Expatriate tax - Portugal

It is mandatory that the employers of non-EU nationals apply to the Portuguese Labour Authorities for a work permit prior to the employment of an expatriate in Portugal. Thus, an expatriate’s employment contract should account for all potential tax issues and be fully prepared before it is considered by the Portuguese Labour Authorities.

Under the work permit procedure, a non-EU national applying for a Residence Working Visa with the Portuguese Labour Authorities must attach a copy of his contract and any proof of qualifications for the job exercise, if required in Portugal. A non-EU national is also required to obtain a labor certificate from a Labor Authority (IEFP, I.P.), so he can complete all legal procedures and start working in Portugal.

You can request two types of visas, temporary or residence. Temporary visas have a maximum duration of 1 year and may be extended, at maximum, up to an identical period. However, if the employee wants to be established permanently in Portugal, he can request for a residence visa. The visas for family, spouse or children cannot exceed the period of the employment visa.

Nevertheless, an EU expatriate does not have to complete the legal steps mentioned above.

The Portuguese tax year runs from 1 January to 31 December.

For 2023 (regarding income from 2022), the deadline to file the Portuguese Income Tax (PIT) return is from 1 April to 30 June 2023. The return must be submitted by electronic transmission.

Taxpayers are obliged to indicate the tax identification numbers for their dependents for the purpose of tax deductions and benefits.

Income tax rates – 2021

Income obtained in 2022, is subject to a solidarity surcharge of 2.5% for income between 80,000 euros and 250,000 euros and a 5% rate for income above 250,000 euros.

Personal tax deductions may apply to Portuguese tax residents based on their individual tax circumstances.

Income is subject to Portuguese tax when the income arises in Portugal and the taxable amount will be determined by an individual’s tax residency status.

A resident of Portugal is taxed on his worldwide income for the period of residency. A non-resident of Portugal is taxed on Portuguese sourced income only.

Exposure to Portuguese tax will be determined by the expatriate's residence and domicile status.

Tax residence in Portugal is determined by the expatriate's actual presence within a tax year. The expatriate will be treated as a Portuguese resident when the individual:

• spends 183 days or more in Portugal in any 12-month period, or
• stays less than that period in Portugal but on December 31, lives in Portugal and intends to continue to do so (eg owns a dwelling in Portugal).

In both cases, it is important to note that once an individual becomes a Portuguese tax resident, his/her family (ie the spouse and dependent children) will also become Portuguese tax residents.

If the spouse does not meet the conditions discussed above related to tax residency and is able to prove that there is no connection between the majority of his/her economic activity and the Portuguese territory then he/she can be treated as non-resident and is subject to taxation only for the income obtained in Portugal.

In this case the expatriate will file a tax return only with his/her Portuguese income and his/her part of the total family income.
Besides the above, the expatriate could opt to be considered as a non-habitual resident in Portugal, if the individual meets the following conditions:

• The individual must be a tax resident in Portugal, according to the criteria discussed above; and
• The individual must not have been taxed in Portugal as resident in the past five years.

The non-habitual residents may be able to have income earned from employment or self-employment exempted from tax (if the income is derived from work in scientific or technical professions of high value) so long as that income is subject to effective taxation by the State of source of that income, under the terms of the DTA between Portugal and the respective State of source.

In addition, passive income earned abroad will be exempt from taxation if the income is not considered to be obtained in Portugal, the source state is not on the black-list, and the income was subject to taxation at the source State.

The tax regime applicable to the non-habitual residents in Portugal may be utilised for a period of ten consecutive years.

Any employment income derived from duties performed in Portugal is subject to Portuguese income tax.

Income from employment includes all forms of remunerations as salary, wages, commissions, gratuities, overtime premiums bonuses, benefits in kind and other accessory fixed or variable remunerations of contractual nature or not.

Additionally, the expatriate's employer is required to deduct the Portuguese payroll withholding tax from the assessable employment income.

As mentioned above, where duties are performed in Portugal, any remuneration received for carrying out these duties is treated as Portuguese sourced income and subject to Portuguese income tax regardless of the expatriate's tax residency status (subject to any relevant Double Taxation Agreement (DTA)).

In general, benefits in kind are subject to Portuguese tax (for example, in order for the provision of a car to be taxable as income to the employee it is necessary that a written agreement attributing the benefit to the employee exists). Therefore, housing, meal allowances, provision of a car, and relocation allowances are subject to Portuguese income tax in addition to the individual's salary. In the case of health or life insurance, these benefits can be exempt if they are offered by the employer to most of its employees based on objective and identical criteria for all employees.

The only expatriate concessions available are with respect to diplomatic missions and cooperation agreements with other countries.

Where income has been simultaneously subject to tax in Portugal and in a foreign jurisdiction, relief will always be granted by the Portuguese Tax Authorities in a manner similar to what is provided for in the relevant DTA (around 80 are included in the Portuguese net treaty).

Certain expenses that may be covered by an employer will not be subject to income tax up to a certain amount (e.g. meal and travel allowances).

Limits will vary depending on the total amount that may be deducted from taxable income as well as the use of tax benefits contained in the Tax Benefits Law. These limits also vary depending on the level of taxable income.

Capital gains are deemed to be the difference between the gains and the losses realised in the same year on the same type of assets (real estate property, shareholding, etc.).

In the case of real estate property, capital gains earned by Portuguese tax residents will be taxed only on 50% of the amount and are subject to the progressive rates (from 14.5% up to 48.0%, plus solidarity rate) depending on the level of income of the taxpayer.

It must be stressed that capital gains obtained on selling immovable properties located outside Portugal are also subject to Portuguese personal income tax. Nevertheless, certain tax treaties allow capital gains to be taxed in the country where the good is located, therefore those capital gains are not subject to Portuguese taxation.

Non-residents who have obtained capital gains from a sale of Portuguese property are subject to a flat rate of 28%.

In both cases, if 24 months have elapsed between the date of the acquisition and the date of the sale of the property then the acquisition price can be adjusted by a coefficient to reflect accumulated inflation.

Capital gains arising from the disposal of shares are subject to a flat rate of 28%. This is applicable to Portuguese tax residents and non-residents.

Inheritance tax has been abolished as of 1 January 2004. In some cases (not involving transmission from parents to sons and vice versa), this tax was replaced by the stamp tax at the rate of 10% and is applicable to the transmission of all types of assets.

Dividends, interest, and other types of financial income are subject to taxation once they become due or are assumed to be due or when they are at the holder’s disposal. Such income is in many cases subject to withholding tax, which is always a final tax for non-residents.

It is important to note that dividends paid by Portuguese Companies to Portuguese tax residents, if aggregated with all other income, are taxed only up to 50% of their total amount. In this case, it is mandatory to aggregate all other financial income even if it is subject to a flat rate. Otherwise, dividends are subject to a flat rate of 28%.

IMI (Municipal Property Tax) - same rules as for IMT (see "Real Estate Tax") are also applicable to IMI, which only considers immovable properties located in Portugal.

Tax rates are 0.8% for non-urban properties and between 0.3% and 0.45% for urban properties.

IMT (Real Estate Transfer Tax) - Any immovable property located in Portugal is subject to IMT, whether purchased by a resident or not.

The purchase of urban property for dwelling purposes is not subject to IMT for values up to Euro 93,331. For higher values, rates can go up to 7.5%.

The purchase of non-urban property is taxed at a 5% rate and an urban property purchase is taxed at a 6.5% rate.

Where duties are performed in Portugal, generally a charge to Portuguese Social Security (PSS) will arise. The expatriate will be treated as an employee and subject to PSS at 11%. The employer will also be required to contribute 23.75% of the relevant income and benefits to PSS.

A new Social Security Contributions Code went into effect on 1st January 2011, which expanded the basis of the contributions and aligned the Social Security legislation more closely with the Personal Income Tax Law (IRS). Traveling expenses, representation expenses, personal use of the car, transport expenses, compensation due upon contract termination are now subject to taxation. There are some specific provisions of the Personal Income Tax Law based on which Social Security contributions are calculated.

Certain changes included in the Social Security Law were postponed with no fixed date for when they will go into effect, namely the provision regarding different employer’s contribution rates (which currently stand at 23.75%), according to the kind of the employment contract. This deferral includes an increase of the contribution rate by 3 percent (to 26.75%) for fixed-term employment contracts and the reduction of the contribution rate by 1% (to 22.75%) for permanent employment contracts.

PSS must be collected at the source along with payroll taxes.

Where the expatriate is transferring from an EU jurisdiction and holds the relevant documentation an exemption to PSS will apply.

Where the expatriate is transferring from a jurisdiction outside the EU with which Portugal holds a Bi-Lateral Agreement and the expatriate holds the relevant documentation an exemption to PSS will apply.

Where the expatriate is transferring from a jurisdiction that does not fall into one of the above categories, the PSS rules will determine their tax liability.

Stock options can be taxed in the following circumstances:

• At the moment of acquisition - if the price of acquisition benefits the employee vis a vis third parties; or
• At the moment when the option is exercised or when the stock is sold or the employee renounces the right of such option in favour of the employer, if a gain is obtained (i.e. whenever there is a difference between the price of exercising or alienating such right and the price of the stock).

The Portuguese law considers the employee’s income to be inclusive of the benefits or privileges conferred by the employer to any of the employee’s family members.

There is no wealth tax in Portugal.