AICEP
Agência para o Investimento e Comércio Externo de Portugal

2.1 Summary Table

2.2 Taxable persons

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.

The IRS reform introduced a partial residence concept, so that there is a direct connection between the period of physical presence in Portuguese territory and the status of tax resident. Thus, as a rule, the taxpayer will become resident in Portugal as from the first day of stay in the Portuguese territory and non-tax resident as from the last day of stay in Portugal, with a few exceptions.

Please see 2.9. below for special non-habitual residents regime.

2.3.1 Employment income, pensions and director’s fees

PIT applies on the earned income of employed individuals, pensions and directors’ fees.

-  Employment income

Employment income includes all payments in connection with work carried out, such as salary, bonuses, commissions, tax reimbursements, redundancy payments, pensions, allowances (e.g., cost-of-living and housing allowances), and benefits in kind (e.g., company cars), regardless of where the payment originates.

Domestic and foreign travel allowances, as well as mileage and lunch allowances in excess of those permitted to employees of State departments are also taxable as employment income.

-  Pension funds

The first €4,104 of pension income is exempt from tax.

-  Directors’ salaries

Salaries paid to directors have the same tax treatment as employment income.

2.3.2  Entrepreneurial and self-employment income

IRS taxable income includes all earned income of a self-employed individual and entrepreneurial income (including rental income upon option). Such income may be taxed either in accordance with a simplified regime or on statutory accounting.

The simplified regime will apply only to taxpayers who, not having opted for statutory accounting, have a turnover or a gross business and self-employment income lower than €200,000 in the previous year. Business and professional income is taxed at the progressive IRS rates.

2.3.3 Investment income

Dividends and interest (bank interest, shareholder loans, from public company bonds, bills or other paper, as well as interest on public debt) are liable to taxation at a flat rate of 28%.

However, the taxpayer may elect to include such items in taxable income in the tax return, being taxed at marginal tax rates that vary between 14.50% and 48%.

If the taxpayer opts to disclose the dividends on his tax return, only 50% will be liable to taxation at marginal rates in force, if the paying company is tax resident in an EU country,  but all the investment income (as well as capital gains shall be added to the taxable income).

Investment income paid by non-resident entities without a permanent establishment in Portugal, but which are domiciled in a blacklisted jurisdiction, are liable to a tax rate of 35%, either by withholding tax or by the autonomous rate.

2.3.4 Rental income

Rental income is subject to a 28% flat tax rate, but the taxpayer may opt to add the rents obtained to the respective taxable income in the tax return. If the taxpayer makes such election, the income shall be taxed at the progressive tax rates, with a credit given for the tax withheld. Rental income obtained by non-residents is taxed at a flat rate of 28%. Maintenance, repair expenses, municipal property tax and stamp tax may be deducted from gross rental income, if actually incurred and provided it is properly documented.

2.3.5 Capital Gains

General rule

As a general rule, capital gains are 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.

No withholding tax applies on capital gains and capital losses may offset capital gains only.

Capital gains by non-residents

Capital gains earned by nonresidents that are not borne by a permanent establishment in Portugal are fully taxable at a flat rate of 28%. An exemption is awarded to capital gains obtained by non-residents except when one of the following conditions is verified:

- The seller is domiciled in a listed low tax jurisdiction;

- Capital gains derive from the sale of holdings in resident companies which assets are composed in more tan 50% by real estate located in Portugal.

Real estate capital gains

Fifty percent of capital gains arising from the sale of real estate by tax residents in Portugal is taxed at progressive tax rates varying from 14.50% to 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.

2.4 Allowances and Deductions

Employees. Employees may deduct to the tax base the compulsory social security contributions without limitation. Union contributions and indemnities paid to the employer may also be deducted, subject to applicable limits.

Entrepreneurs and independent professionals. As above mentioned, under the simplified regime, taxable income is calculated by applying predefined coefficients, which vary depending on the activity’s sector, to gross income. These coefficients have not yet been defined; currently, taxable income is determined by applying a fixed percentage, depending on the type of income. Under this simplified regime, the income is taxed on 15% of sales of products and services in the hospitality sector, 75% or 35% depending on the business and professional services that generated the income, 95% of income arising from sale or utilization of IP rights, royalties, rental income and investment income, 30% for public grants not destined to exploration of business, 10% for public grants destined to exploration of business activities, and 100% for services provided by the shareholder to the company subject to tax transparency regime. Income from local accommodation situated in determined locations are taxed on 50% of the obtained income.

The full application of the 75% and 35% tax base is, however, 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 € 4,104 plus expenses with the acquisition of goods and services related to the activity.

The statutory bookkeeping regime provides for the deduction of activity-related expenses. Taxable income is calculated using the corporate tax rules, with some limitations imposed on the deduction of some expenses, such as travel expenses.

2.5 Tax Rates (Table)

On top of this a solidarity additional of 2,5% and 5% is also applied to income from €80.000 and €250.000 and €250.000, respectively.

2.6 Family quotient and deductions of dependents and ascendants

For the purposes of determining the rate applicable to taxpayers married or living in a marital union the taxable income should be divided by two. For each dependent was introduced a fixed deduction of € 600 and for each ascendant a deduction of 525€.

2.7 Tax Credits and Incentives

The following tax credits are available against the amount of tax due by an individual:

Some limitations to deductions and tax benefits apply, as follows:

(*) Health expenses, education and training expenses, nursing home fees, costs with immovable property and alimony expenses are included. These limits are increased by 10% for each dependent or civil godson, which is not a taxpayer.

2.8 Payments to Non-Residents (Table)

2.9 Non-habitual residents

The taxpayer that has become tax resident in Portugal for a certain year and that has not been taxed as resident in Portugal for any of the previous five years may apply for the special tax regime for non-habitual tax residents. The application to the non-habitual resident’s tax regime has to be submitted until 31 March, inclusive, of the year following the year in which the taxpayer became tax resident in Portugal.

In general terms, non-habitual residents will be taxed at a flat rate of 20% in respect of employment income (Category A) and self-employment income (Category B) arising from high-value listed activities of a scientific, artistic or technical nature.

The following classes of activities are defined as activities of high value added:

The non-habitual resident has the right to be taxed as such during a ten-year period.

In addition, in general, non-Portuguese source income may be exempt under some specific conditions (e.g., pensions, dividends and interest that may be taxable on the source State).

2.10 Tax regime applicable to ex-residents

Employment and professional income received by a person that becomes a tax resident in 2019 and 2020 is excluded from taxation in the amount of 50% if the following requirements are met:

- The individual has not been considered to be a tax resident in Portugal in any of the three previous years;

- The individual was deemed resident in Portugal before 31 December 2015;

- The individual has its tax situation regularized (does not have tax debts).

A person may not benefit from the regime if he/she has requested its inscription as a non-habitual resident.

2.11 Inheritance and gift taxes

There is no wealth and inheritance taxes in Portugal.

In substitution, we have a Stamp Tax at a 10% rate which is levied on certain gratuitous transfers of assets deemed as located in Portugal under Stamp Tax territorial rules. Most of the cases would fall outside the territoriality rule (with exception of shares of Portuguese companies and property or Portuguese financial assets held in a Portuguese bank account). There is nonetheless a Stamp Tax exemption for transfers between direct line relatives (i.e. spouse, descending and ascending relatives).