Your Guide to Tax in Portugal for Expats

Although Portugal has ended its NHR program, the country can still be a relatively tax-friendly destination for foreigners. Here’s what you need to know about tax in Portugal for expats.

How long has it been since you last visited Portugal? 

If it’s been more than a few years, you’ll likely notice that the country and global economics have changed significantly since your last visit. 

Remember back in 2008 when the US was just starting to deal with the Great Recession? Europe wasn’t left untouched and faced its own economic hurdles. 

However, as the world has moved forward, so has Portugal, which went on to create its golden visa program in an effort to resurrect its economy. As a result, real estate in some areas almost doubled. Prices soared as investors from China came in droves to buy properties, and overall, the real estate market has largely been revived.

In October 2023, Portugal changed its golden visa program and removed the real estate investment option. This happened when numerous European nations, including Latvia and Ireland, cancelled their golden visa programs. 

Next-door neighbours Spain have stated their intentions to cancel or alter their own program, though the end hasn’t formally arrived just yet.

Thankfully, alternative programs are still available that allow you to obtain residency in Europe. For help with your plan, contact our team.

For Americans and Australians and others who are trying to get their second passport while improving their tax situation, doing this in Western Europe can be tough. 

However, there are one or two countries in the EU where you can get a passport and enjoy certain tax benefits on your worldwide income as an entrepreneur. 

Portugal is one of those rare exceptions.

Tax Rate in Portugal

Before we get into the specifics of paying tax in Portugal for foreigners, let’s first cover what tax rates in the country look like.

For 2024, Portugal’s income tax rates range from 13.25% on income up to €7,703 to a top rate of 48% on income over €81,199, with increased income bands to account for inflation. 

Investment income is generally taxed at a flat 28%, but residents can opt for scaled rates if it works for them. 

The capital gains tax applies to 50% of the gain from property sales, with some reinvestment exemptions for primary residences and retirees. 

High-value property owners may face a wealth tax called AIMI, and stamp duty on inheritances is 10% for assets outside direct family inheritance.

Portugal’s Non-Habitual Resident Tax Regime

The biggest tax drawcard to Portugal for expats has always been the country’s non-habitual residence (NHR) tax regime. In effect, it’s a program that allows qualifying individuals the opportunity to become tax residents of a ‘white-listed’ jurisdiction and still legally eliminate their taxes on most foreign-source income.

Unfortunately, the NHR program closed for new applicants at the start of 2024. The program has since been replaced by a 20% flat tax on qualified professionals.

However, if you qualified for the NHR program before they stopped accepting new applicants, you can still enjoy this program’s tax benefits.

For those that qualified for NHR, the tax residency is good for 10 years and does not come with the typical obligation that you visit or live in Portugal for part of the year to maintain your tax resident status there.

The biggest draw of the program is the opportunity to reduce your income tax to zero.

This is possible, in part, due to Portugal’s 79 double taxation treaties. According to the regime, as long as the source country of your income has the power to tax your income (regardless of whether or not they actually apply the tax), Portugal will not tax your foreign-sourced income.

The list of income sources not taxed under this set-up includes foreign-source self-employment, royalties, eligible occupations, dividends, capital gains and investment or rental income. 

However, pensions remitted to Portugal are taxed at 10%, even if you are a non-habitual tax resident. While less beneficial than zero tax, a 10% tax on foreign pension income is still lower than that charged in many other countries and is a significant reduction on the usual Portuguese income tax rates ranging from 13.25% to 48%. 

It’s important to note that capital gains from the sale of securities will be taxed (provided that it comes from Portuguese sources), as will income sourced from any blacklisted tax haven that does not have a double tax treaty with Portugal.

Finally, if you happen to have Portugal-sourced income, it will be taxed at a flat rate of 20%.

How Can I Get Non-Habitual Residence in Portugal?

Unfortunately, Portugal is not accepting any more NHR applications. The program has officially ended.

In the past, to qualify for the non-habitual residence program, you needed the right to reside in Portugal, either as a citizen or a resident of Portugal or elsewhere in the EU. 

In both cases, you couldn’t have been a tax resident in Portugal for at least five years prior to your application to become a non-habitual resident.

How to Become a Tax Resident in Portugal

You become a tax resident in Portugal either by spending 183 days or more per year in Portugal or by establishing a ‘place of abode’ there (purchased or rented) that you intend to keep and occupy habitually.

Take a look at our more thorough guide to establishing tax residency in Portugal for more details.

In order to own or rent a property in Portugal, you will need a Portuguese taxpayer’s number. The Portuguese tax number is provided by a local tax office upon presentation of the required documentation.

The old NHR regime has been largely replaced by the new Tax Incentive for Scientific Research and Innovation (TISRI) which is sometimes referred to as ‘NHR 2.0’. This allows for tax residency in the country.

To learn more about the utility of having a tax residence, you can read our article, What is Tax Residence and Why Does it Matter?

Overview of Taxes in Portugal for Expats

In Portugal, expats are taxed based on their residency status. Portuguese residents are taxed on their worldwide income and non-residents are taxed solely on Portuguese-sourced income. 

Resident expats in Portugal need to pay progressive income tax rates. Expats in Portugal might also have to pay taxes on property, capital gains and a stamp duty of 10% on Portuguese assets inherited outside of their direct family. 

Capital gains from property sales are only partially taxed for residents, and specific exemptions are available for reinvestments. On top of this, high-value properties may incur a municipal tax (AIMI), which applies progressively based on ownership share and property value.

For non-EU residents, Portugal uses a fiscal representative to handle tax filings and communications. 

Tax Rate in Portugal for Expats

In Portugal, expats face progressive income tax rates ranging from 13.25% to 48%, while non-residents are subject to a flat 25% tax on income earned in Portugal. 

Although the popular NHR program for tax relief closed to new applicants in 2024, anyone already enrolled continue to benefit from reduced rates for ten years.

Dual Citizenship US and Portugal Taxes

If you’re a dual US and Portuguese citizen, unfortunately, you can’t only enjoy the European country’s tax rates alone. 

Dual citizens of the US and Portugal must navigate tax obligations in both countries because of the US’s worldwide income tax policy and Portugal’s residence-based tax system. 

While US citizens must file taxes on global income regardless of residence, Portugal only taxes Portuguese-source income for non-residents and worldwide income for residents. 

However, the US-Portugal tax treaty does help prevent double taxation by allowing credits for taxes paid in one country against liabilities in the other. 

If you hold NHR status in Portugal, specific foreign income may be tax-exempt in Portugal for up to ten years, though your US tax requirements remain the same.

Tax in Portugal for Expats: FAQs

Is Portugal a Tax-Friendly Country for Expats?

Unfortunately, Portugal has lost a lot of its tax-friendliness with the end of the NHR program. Expat residents can no longer get away with tax exemptions on their foreign income. 

However, if you want to live in Europe, Portugal is still a good option. Not only are tax rates manageable here, but the country is a lot more affordable to live in compared to other Western European hubs. Plus, there are some great options available for those who want to become a Portuguese citizen. Of course, we can’t forget that Portugal has a powerful passport too.

If the ending NHR program taught us anything, it’s that you shouldn’t design your offshore plan with the hope that such a program will be available at some vague future date when necessity hits or you finally get around to doing it. Nothing stays tax-free forever, at least not in Europe. 

All the more reason to take action now.

If this sounds like your opportunity, don’t wait forever before you decide to act. Speak to our team if you’re interested in becoming a tax resident in Portugal.