Taxes in Portugal, why is it a good idea to invest in Portugal?
Portugal is a developed, safe, peaceful and an excellent place for foreign investors to bring their money, thanks to the numerous tax exemptions which aim to facilitate foreign investment, but first it is necessary to understand the Portuguese tax system in order to understand its exemptions and what benefits they bring.
An individual will be considered a tax resident in Portugal if he/she meets any of the following criteria: (i) has stayed more than 183 days, whether consecutive or not, in Portugal in any 12-month period beginning or ending in the relevant fiscal year; or (ii) has a dwelling and there are a series of circumstances that allow the assumption of the intention to keep it and use it as a habitual residence on any day of the mentioned period.
The sliding income tax scale in Portugal ranges from 14.5% to 48%.
| Taxable income | Rate (%) | |
| From € | Up to € up to € | |
| 0 | 7.112 | 14,5% |
| 7.113 | 10.732 | 23 |
| 10.733 | 20.322 | 28,50 |
| 20.323 | 25.075 | 35 |
| 25.076 | 36.967 | 37 |
| 36.968 | 80.822 | 45 |
| More than 80,822 | 48 | |
For residents of Portugal, everyone’s employment income, pensions, rents and most other income for the year are added together to calculate their income tax bill.
It should be noted that, for those who are married, there are worthwhile tax benefits. This spousal benefit consists of averaging the income of both spouses, i.e., if one earns 110,000 euros and the other earns 10,000 euros, the taxes will be calculated as if they were two people earning 60,000 euros each. This is very favorable for those couples in which one of the two earns a lot of money, or the other has little income, or does not work.
Once we have calculated the tax base and the resulting amount according to the progressive tax rate scale, this amount is reduced according to the tax credits.
What are tax credits?
Tax credits are miscellaneous items that directly reduce the amount payable to the Portuguese tax authorities for income taxes. Some of the most important tax credits are as follows:
- 35% of the family’s general expenses, with a maximum of 250 €.
- 15% of medical expenses, with a maximum of 1,000 €.
- 30% of educational expenses, with a maximum of 800 €.
- 15% of rental expense, with a maximum of 502 €.
- 15% of the VAT expense in restaurants, workshops and hairdressing salons, with a maximum of 250 €.
The Specific Tax Regime for Non-Habitual Residents (RNH) which, in practice, acts as a tax exemption applicable to the vast majority of foreign-source income. To request the application of the RNH regime, Portugal has adopted a rather lax approach based on the fulfillment of two conditions: (i) the first requirement is that the applicant has not been considered a tax resident in Portugal in the five years prior to the time he/she establishes his/her residence in Portugal; (ii) the second is that he/she deserves to be considered a tax resident in Portugal in a given year according to the general residence criteria.
Since 2009, this special regime allows non-habitual residents to pay a single rate of 20% on all income obtained in Portugal, regardless of the amount earned. This allows a high income to pay a rate similar to that paid by a low income, and the fact that income received from abroad is exempt from taxation, makes this model highly attractive, working as follows:
- 0% on income received from outside Portugal, such as investments in other countries.
- 10% on the money we have received or withdrawn from our pension plan
- 20% of the income we have received from our investments in Portugal, or of our salary if we are employees, provided that our profession is one of those considered “high added value”.
Once the non-habitual tax resident status is acquired, this favorable regime is maintained for a period of 10 consecutive years. It must be requested to the Portuguese tax authorities, which will decide on a case-by-case basis, after an evaluation procedure.
Another great benefit in Portugal is that there is no wealth tax as such, nor inheritance and gift tax in the case of children or spouses, so in this case there is no transfer tax. But if the recipients of those assets are persons who are not children or spouses of the donor, a 10% transfer tax on those assets is payable.
Why is it a good idea to invest in Portugal?
With all that we have just mentioned, we can assure that the fiscal panorama is highly attractive for foreign investment, since it offers numerous opportunities for taxation in a more comfortable way, but remember to seek advice from a lawyer with knowledge of Portuguese tax law to ensure that you avoid future inconveniences.
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