 50% of its produce during the last two years.
  5. 5- Hold a position in a company that is recognized by AICEP or IAPMEI (state investment agencies in Portugal) as a company significant for the Portuguese economy or as a company contributing to lessening the regional asymmetry in the economic development.
  6. 6- Hold a position in a company engaged in research and development if the areas of research are of especial interest for the Portuguese economy.
  7. 7- Hold a position in the management of a company that has been certified as a startup (startups receive special support in Portugal and there is even a Startups Act in the country).

Foreign nationals who meet any of the requirements described above and who become tax residents of Portugal beginning 2024 will qualify for a tax cut. In particular, they will be taxed at a fixed rate of 20% of their salary or their commercial income for 10 years if they conduct their activities in the areas preferential for the development of the Portuguese economy. Their work in these areas may be paused but the pause shall not exceed 6 months. If a foreign national leaves Madeira or the Azores or if he or she stops working for an institution of one of the types listed above, he or she will cease to be eligible for tax reduction.

In addition to the reduced tax rate, qualified foreigners are exempted from certain taxes on their global incomes. The sources of income include salaries, rental pay, and capital gains derived in countries other than Portugal. Please note, however, that the tax exemption is not applicable to pension money. Besides, income obtained in a country that is qualified as a tax haven in Portugal is taxed at the rate of 35%.  

Even though we have to bid farewell to the NHR opportunity, Portugal offers some new tax incentives to foreigners because the country is highly interested in attracting qualified specialists from abroad as well as foreign capital.

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