The good news for retirees looking to relocate to Portugal is that pension distributions and foreign income are not taxed in Portugal. The bad news is that if you are a U.S. citizen, you will be taxed by the folks back home.
Taxes on income earned in Portugal are subject to a progressive tax ranging from 14.5% on the first 7,000 euros to 48% on income above 80,000 euros. An additional surcharge of 3.5% has been levied for the past few years, as well as a progressive 2.5% “solidarity surcharge” on income above 80,000 euros that increases to 5% on income above 250,000 euros. A long list of tax allowances can be deducted, including a general deduction, health expenses, life and health insurance and education expenses.
Portugal has double tax treaties with both the United States and Canada, meaning any taxes you do end up paying in Portugal can in certain circumstances be used to offset tax obligations in one’s home country.
The standard rate of corporate income tax is 25%.
Anyone who has not been resident in Portugal for the previous five tax years is entitled to obtain residence under the Non- Habitual Resident law, which entitles most people to receive pensions and foreign income tax-free for 10 years. The law also provides for reduced taxation on intellectual property, interests, dividends and other capital gains.
To qualify for the NHR regime, an individual must reside in Portugal 183 calendar days, either consecutive or not, in the year of application and subsequent years. Applicants must also, by December 31st of the year they apply, have a permanent residence in Portugal and demonstrate the intention of using it as their primary home.
Also under the law, the personal income tax rate for any work conducted in or billed from Portugal by professionals included on a list published by the government (including company directors, accountants, IT professionals, engineers, architects, people in the medical profession etc.) is capped at 20% (plus those extraordinary surcharges). The procedure to register as a NHR involves registering with a local tax office and providing simple supporting information.
Portugal has no inheritance tax; if you rent a property you will also not be liable for any wealth taxes. Annual property taxes are levied on real estate, however.
Sales tax (Imposto sobre o Valor Acrescentado – IVA) is charged nationally, based on the type of product or services. IVA rates are high, ranging from some zero-rated services to 6% for basic products and 23% at the highest tier. IVA is included in all products and services. However, due to the high rates, some service providers do not issue a formal IVA-compliant receipt unless specifically requested to do so.
Tax returns are reasonably easy to complete online, although there are limitations on the state’s computer system and online availability near the start or end of submission periods. It is recommended that you seek assistance from a professional tax adviser or accountant for your first tax return. Thereafter, with some support from the Ministry of Finance’s informative and multi-lingual online portal, you should be able to complete the annual return.
Foreigners taking advantage of Portugal’s popular Golden Visa program also benefit from reduced income tax rates. Income earned in Portugal is taxed at a flat 20% for holders of the visa, and dividends, interest, and capital gains are tax-free. The qualify for the visa, immigrants must buy property worth half a million euros or more, invest 1 million euros in the country or start a local business that creates at least 10 jobs.
Applicants need only stay in the country 7 days during the first year and 14 days in subsequent two-year periods, and family members are allowed to tag along. The initial permit is valid for five years, after which applicants can apply for permanent residence. After six years they can apply for full Portuguese citizenship