Portugal taxes individual income at progressive rates that reach 48% plus surcharges, except that it offers a special regime to new residents, which during 10 years may effectively exempt them from tax on non-Portugal-sourced income.
Disclaimer: The overview that follows is a generic summary is relation to which Belion Partners make no representations or warranties. It is not advice, should not be treated as such, and you must not rely on it as an alternative to legal advice or to the relevant legislation.
TAX RESIDENCE AND LIABILITY TO INCOME TAX
Resident individuals are liable to income tax on their worldwide income and non-residents on their Portugal-sourced income only. A person is deemed resident in Portugal either if more than 183 days (whether or not consecutive) are spent in the country in any given calendar/tax year, or if a place of abode is kept in the country in a way that indicates its use as a habitual residence. As a rule, the liability to income tax starts on the first day of stay in the country and ceases on the last day of stay, there being a few exceptions.
COMPLIANCE AND DEADLINES
The tax year for personal income tax purposes is the calendar year and the deadline for filing the annual tax return is May 31st extendible to December 31st in case there was foreign income. The deadline for the payment of income tax is August 31st.
Married couples and life partners have the option to file a joint tax return, unless one of the spouses is non-resident, in which case the latter only has to file a return if he/she owns property in Portugal or has Portuguese source income. Filing a joint tax return may be beneficial in the event the total income of the couple may benefit from a lower tax rate when divided by two.
INCOME TAX RATES
Non-Residents
Except for exemptions or reduced rates applicable under a double taxation agreement, non-residents are taxed at either 25%, on wages, fees, royalties, commission, pensions and certain indemnity compensations, or 28% on investment income and net rental income.
Resident Individuals
Taxable income falls into the following 6 categories: employment, business and professional, investment, real estate, net capital gains and pension income. Income is generally taxed at progressive rates, except for some types, which may be taxed autonomously (not contributing to the tax bracket computation) at flat rates, notably investment income and net capital gains from the disposal of securities, generally taxed at 28%.
In the computation of income tax some deductions from taxable income up to certain (relatively low) limits are available, such as expenses in connection with health, education, social security and pension plans; and certain tax credits are applicable in connection with marital status, number of dependants and overall level of income.
On the disposal of real estate only 50% of the capital gain is subject to tax, at the normal progressive rate, except where the property is one’s main residence and the sale proceeds are used to buy another main residence in the EU (or in an EEA member country that is a signatory to a tax information exchange agreement), in which case the gain is tax exempt.
A 50% exemption of income from patents and industrial designs applies under certain circumstances.
Except in the case of “non-habitual residents”, 5 progressive rates of taxation apply in 2017, the income tax brackets being as follows:
EXEMPTIONS AND REDUCTIONS
Limited exemptions or reduced rates of taxation are available under special circumstances, such as:
SOCIAL SECURITY
Employment
Social security contributions on gross wages and fees from a resident entity are payable at 34.75% ad valorem, 11% being deducted from the wages or fees (and deductible from the taxable income) and the remaining 23.75% being payable by the employer.
Self-employment
The self-employed benefit from a cap of €1,523.45 per month in the case of a professional, or €1,788.51 in that of a sole trader, which is respectively calculated as 29.6% or 34.75% of 12 times the IAS (the social support indexer), which is currently €428.90 per month. For people that fit into a bracket of up to 6 times IAS, some exemptions may apply. The way contributions on income derived from services rendered by a self-employed professional or a sole trader are calculated is as follows:
Resident individuals are liable to income tax on their worldwide income and non-residents on their Portugal-sourced income only. A person is deemed resident in Portugal either if more than 183 days (whether or not consecutive) are spent in the country in any given calendar/tax year, or if a place of abode is kept in the country in a way that indicates its use as a habitual residence. As a rule, the liability to income tax starts on the first day of stay in the country and ceases on the last day of stay, there being a few exceptions.
COMPLIANCE AND DEADLINES
The tax year for personal income tax purposes is the calendar year and the deadline for filing the annual tax return is May 31st extendible to December 31st in case there was foreign income. The deadline for the payment of income tax is August 31st.
Married couples and life partners have the option to file a joint tax return, unless one of the spouses is non-resident, in which case the latter only has to file a return if he/she owns property in Portugal or has Portuguese source income. Filing a joint tax return may be beneficial in the event the total income of the couple may benefit from a lower tax rate when divided by two.
INCOME TAX RATES
Non-Residents
Except for exemptions or reduced rates applicable under a double taxation agreement, non-residents are taxed at either 25%, on wages, fees, royalties, commission, pensions and certain indemnity compensations, or 28% on investment income and net rental income.
Resident Individuals
Taxable income falls into the following 6 categories: employment, business and professional, investment, real estate, net capital gains and pension income. Income is generally taxed at progressive rates, except for some types, which may be taxed autonomously (not contributing to the tax bracket computation) at flat rates, notably investment income and net capital gains from the disposal of securities, generally taxed at 28%.
In the computation of income tax some deductions from taxable income up to certain (relatively low) limits are available, such as expenses in connection with health, education, social security and pension plans; and certain tax credits are applicable in connection with marital status, number of dependants and overall level of income.
On the disposal of real estate only 50% of the capital gain is subject to tax, at the normal progressive rate, except where the property is one’s main residence and the sale proceeds are used to buy another main residence in the EU (or in an EEA member country that is a signatory to a tax information exchange agreement), in which case the gain is tax exempt.
A 50% exemption of income from patents and industrial designs applies under certain circumstances.
Except in the case of “non-habitual residents”, 5 progressive rates of taxation apply in 2017, the income tax brackets being as follows:
- If one's annual income is less than €7,091, it will be taxed at 14,50%;
- If between €7,091 and €10,700, at 23% less €602.74;
- If between €10,700 and €20,261, at 28,50% less €1,191.24;
- If between €20,261 and €25,000, at 35% less €2,508.20;
- If between €25,000 and €36,856, at 37% less €3,008.20;
- If between €36,856 and €80,640, at 45% less €5,956.68;
- If higher than €80,640, at 48%, less €8,375.89, plus a surcharge of 2.5% on the slice of income between €80,640 and €250,000, and a surcharge of 5% on the slice of income that exceeds €250,000.
EXEMPTIONS AND REDUCTIONS
Limited exemptions or reduced rates of taxation are available under special circumstances, such as:
- The regime applicable to some payments from insurance companies;
- The "non-habitual residence regime"; and
- Income that benefits from a double taxation agreement, of which Portugal has signed 79.
SOCIAL SECURITY
Employment
Social security contributions on gross wages and fees from a resident entity are payable at 34.75% ad valorem, 11% being deducted from the wages or fees (and deductible from the taxable income) and the remaining 23.75% being payable by the employer.
Self-employment
The self-employed benefit from a cap of €1,523.45 per month in the case of a professional, or €1,788.51 in that of a sole trader, which is respectively calculated as 29.6% or 34.75% of 12 times the IAS (the social support indexer), which is currently €428.90 per month. For people that fit into a bracket of up to 6 times IAS, some exemptions may apply. The way contributions on income derived from services rendered by a self-employed professional or a sole trader are calculated is as follows:
- The contribution is calculated on the basis of the relevant income, which is 70% of the value of services rendered in the previous year.
- The relevant income divided by 12 gives us the contribution bracket;
- The social security contribution is then payable on the multiple of IAS that corresponds to the contribution bracket, either at 29.6% (plus 5% by a resident employer) in the case of a self-employed professional, or 34.75% in that of a sole trader
For instance, with an annual self-employment income as a sole trader of €60,000, one would be at the 9th bracket (60,000*70%/12), paying the monthly contribution of €1,129.34.
People who are 66 or older are entitled to an old age pension and may request an exemption from Social Security contributions on self-employment income if their occupational pension from private employment is compatible with carrying out a self-employment activity.
OTHER RELEVANT TAXES ON INDIVIDUALS
In Portugal there is no capital duty or wealth tax, and an inheritance or gift received by the spouse, a descendant or an ascendant is tax exempt, there being otherwise stamp duty at the rate of 10%. Real estate is subject to an annual municipal tax and to tax on the transfer of property, except for qualifying rehabilitated property.
People who are 66 or older are entitled to an old age pension and may request an exemption from Social Security contributions on self-employment income if their occupational pension from private employment is compatible with carrying out a self-employment activity.
OTHER RELEVANT TAXES ON INDIVIDUALS
In Portugal there is no capital duty or wealth tax, and an inheritance or gift received by the spouse, a descendant or an ascendant is tax exempt, there being otherwise stamp duty at the rate of 10%. Real estate is subject to an annual municipal tax and to tax on the transfer of property, except for qualifying rehabilitated property.
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