Income tax submission and filing in Portugal is an important aspect. If you are working in Portugal or a foreigner. You have to pay the Portuguese Income Tax. If you do business in Portugal then this applies to you too. This article will give you all the information of income tax in Portugal.
Income tax in Portugal
Portugal’s tax system is managed by the Portuguese Tax Authority. If you work in Portugal or have a business, you have to pay tax on your earnings.
Portugal follows a pay-as-you-earn income tax system. People living in Portugal gets a reduced salary because the tax gets deducted from the salary. You have to fill out an annual Portuguese tax return if you are a tax resident. Your employment does not matter. Married couples living in Portugal are taxed together on their income and can submit a joint tax return.
Who pay Income tax in Portugal?
The tax rules for a citizen and a foreigner are different. Citizens of Portugal must pay income tax on their every income. Foreigners doing business in Portugal must pay the tax on which they earn in Portugal.
You are a tax resident if you follow any rules below:
1. You have lived in Portugal for 183 days (in total) during a tax year
2. You have lived in Portugal for less than 183 days but had a permanent residence there on 31 December
Expats living in Portugal for less than 183 days with no permanent residence are non-resident for tax purposes.
Who is free from income tax in Portugal?
If you are working or earning in Portugal then you must always pay the income tax. There is a general tax allowance of 4104 Euro a year for residents. If you earn less than this amount then you don’t need to pay.
For expats living in Portugal, there are some tax exemptions in place. They qualify for Non-Habitual Resident (NHR) status.
How to file your tax return in Portugal
Filing your income tax requires some procedures. You have to follow some guidelines in order to properly maintain these tasks. If you fail to follow the procedure then you are subject to penalties.
Income tax deadlines in Portugal
The Portuguese tax year runs from first day of January to the last day of December. You can pay in installments if your tax has not been deducted through the pay-as-you-go system. If you choose this way then the installments are due in July, September and December.
Income tax forms in Portugal
If you want to do job or do business in Portugal then you need to fill out a registration form. It must be submitted to your local tax office. After submission, they will issue your Portuguese income tax number and can also give you a tax return form if you want a paper copy.
If you want to complete the Portuguese tax form online you must register on the Government website and request a password. You can request an electronic receipt if you select the online method.
Income tax rates:
If you earn more, you must pay more in Portugal. Below is a chart of Portugal’s income tax rates:
|Portuguese income tax bands (Euro)||Portuguese tax rate (%)|
|Up to 7112||14.5|
|7113 – 10732||23|
|10733 – 20322||28.5|
|20323 – 25075||35|
|25076 – 39967||37|
|39968 – 80882||45|
Non-residents has to pay a 25% tax.
Personal tax allowance and deduction in Portugal
Residents can reduce their income tax in Portugal. There are few general income tax allowances in Portugal. Some of the tax deductions and tax credits for foreigners are given below:
Allowed deduction on tax returns
- General allowance of 4104 euro
- 150% of the amount paid in union fees (limited to 1% of employment income)
- Employee social security contributions to mandatory schemes if higher than 4104 euro
- Maintenance and conservation expenses paid out on property yielding a rental income.
Tax credits on your income tax return
- 35% of general family expenses up to a limit of 250 euro per taxpayer
- 15% of health expenses, up to a limit of 1000 euro
- 30% of educational expenses, up to a limit of 800 euro
- 15% of VAT on invoices issued by car repair shops, restaurants, hairdressers and salons, up to a limit of 250 euro per family
- 20% of alimony pensions arising from court decisions
- 15% of rent costs, up to a limit of 502 euro
- 15% of interests on housing loans, up to a limit of 296 euro
- 25% of donations made to accredited institutions
- 25% of expenses incurred with homes and institutes to support the elderly or disabled, up to a limit of 403.75 euro
- 20% of premiums paid on pension contributions, up to a limit of 400 euro for those aged under 35, 350 euro for those between 35 – 50, and 300 euro for those over 50
Furthermore, some daily expenses are also relaxed from the income tax in Portugal. Such cases are included below:
- Meal allowance up to 4.77 euro in cash or 7.63 euro in lunch vouchers per day
- Daily allowance for business travel up to 50.50 euro within Portugal or 89.35 euro abroad
- Travel expenses, amount depends on the method of travel and number of employee
Income tax in Portugal for foreigners
Portugal has created a lot of opportunities for expats to invest in Portugal. They are offering tax breaks. However, recent activities have made the schemes less desirable.
Non Habitual Residency (NHR) tax code
The NHR tax code offers preferred tax rates for a period of 10 years. Only those who are qualified gets this. The tax code lets expats to not pay the tax on all the income they make from outside Portugal. Further income inside Portugal is taxed at a flat rate of 20%.
Since 2009, 28000 expats got this facility of the NHR status. It includes 9000 pensioners.
Tax refunds in Portugal
If you face a dispute regarding income tax in Portugal assessment, you can appeal to the tax administration. You must read the tax assessment letter to find which department you need to appeal to and how to appeal. You can have your case assessed by the tax courts if your appeal is rejected.
Tax fines in Portugal
You have to face penalties if you file late or incomplete Portuguese tax returns ranging from 200 to 2500 euro. Late payments is penalized from 10% of the outstanding tax to double its value up to a maximum of 55000 euro with interest.
Doing the income tax submission and filing in Portugal can be hard. We have provided details about how the system works. Reading these will give you a general idea on how the system works in Portugal. Knowledge of income tax in Portugal will definitely help in growing inside Portugal.