Portugal offers a favorable tax environment for both residents and non-residents, making it an attractive destination for individuals and businesses alike. Understanding the key taxes, from personal income tax to corporate and property taxes, is essential for anyone planning to live, work, or invest in Portugal. This guide will walk you through the most important aspects of the Portuguese tax system, helping you navigate your obligations and opportunities.
Key taxes in Portugal include income tax, corporate tax, VAT, capital gains tax, as well as property transfer and inheritance taxes. Both tax residents (those who reside in Portugal for at least 183 days per year) and non-residents have to pay taxes.
However, tax residents need to pay worldwide income tax, while those who live in the country for less than 183 days only pay tax on what they earn in Portugal.
Personal Income Tax (IRS)
Tax residents and non-residents earning Portuguese-sourced income pay the IRS on a progressive scale (14,5%-48%), with the rate depending on annual income. Non-residents are subject to a 25% flat rate on employment income derived from Portuguese sources.
Corporate Tax for legal entities
This tax is paid by all companies operating in Portugal. If the company is not a Portuguese tax resident, it pays tax only on profits earned in Portugal. The standard corporate tax rate is 21%, but in Madeira and the Azores (special economic zones), it’s approximately 14.7%. Small and medium-sized enterprises may qualify for a reduced rate of 17%.
The Value Added Tax (VAT)
Applies to legal entities providing services or selling goods. The rate varies depending on the type of goods or services and region. Usually, it is between 6% and 23%.
Tax on Dividends
Different rates are applicable: 28% for companies-residents of Portugal and 25% for companies-non-residents receiving dividends from a Portuguese company.
Stamp Duty
It is a tax placed by the government on different legal documents, usually in the transfer of assets or property. Paid by legal entities and individuals at equal rates: 5% in case of selling of a business or share, and 10% for gifts and inheritance.
Additional solidarity rate
The rate of 2.5% applies to personal income tax if the annual income exceeds €80,882, and 5% rate is levied on income over €250,000.
Capital gains tax
The tax is charged in Portugal on the sale of property or assets at a rate of 28% for individuals and 25% for legal entities and non-residents. Residents are taxed on just 50% of their capital gains.
Real estate taxes in Portugal
1. Purchase of real estate:
Property Transfer Tax
(IMT, Imposto Municipal sobre Transmissoes) a municipal tax which is paid on a single payment. The rate is changeable according to the type, location and value of the property. It is calculated by the value declared in the deeds or on the rateable value. Generally, the tax rate is between 0-8%, while for commercial property it has a flat rate of 6.5%, and for agricultural and rustic lands the rate is 5%.
Stamp Duty is paid on deeds, contracts, bank loans, documents, etc. When buying a house, you pay this tax to the notary while signing the deed of sale. The rate is 0.8%.
Notary fees and administrative expenses total 2.5% of the property’s value.
2. Other real estate taxes:
As an owner of a property in Portugal, you need to pay Immovable Property Tax (IMI, Imposto Municipal Sobre Imóveis). This tax is paid on a yearly basis, and the rate differs according to municipality. Urban property tax rates range from 0.3% to 0.5%, while properties in rural areas are taxed at 0.8%.
If you want to rent your property, as a non-resident, you must pay Rental Tax on your rental income, which is 28%. As a resident, you will pay a flat rate of 28% and you can add rental income to your other income for the year so it is taxed at the normal scale rates.
If you come to sell your Portuguese property, you could be liable to 28% Capital Gains Tax (for non-residents). EU/EEA residents can choose to pay the scale income tax rates if that proves more beneficial. You can be exempt from this tax if you use the capital from selling a main home to buy another home in Portugal or the EU/EEA area.
As for Inheritance Tax, passing on Portuguese property to any recipients other than your spouse, children or parents will incur a flat 10% Stamp Duty.
Navigating the Portuguese tax system may seem complex at first, but with the right information and guidance, it becomes manageable and even advantageous. Whether you are considering moving to Portugal, investing in property, or starting a business, understanding the tax landscape is crucial. Let RelyOn Relocation help you make the most of Portugal’s tax benefits, ensuring your financial and business goals align with the country’s regulations.