Paying 2017-2018 income tax in Portugal? Read this.
Taxes. They’re not everybody’s idea of fun - but understanding your responsibilities is essential. If you get it wrong, you could end up being fined, or even facing criminal charges.
Paying income taxes might feel especially complicated if you’re an expatriate. You’re paying your tax in a different country, under an unfamiliar system, and possibly with a language barrier to contend with, too. And you could be in for an especially tough time working out what you owe - and where - if you’re a cross-border commuter, a non-resident foreigner living in a different country for a short while, or a freelance or remote worker.
This overview of the Portuguese income tax system is a great starting point. However, tax is a complex legal area, and it’s important that you understand your own personal situation. If you think you might need to pay tax on some or all of your income in Portugal, getting professional advice to work out exactly what you owe, might be a good idea.
What income is taxable in Portugal?
This depends a bit on whether you’re considered to be a tax resident in Portugal, or not. To keep everything straight, you have to register with the tax authorities before you do any work in Portugal. You’ll need to complete a fiche de inscricao form, and hand it to the tax authorities, so they have a record and can contact you to arrange your tax declaration.
If you’re a tax resident in Portugal you’ll have to pay tax on your worldwide income to the authorities in Portugal. This will include any income from work, but can also cover other sources like rental income.
If you’re not a tax resident in Portugal, you still have to pay some tax there. Usually though, this is charged at a different rate to resident taxes, and will only be due on money you’ve earned in Portugal.
There are also special taxation rates fixed for capital gains and investment income, so you’ll have to declare this on your tax return, too.
(Source, 5 December 2017)
Who has to pay income tax in Portugal?
How you’re taxed depends on your personal circumstances. Importantly, you’ll be classified as one of the following:
- A resident taxpayer
- A non-resident taxpayer
- A non-habitual resident taxpayer
Resident income tax
In Portugal, the tax year is the same as the calendar year - 1 January through to 31 December. You’re a resident taxpayer if you’ve lived in Portugal for at least 183 days - half of the year in question. This can be either all in one stretch or made up of several visits to the country.
You might also be considered to be a resident for tax purposes if you own or maintain a home which is intended to be your main residence, on 31 December of the tax year, or if the main earner in your household is a tax resident in Portugal.
In this case, you have to pay tax on any income you make anywhere in the world, to Portuguese authorities.
(Source, 5 December 2017)
Non-resident income tax
If you live in Portugal for less than 6 months of the tax year, you might get non-resident tax status for that year. In that case, you pay tax in Portugal only on what you’ve earned there. However, you might still be liable for taxes wherever you were resident for the rest of the year.
If you’re a foreigner working just part of the year in Portugal, or if you moved there as an expat part of the way through the tax year, then you might be non-resident for that particular year. Don’t forget, in Portugal the tax year is the same as the calendar year.
Non-habitual resident income tax
The category of NHR was created in 2009 to try to attract high earning professionals who might otherwise be put off from working in Portugal because of the relatively high tax rates.
If you qualify for this status, you get certain tax exemptions and you’ll be taxed on your earnings at a fixed rate of 20%, known as the Personal Income Tax (PIT) rate, instead of the steeply rising progressive rate that is usually applied. You could be eligible for the PIT rate for up to 10 years - but only if the work you’re doing is deemed to be adding value somehow to the Portuguese economy.
(Source, 5 December 2017)
In what instances do Portuguese residents working abroad need to pay income tax?
If you live in Portugal, but work abroad for some of the year, it’s a good idea to check what your tax liabilities are.
If you work abroad for less than six months and live in Portugal for the rest of the time, you probably still have to declare all your earnings for that tax/calendar year in Portugal. You’ll still be considered a tax resident, and so have to pay tax on all of your worldwide income in Portugal.
However, the situation gets more complicated if you’re abroad for longer than that. Spend 183 days or more away from Portugal and you might be considered a non-resident taxpayer instead. In this case, you’ll need to pay tax in Portugal only on the income you’ve earned there. Don’t forget though, that tax residency isn’t just about which country you have spent most nights in - it’s also about your intention. If you have a main residence in Portugal, you might be considered a tax resident there even if you’re away a lot.
What are the income tax rates in Portugal in 2017-2018?
Portugal has a progressive tax system. That means that a progressively higher tax rate is applied based on how much you earn.
Here are the most recently published tax rates for Portugal:
| Income range | Portugal income tax rate (%) 2017 |
|---|---|
| up to €7,091 | 14.5% |
| €7,091 - €20,261 | 28.5% |
| €20,261 - €40,522 | 37% |
| €40,522 - €80,640 | 45% |
| more than €80,640 | 48% |
(Source 1, Source 2, 5 December 2017)
In 2017 there were also a couple of extra taxes which might be applied, depending on your circumstances. The extraordinary surtax applied to any resident taxpayers earning over €20,261, at a rate of between 0.88% and 3.21% depending on your income level. There was also an additional solidarity rate payable by high earners bringing in over €80,000. It’s important to check the relevant rules for the tax year you’re working with, as these rates could change. Take legal advice if you need clarification.
What are the tax exemptions in Portugal?
Tax is applied on taxable income only. To calculate this, you start with your entire income from wages, rental income and so on, and remove any relevant deductions and tax credits. The system is quite complicated - but some of the most common of these deductions are listed below.
You might also be eligible for other tax breaks depending on your personal situation. To be eligible for any of these allowances you have to include them on your tax declaration.
General allowance and deductions
There are some deductions you can immediately take off your income when you’re calculating your taxable income. There’s a general tax-free allowance which is currently just over €4,000, then you can also deduct some of your social security contributions, and a fixed rate for family expenses, food and business travel. However, the details of the system are somewhat complex, and all of these deductions are subject to limits, so you’ll need to make sure you’re clear on what exactly you can deduct from your taxable income legally.
Trade union fees
You can deduct up to 150% of the trade union fees you pay from your taxable income.
Donations to charity
You can remove a certain percentage of donations to charities and similar institutions from your taxable income, as long as you have receipts and proof of payment.
Other deductions
There are a number of other, specialist deductions which won’t apply to everyone. For example, you can reduce your taxable income in some cases, if you’re maintaining a property from which you draw rental income, if you’re paying for education, or if you accrue medical expenses. This goes to show that it’s worth really understanding the tax system before you complete your declaration.
(Source, 6 December 2017)
What are the tax penalties in Portugal?
If you don’t get your tax declaration in on time, you could be liable to a fine. The fines for being late with your tax declaration start at €200, but go all the way to €2,500.
And it gets worse if you forget to pay your taxes on time. The late payment penalties are pretty scary too - from 10% of whatever you’re found to owe, to double the total amount. It’s an expensive mistake to make.
( Source, 5 December 2017)
What sort of double taxation agreements are there with Portugal?
It’s possible to be liable to pay tax in 2 countries. If you’re a cross-border commuter, for example, the country in which you earn most of your money may want you to pay them tax - even if you don’t always live there.
Luckily, to make sure that people don’t actually get charged twice, many countries have double taxation agreements. These help to ensure that you only pay tax once on your earnings, so if you pay tax in one country, it’s offset against the bill you might face in the other.
Portugal has double taxation agreements with the following countries:
| Portugal double taxation agreements | |
|---|---|
| Algeria | Luxembourg |
| Austria | Macau |
| Andorra | Malta |
| Barbados | Montenegro |
| Bahrain | Mexico |
| Belgium | Moldova |
| Brazil | Morocco |
| Bulgaria | Mozambique |
| Canada | Netherlands |
| Cape Verde | Norway |
| Chile | Pakistan |
| Croatia | Panama |
| Cuba | Peru |
| Cyprus | Poland |
| Colombia | Qatar |
| China | Romania |
| Czech Republic | Russia |
| Denmark | Sao Tome and Principe |
| East Timor | Saudi Arabia |
| Estonia | Senegal |
| Ethiopia | Singapore |
| Finland | San Marino |
| France | Slovenia |
| Germany | Slovakia |
| Georgia | Sultanate of Oman |
| Greece | South Africa |
| Guinea-Bissau | Spain |
| Hong Kong | Sweden |
| Hungary | Switzerland |
| Indonesia | Tunisia |
| Ireland | Turkey |
| Iceland | Ukraine |
| India | UAE |
| Italy | UK |
| Israel | USA |
| Ivory Coast | Uruguay |
| Japan | Venezuela |
| Kuwait | Vietnam |
| Korea | |
| Latvia | |
| Lithuania |
(Source, 16 January 2018)
Should I file a tax return?
Your employer will deduct the tax and social security contributions due on your annual salary if you’re employed. However, you’ll still have to submit a tax declaration.
If you’re self-employed the system is different - you have to pay your anticipated taxes over 3 installments, based on what tax you paid in the previous year. These installments are due in July, September, and December. You then complete a tax return after the tax year is ended, and there’s another assessment process, to check if your estimated payments were correct.
You’re then notified if you owe any more money - or if the tax authorities actually have to give you back any of the cash you paid already.
(Source, 6 December 2017)
How do I pay income tax in Portugal?
The majority of taxpayers in Portugal submit their tax declaration online. This is usually far faster and easier than completing a paper declaration, although this is still possible if you’d rather send your forms in by snail mail. Employees have to get their paper declarations in during March of the year following the tax year, or they have until the end of April if they submit online. Self-employed people have to the end of April to submit paper forms, and the end of May to declare tax online.
Paying income taxes online
You can pay your tax return online, through the Portal das Finanças website, but in order to access the system, you have to have a password. You can get this from the local tax authorities.
Once registered, using the online system means that you get an extension on the deadline, and can submit your tax declaration later than if you were using the paper forms.
(Source, 6 December 2017)
If you’re an expatriate paying taxes in Portugal, you might have to do so with a bank account held in a different country or currency. If you need to convert your money from a different currency to euros to cover your tax bill, it could cost you more than you think. Banks and money exchange services don’t always use the real, mid-market rate, which you’d find on Google. This can mean that the exchange rate that they offer customers has been marked up by 4-5%. The difference is their profit - and as the customer, you end up out of pocket.
A great alternative is to use Wise. Because Wise works differently to banks, you can get your money transferred quickly and safely, using the real exchange rate, and a small, upfront fee.
There’s no trickery involved. It’s possible because Wise doesn’t use the pricey SWIFT system for making bank transfers. This brings down the costs, and the savings are passed on to you. Depending on the circumstances, you might be able to pay your taxes directly using a Wise transfer, or if you don’t already have a bank account in Portugal, you could transfer the payment to a friend or family member who does, to make sure the costs are as low as possible.
If you travel often for work you might find that you regularly have to move your money between different currencies. In this case, a new Wise borderless multi-currency account could make life even simpler, and save you some money too. Hold your money in any one of dozens of different currencies - including euros - and then switch between them when you want to. You get the real exchange rate, and there’s only a small transparent fee for changing your money.
Taxes are tricky. If you’re an expatriate working abroad, a cross-border commuter or you juggle life between different countries, they can be pretty daunting. Getting it wrong can be an expensive mistake, so it’s crucial you’re clear on your options and duties when it comes to tax. Whatever you need to pay, don’t lose out because of unfair fees levied on converting the currency. Wise might be able to help you save money on cross-border transactions. See if you can get a better deal from Wise if you find yourself needing to pay your taxes abroad.
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