What to expect:
Resident individuals are liable to income tax on their worldwide income and non-residents on their Portugal-sourced income only. An individual is tax resident in Portugal for any year in which:
(i) He stays in Portugal for more than 183 days (continuously or not) during a 12 month period, which begins or ends in that tax year;
(ii) He has a residential accommodation available in Portugal in any day of that 12 month period, used as the individual’s habitual abode.
As a rule, the liability to income tax starts on the first day of stay in the country and ceases on the last day of stay, there being a few exceptions.
Tax Compliance and Deadlines
The tax year for personal income tax purposes is the calendar year and the deadline for filing the annual tax return is June, 30st extendible to December 31st in case there was foreign income. The deadline for the payment of income tax is August 31st.
Married couples and life partners have the option to file a joint tax return, unless one of the spouses is non-resident, in which case the latter only has to file a return if he/she owns property in Portugal or has Portuguese source income. Filing a joint tax return may be beneficial in the event the total income of the couple may benefit from a lower tax rate when divided by two.
Income Tax Rates
Except for exemptions or reduced rates applicable under a double taxation agreement, non-residents are taxed at either 25%, on wages, fees, royalties, commission, pensions and certain indemnity compensations, or 28% on investment income and net rental income.
Taxable income falls into the following 6 categories: employment, business and professional, investment, real estate, net capital gains and pension income. Income is generally taxed at progressive rates, except for some types, which may be taxed autonomously (not contributing to the tax bracket computation) at flat rates, notably investment income and net capital gains from the disposal of securities, generally taxed at 28%.
In the computation of income tax some deductions from taxable income up to certain (relatively low) limits are available, such as expenses in connection with health, education, social security and pension plans; and certain tax credits are applicable in connection with marital status, number of dependents and overall level of income.
On the disposal of real estate only 50% of the capital gain is subject to tax, at the normal progressive rate, except where the property is one’s main residence and the sale proceeds are used to buy another main residence in the EU (or in an EEA member country that is a signatory to a tax information exchange agreement), in which case the gain is tax exempt.
Except in the case of “non-habitual residents” as well as the special regime applicable to former tax residents in Portugal that will commence in 2018, 5 progressive rates of taxation apply in 2018, the income tax brackets being as follows:
If one’s annual income is less than €7,091, it will be taxed at 14,50%;
If between €7,091 and €10,700, at 23% less €602.74;
If between €10,700 and €20,261, at 28,50% less €1,191.24;
If between €20,261 and €25,000, at 35% less €2,508.20;
If between €25,000 and €36,856, at 37% less €3,008.20;
If between €36,856 and €80,640, at 45% less €5,956.68;
If higher than €80,640, at 48%, less €8,375.89, plus a surcharge of 2.5% on the slice of income between €80,640 and €250,000, and a surcharge of 5% on the slice of income that exceeds €250,000.