Taxation in Portugal

Taxes in Portugal are levied by both the national and regional governments of Portugal. Tax revenue in Portugal stood at 34.9% of GDP in 2018.[1] The most important revenue sources include the income tax, social security contributions, corporate tax and the value added tax, which are all applied at the national level.

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Income tax

Employment income earned is subject to a progressive income tax, which applies to all who are in the workforce. Furthermore, a long list of tax allowances can be deducted, including a general deduction, health expenses, life and health insurance, and education expenses. In 2015 a tax of 3.5% was introduced on all employment and state pension income over €6,790. The personal income taxation system is as follows:[2][3]

Taxable income Applicable Tax Rate
Portuguese mainland Portugal Autonomous Region of Madeira Madeira Autonomous Region of Azores Azores
Up to €7,112 14.5% 11.60% 10.15%
€7,112 to €10,732 23% 20.70% 17.25%
€10,732 to €20,322 28.51% 26.50% 21.38%
€20,322 to €25,075 35% 33.75% 28%
€25,075 to €36,967 37.3% 35.87% 29,6%
€36,967 to €80,882 45.5% 44.95% 36%
Above €80,882 48% 38.4%

Benefits available to former and first time tax residents

Under the Investment Tax Code, approved on September 23 2009,[4] a new type of residency, for tax purposes was created under the Personal Income Tax Code, called non-habitual residency (NHR). This new tax residency type was created in order to attract to Portugal high-skilled professionals and pensioners obtaining foreign income.[5]

Qualifying for NHR status

A person, regardless of their nationality, may apply for registration as a non-habitual resident if the following conditions are fulfilled:[4][5][6]

  • The person is considered, for tax purposes, to be resident in Portuguese territory, in accordance with any of the criteria set out in Personal Income Tax Code in the year for which that person wishes to be taxed as NHR;
  • That person as not been considered to be resident in Portuguese territory in any of the five calendar years preceding the year for which that person wishes to be taxed as a non-habitual resident.

Personal Income Taxation
Taxation for NHR status holders[4][5][6][7][8]
Type of Income Source of Income Taxation
Portuguese mainland Portugal Autonomous Region of Madeira Madeira Autonomous Region of Azores Azores
Employment Income Foreign Taxation exemption on employment income is granted if the income is subject to taxation in the source country, in accordance with the applicable Double Taxation Agreement, or are considered not to be derived from a Portuguese source.
High-Added Value Job performed in Portugal Flat tax of 20% Flat tax of 16%
Any other job performed in Portugal Normal progressive tax rates
Pensions Foreign Pension income obtained by non habitual residents abroad, which is, for the same portion which was considered taxable, not considered tax deductible in Portugal, is taxed at a 10% flat rate.
Portugal Normal progressive tax rates
Self employment, obtained through high added value activities of a scientific, artistic or technical nature (see below), or from intellectual or industrial property, as well as, from providing information regarding an experiment carried out in the commercial, industrial or scientific areas Foreign Exempt from taxation if alternatively:
  • It can be taxed by the source State, according to the double taxation treaty signed between Portugal and the source State; or
  • It can be taxed in another country, in cases where the double tax treaty has not been entered into under the terms defined by the OECD Model Tax Convention on Income and Capital, as long as (i) it is not a territory subject to privileged tax systems (defined by an ordinance) and (ii), as long as the corresponding income, cannot be considered to have been obtained on Portuguese territory, as per the Personal Income Tax Code.
Portugal Flat tax of 20% Flat tax of 16%
Capital Income Foreign Exempt from taxation if alternatively:
  • It can be taxed by the source State, according to the double taxation treaty signed between Portugal and the source State; or
  • It can be taxed in another country, in cases where the double tax treaty has not been entered into under the terms defined by the OECD Model Tax Convention on Income and Capital, as long as (i) it is not a territory subject to privileged tax systems (defined by an ordinance) and (ii), as long as the corresponding income, cannot be considered to have been obtained on Portuguese territory, as per the Personal Income Tax Code.
Portugal Flat 28%
Real Estate Income Foreign Exempt from taxation if alternatively:
  • It can be taxed by the source State, according to the double taxation treaty signed between Portugal and the source State; or
  • It can be taxed in another country, in cases where the double tax treaty has not been entered into under the terms defined by the OECD Model Tax Convention on Income and Capital, as long as (i) it is not a territory subject to privileged tax systems (defined by an ordinance) and (ii), as long as the corresponding income, cannot be considered to have been obtained on Portuguese territory, as per the Personal Income Tax Code.
Portugal Flat 28%
Capital Gains Foreign Exempt from taxation if alternatively:
  • It can be taxed by the source State, according to the double taxation treaty signed between Portugal and the source State; or
  • It can be taxed in another country, in cases where the double tax treaty has not been entered into under the terms defined by the OECD Model Tax Convention on Income and Capital, as long as (i) it is not a territory subject to privileged tax systems (defined by an ordinance) and (ii), as long as the corresponding income, cannot be considered to have been obtained on Portuguese territory, as per the Personal Income Tax Code.
Portugal Normal progressive tax rates
High Added Value Jobs

Under Ministerial Order issued by the Ministry of Finance, the follow jobs are subject to flat personal income tax of 20%:[6][9][10]

NHR status holders registered up to 2019 NHR status holders registered from 2020
  • Architects
  • Engineers
  • Geologists
  • Artists of theater, ballet, cinema, radio and television and singers
  • Sculptors
  • Musicians
  • Painters
  • Auditors and Tax consultants
  • Medical analysts; Surgeon doctors; Doctors on board ships; General practitioners; Dentists; Stomatologists; Physiatrists; Gastroenterologists; Ophthalmologists; Orthopaedists; ENT doctors; Pediatricians; Radiologists; and Doctors from other specialties.
  • University professors.
  • Psychologists.
  • Liberal, technical and assimilated professions:
  • Archaeologists;
  • Biologists and specialists in life sciences;
  • Consultancy and computer programming and activities related to information technology and computer science;
  • Management and operation of computer equipment;
  • Information service activities; Data processing, hosting and related activities; Web portals; and Other information service activities;
  • News agency activities;
  • Scientific research and development activities;
  • Research and development on natural sciences and engineering;
  • Research and development in biotechnology;
  • Designers.
  • Investors, directors and managers:
  • Investors, directors and managers of companies promoting productive investment, provided that they are assigned to eligible projects and have concession contracts for tax benefits under the Investment Tax Code, approved by Decree-Law 249/2009 of 23 September; Senior managers of companies.
  • General Manager and Executive Manager of Companies
  • Directors of Administrative and Commercial Services
  • Production and Specialty Services Directors
  • Hotel, restaurant, trade and other service directors
  • Experts in the physical sciences, mathematics, engineering and related techniques
  • Doctors
  • Dentists and stomatologists
  • University and Higher Education Professors
  • Information and Communication Technology (ICT) Experts
  • Authors, journalists and linguists
  • Creative and performing arts artists
  • Intermediate science and engineering technicians and professions
  • Information and Communication Technology Technicians
  • Market-oriented farmers and skilled agricultural and livestock workers
  • Skilled, market-oriented forest, fishing and hunting workers
  • Skilled workers in industry, construction and craftsmen, including in particular skilled workers in metallurgy, metalworking, food processing, woodworking, clothing, crafts, printing, precision instrument manufacturing, jewelers, craftsmen, electrical workers and in electronics.
  • Plant and machine operators and assembly workers, namely stationary and machine operators

Corporate tax rate

The corporate tax rate applicable to companies in Portugal may vary, depending on which part of the Portuguese territory said companies are incorporated and domiciled.[11][12][13][14]

Type of entity Portuguese mainland Portugal Autonomous Region of Madeira Madeira Autonomous Region of Azores Azores
Resident entities and permanent establishments of non-resident entities 21% 14,7% 16,8%
Resident entities characterized as a small or medium enterprises, on the first € 25 000 of taxable profit 17% 11,9% 13,6%

Madeira International Business Centre

Companies incorporated and headquartered in Madeira can apply for an International Business Centre (MIBC) license and, granted that they comply with substance requirements, benefit from a corporate tax rate of 5% on the taxable profit derived from economic activities engaged with non-resident entities or entities duly licensed within the MIBC.[15][16]

Value added tax

Mainland Portugal

Three different VAT rates apply: normal, intermediate and reduced. There is a general rate of 23% (normal rate) for luxury goods, decorative plants, cut flowers, utensils and other equipment for firefighting and fire prevention,[17] followed by a reduced rate of 13% for ordinary wine, spring, mineral, medicinal and carbonated water, and tickets for cultural events. This is followed by a further reduced rate of 6% on cereals, meat, shellfish, fruit, vegetables, and other essential foods, books, newspapers, medicines, passenger transport and hotel accommodation.[18] In 2014, the government introduced the fatura da sorte ("Lucky bill"), a lottery of tax-free cash and luxury cars awarded among consumers with VAT bills. The goal is to bring into the formal economy the many unregistered and untaxed purchases.

Madeira

The VAT rates in Madeira are 22% (normal rate), 12% (intermediate rate) and 5% (reduced rate).[19][20]

Azores

The Azores has lower applicable VAT rates of 16%, 9% and 4%.[21] Businesses with revenue of less than 10,000 Euros per year are exempt from VAT.

Social security contributions

All employment income is subject to social security contributions.[22]

General Social Security Regime
Type of Employee Contribution Supported by the Employer Contribution Supported by Employee Total Contributions
General Employee 23,75% 11% 34,75%
Members Statutory Governing Bodies 20,3% 9,3% 29,6%
Members Statutory Governing Bodies who exercise managing functions 23,75% 11% 34,75%
Home workers 20,3% 9,3% 29,6%
Professional Sportsmen 22,3% 11% 33,3%
Very-Short Term Contract Worker 26,1% - 26,1%
Worker suspended (by agreement) for pre-retirement purposes 18,3% 8,6% 26,9%
Workers who are 65 years old and have been working for 40 years 17,3% 8% 25,3%
Working Invalidity Pensioner 19,3% 8,9% 28,2%
Working Old Age Pensioner 16,4% 7,5% 23,9%
Civil Servant Invalidity Pensioner 20,4% 9,2% 29,6%
Civil Servant Old Age Pensioner 17,% 7,8% 25,3%
Farmers 22,3% 11% 33,3%
Local and Near Shore Fishery Workers 21% 8% 29%
Ship owners who are crew members
Maritime Species Catchers
On foot fishermen
Workers of Private Social Security Institutions 22,3% 11% 33,3%
Workers of other non-profit entities
Contracted Civil Servants 23,75% 11% 34,75%
Appointed Civil Servants 18,6% 11% 29,6%
Domestic Workers without unemployment coverage 18,9% 9,4% 28,3%
Domestic Workers with unemployment coverage 22,3% 11% 33,3%
Deficient Workers with a working capacity below 80% 11,9% 11% 22,9%
Religious Workers (with protection in sickness, parenthood, professional related diseases, invalidity, old age and death) 19,7% 8,6% 28,3%
Religious Workers (with protection in invalidity, and death) 16,2% 7,6% 23,8%
Portugal Telecom workers who started their career with CTT Correios de Portugal, S.A. 7,8% - 7,8%
Young people on school vacations 26,% - 26,1%

Closed Social Security Regimes
Type of Employee Contribution Supported by the Employer Contribution Supported by Employee Total Contributions
Teachers hired until 31 December 2005 not covered by Civil Servants Pension Fund 21% 8% 29%
Teachers hired until 31 December 2005 working for private schools 7,8% - 7,8%
Foreign Teachers hired until 31 December 2005 who opted not to enroll with Civil Servants Pension Fund 7,8% - 7,8%
Teachers hired until 31 December 2005 working for public schools 4,9% - 4,9%
Non-specialized works of the Autonomous Region of Azores in the sectors of agriculture, forestry or cattle farming 21% 8% 29%
Worker suspended (by agreement) for pre-retirement purposes with more than 37 years of contributions 7% 3% 10%
Worker suspended (by agreement) for pre-retirement purposes with less than 37 years of contributions 14,6% 7% 21,6%
Members of the Armed Forces in voluntary and contractual regime 3% - 3%
Specialized farmers 23% 9,5% 32,5%
Non-specialized farmers 21% 8% 29%
Specialized farmers of the Autonomous Region of Madeira 20,5% 8,5% 29%
Non-specialized farmers of the Autonomous Region of Madeira 18,1% 6,9% 25%
Banking workers formally covered by the Family Allowance Fund of the Baking Workers from profit entities 23,6% 3% 26,6%
Banking workers formally covered by the Family Allowance Fund of the Baking Workers from non-profit entities 22% 3% 25,4%
Additional Contributions
Type of Employees Additional Contribution Supported by the Employer
Beneficiaries of the Social Security Special Fund for the Workers of the Whool Industry 0,5%
Beneficiaries of the Special Fund for Insurance Brokers 1%

Social Security Regime for Freelancers
Freelancers Contributions Supported
Freelancers in general and their respective spouses, or equivalent, with whom they jointly do the freelancing activity on a regular basis. 21,4%
Self-employed businessmen/businesswomen and holders of sole-proprietor of limited liability entity and their respective spouses, or equivalent, with whom they jointly do the freelancing activity on a regular basis 25,2%
Hiring entity from which the freelancer obtains more than 80% of his income. 10%
Hiring entity in other situations. 7%
Notaries who, on 31 December 2010, were covered by the freelancers' regime and opted for the maintenance of the Civil Servants' regime. 2,7%

Voluntary Social Security Insurance Scheme
People Covered by the Voluntary Social Security Scheme Contributions Supported
General Situations 26,9%
Cooperation Agents
High Performance Sportsmen
Crew Members of ships registered in the Madeira's International Shipping Registry
National Maritime Workers and Watchmen who perform their job in ships owned by foreign companies 29,6%
National Maritime Workers and Watchmen who perform their job in ships owned by common fishing companies
Research Fellows
Voluntary Firefighters 27,4%
Social Voluntaries

See also

References
  1. "Carga fiscal foi revista em baixa, mas 2018 continua a ser recorde". www.jornaldenegocios.pt (in European Portuguese). Retrieved 2019-11-15.
  2. "KPMG". Income tax in Portugal. Retrieved 18 June 2017.
  3. "Income tax".
  4. "Decreto-Lei 249/2009, 2009-09-23". Diário da República Eletrónico (in Portuguese). Retrieved 2021-02-05.
  5. "IRS - Regime Fiscal para o Residente Não Habitual" (PDF). Portal das Comunidades. May 2016. Retrieved February 5, 2021.
  6. "Non-Habitual Resident (NHR) Regime - MCS". Retrieved 2021-02-05.
  7. "Omissões Orçamentais". JM Madeira (in European Portuguese). 2020-02-13. Retrieved 2021-02-05.
  8. "Código Do Imposto Sobre O Rendimento Das Pessoas Singulares". info.portaldasfinancas.gov.pt. Retrieved 2021-02-05.
  9. "Portaria 12/2010, 2010-01-07". Diário da República Eletrónico (in Portuguese). Retrieved 2021-02-05.
  10. "Portaria 230/2019, 2019-07-23". Diário da República Eletrónico (in Portuguese). Retrieved 2021-02-05.
  11. "Incorporate a Company in Portugal - MCS". Retrieved 2020-12-30.
  12. PricewaterhouseCoopers. "IRC". PwC (in European Portuguese). Retrieved 2020-02-05.
  13. PricewaterhouseCoopers. "IRC". PwC (in European Portuguese). Retrieved 2020-12-30.
  14. "Conheça as taxas de IRC que se aplicam aos rendimentos empresariais". Ekonomista (in European Portuguese). 2019-07-02. Retrieved 2019-11-15.
  15. "Madeira International Business Center - MCS". Retrieved 2021-02-05.
  16. "Benefícios Fiscais". www.ibc-madeira.com. Retrieved 2021-02-05.
  17. "Taxes - VAT 23%". Economias (in Portuguese). Retrieved 2018-12-17.
  18. "KPMG". Vat rates in portugal. 31 August 2021.
  19. "Taxa de IVA na Madeira". Economias (in Portuguese). Retrieved 2018-12-17.
  20. "The tax system in Portugal". Expatica. Retrieved 2022-10-18.
  21. PricewaterhouseCoopers. "IVA". PwC (in European Portuguese). Retrieved 2022-09-27.
  22. "Taxas Contributivas". Segurança Social. Retrieved 15 November 2019.
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