Introduction
Although Portugal has ended its Non-Habitual Resident (NHR) program, it remains a relatively tax-friendly destination for expats. Understanding the current tax structure is essential for those considering residency or business opportunities in Portugal. This guide outlines the key tax considerations for expats, including income tax rates, residency requirements, and the latest changes impacting foreign residents.
Tax Rates in Portugal
Portugal's income tax rates for 2024 range from 13.25% to 48%, adjusted for inflation. Here’s an overview:
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Income Tax: Progressive rates starting at 13.25% for income up to €7,703 and capping at 48% for income above €81,199.
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Investment Income: Typically taxed at a flat 28%, although residents can choose progressive rates.
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Capital Gains: 50% of gains from property sales are taxable, with some exemptions for primary residences and retirees.
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Wealth Tax (AIMI): Applies to high-value properties.
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Inheritance Tax: Stamp duty of 10% for assets inherited outside of the direct family.
Portugal’s Non-Habitual Resident (NHR) Tax Regime
The NHR program, which allowed qualifying individuals to significantly reduce their tax liabilities on foreign-source income, officially ended for new applicants in 2024.
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Existing Participants: Those who enrolled before the closure can still benefit from the scheme for 10 years.
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Key Benefits: Exemptions on foreign income such as dividends, royalties, and rental income. Foreign pensions are taxed at a flat rate of 10%.
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Limitations: Income from Portuguese sources is taxed at a flat rate of 20%, and income from blacklisted tax havens without a double taxation treaty with Portugal is also taxable.
How to Become a Tax Resident in Portugal
To be considered a tax resident in Portugal, you must:
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Spend at least 183 days in Portugal within a calendar year, or
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Maintain a permanent place of abode in Portugal that you intend to occupy habitually.
A Portuguese taxpayer's number is required for property ownership or renting, obtained through a local tax office.
New Tax Incentive Program (TISRI)
Replacing the NHR, Portugal introduced the Tax Incentive for Scientific Research and Innovation (TISRI), sometimes referred to as ‘NHR 2.0.’ This scheme aims to attract professionals in research and innovation sectors, offering tax advantages similar to the previous NHR program.
Overview of Taxes for Expats
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Residents: Taxed on worldwide income under progressive rates.
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Non-Residents: Subject to a flat 25% tax on income sourced within Portugal.
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Capital Gains: Partial taxation on property sales, with reinvestment exemptions for primary residences.
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High-Value Properties: Subject to the municipal wealth tax (AIMI).
For US expats, the US-Portugal tax treaty helps prevent double taxation by allowing credits for taxes paid in one country to be used against liabilities in the other.
Conclusion
While Portugal’s tax landscape has become less favorable with the end of the NHR program, it still offers manageable tax rates and affordable living compared to other Western European countries. Additionally, programs like TISRI provide alternatives for specific professionals seeking tax advantages.
If you’re considering residency in Portugal or need assistance navigating its tax system, Block3 Finance can help. We provide strategic tax planning and residency guidance tailored to your financial goals. Connect with us to explore your options.
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