These notes are intended as a guideline to income tax in Portugal and should not be used as a substitute for proper professional advice. Please contact us and we will be happy to assist you.
Category A: Personal Income Tax (PIT) - IRS Imposto sobre o Rendimento Singular
PIT is levied on income obtained by individuals. Taxation depends on the individual’s tax status. There are six different income categories.
Residents in Portugal are taxed on their worldwide income at progressive rates varying from 0% to 48%, for 2020.
Non-Habitual Residents are liable to pay PIT, at a flat rate of 20%, on income derived from the net employment salary and any self-employment income from “high value-added activities” and pensions may be taxed at a 10% rate.
Non-Residents are liable to income tax only on Portuguese-source income, which includes not only that portion of remuneration that can be allocated to the activity carried out in Portugal but also remuneration that is borne by a Portuguese company or permanent establishment. Non-residents are taxed at a flat rate of 25% on their taxable remuneration, in 2020.
To be considered Resident:
A person is deemed to be resident in Portugal whenever spends more than 183 days, consecutive or not, in Portugal in any 12-month period starting or ending the fiscal year concerned. A person is also deemed to be resident in Portugal if a dwelling is maintained at any time of a certain 12-month period, indicating the existence of habitual residence in Portugal. Article 16 of Personal Income Tax Code (CIRS).
PIT - Categories of income
|Category||Type of income|
|Category A||Employment income|
|Category B||Business and professional income (self-employed)|
|Category E||Investment income|
|Category F||Rental income|
|Category G||Capital Gains|
Category G: Capital Gains Income (Category G) - Mais valias
As a general rule, capital gains will be subject to tax at a flat rate of 28%. Only 50% of capital gains arising on the sale of shares held on micro and small companies not listed in the stock exchange will be subject to taxation. In 2020, 50% of capital gains arising from the sale of real estate by tax residents in Portugal is taxed at the marginal rates varying between 14.50% and 48%. The gain may be wholly or partially exempt if the property being sold is the taxpayer's primary residence and the sale proceeds, reduced by the value of any outstanding loans relating to the purchase of the property being sold, are reinvested in the acquisition, improvement, or construction of another primary residence in Portugal or within the European Union within 36 months from the sale or in the period of 24 months previous to the sale. Capital gains earned by non-residents that are not borne by a PE in Portugal are fully taxable at a flat rate of 28%.
Category B: Self-employment income - Rendimentos de atividades empresariais e profissionais.
The ones derived from carrying out any commercial, industrial, or agricultural activity and income from a sole trader (including scientific, artistic, or technical services) or from intellectual rights (when earned by the original owner) may be taxed either in accordance with a simplified regime or based on the taxpayer’s accounts. This category also includes all earned income of a professional individual, such as commissions and entrepreneurial income. Such income may be taxed either in accordance with a simplified regime or based on the taxpayer’s accounts. A coefficient of 0.35 is applicable to services not expressly foreseen in the table referred to in Article 151 of the PIT Code.
Simplified regime (Regime Simplificado)
The simplified regime will apply only to taxpayers who, not having opted for organised accounts, have a turnover or a gross business and professional income lower than EUR 200,000 (for 2020) in the previous year. Under this simplified regime, the above income is taxed on 0.15% of sales of products or 0.75% of income arising from business and professional services listed in the table referred to in Article 151 of the PIT Code. A coefficient of 0.35 is applicable to services not expressly foreseen in the table referred to in Article 151 of the PIT Code.
The income 'deduction' arising from the application of the coefficients of 0.75 and 0.35 is partially conditioned by the verification of expenses and charges effectively incurred and related to the activity. Therefore, to the taxable income determined by applying the coefficients will be added the positive difference between 15% of the gross income and the sum of the following amounts:
EUR 4,104 or, when higher, the total amount of mandatory social security contributions (in the part not exceeding 10% of the gross income received).
Staff expenses, wages, or salaries communicated to the Portuguese tax authorities.
Property rentals allocated to the professional activity communicated through the issue of an electronic receipt or a specific statement, whose invoices and other documents are communicated to the Portuguese tax authorities (if only partially assigned to the professional activity, it is considered only 25% of the total amount).
1.5% of the tax registration value of the properties assigned to the business or professional activity or 4% of the tax registration value of properties assigned to hotel or letting activities (if only partially assigned to the professional activity, it is considered only 25% of the total amount).
Other expenses with the acquisition of goods and services related to the activity, duly communicated to Portuguese tax authorities, namely expenses with current consumption materials, electricity, water, transports and communications, rents, litigation, insurance, leasing rents, mandatory fees paid to professional associations and other organisations representing professional activities to which the taxpayer belongs, travels and stays of the taxpayer and one's employees (if only partially assigned to the activity, it is considered only 25% of the total amount).
Imports and intra-Community acquisitions of goods and services related to the activity.
In addition to the amount of the above deduction, the amount of mandatory social security contributions paid, exceeding 10% of gross income and related to such professional activities, may also be deducted to the self-employment income if not deducted for other purposes.
Category F: Rental income - Rendimentos Prediais
As a general rule, rental income earned by tax residents and non-tax residents is liable to a special tax rate of 28%, but the option for the inclusion of such income in the total aggregated income is possible.
Rental income is subject to withholding tax at the rate of 25%, provided the payer is an entity subject to keep statutory accounting.
Deductible expenditure: for residents and non-residents.
All rental expenditure is tax deductible from gross rental income, if actually incurred and properly documented, including:
- Maintenance (normal repairs and renewals);
- Municipal property tax (IMI);
- Stamp tax;
NOTE: The rental income that results from a consistent practise of the lease of properties, by option of the taxpayer, may be taxable as income from business and professional activities (self-employment_Category B). However, in order to determine the income subject to taxation, the same rules used for determination of the rental income in ‘Category F’ should be taken into account.
Category E: Investment income - Rendimentos de Capitais
Dividends and interests (bank interest, shareholder loans, from public company bonds, bills or other paper, as well as interest on public debt) and all profits and other economic advantages arising directly or indirectly from patrimonial elements, assets, or rights of a movable nature, are liable to taxation at a flat rate of 28% (either by means of a withholding tax or autonomous rate).However, the taxpayer may opt to be liable to tax on dividends and interest received at the marginal rates varying between 14.50% and 48% (in 2020).
A credit against the Portuguese tax liability is available for the lower of the tax paid in the foreign country on those dividends and interest or the amount of tax payable in Portugal on that income. For dividends and interest paid by countries with which Portugal has signed a double taxation treaty (DTT), the tax credit should not exceed the percentage established in the treaty.
If the taxpayer opts to disclose the dividends on the tax return, only 50% will be liable to taxation at the marginal rates in force if the paying company is tax resident in an EU country.
Interest income arising from current or saving accounts on Portuguese banks is taxed at 28% for residents. Interest paid by non-resident entities to tax resident individuals is also taxed at a rate of 28%.
Investment income paid or made available to recipients resident in the Portuguese territory by non-resident entities that also do not have a PE in the Portuguese territory, but which are domiciled in a blacklisted jurisdiction, are liable to a tax rate of 35% (in 2020), either by WHT or by the application of a special rate.