Relocation to Portugal - taxation aspects in Portugal

he relocation process involves many aspects, including family aspects, legal aspects and economic aspects. Alongside these aspects, there are taxation aspects of relocation to Portugal that must be considered before leaving Home base

Taxation of individuals in Portugal

Residents of Portugal for tax purposes are taxed on their income worldwide at progressive rates ranging from 14.5% to 48% (in 2023). Non-residents are subject to income tax only on income of Portuguese origin, which includes not only the portion of remuneration that can be allocated to an activity carried out in Portugal, but also remuneration received from a Portuguese company or permanent establishment

Who is considered a resident of Portugal for tax purposes?

individual who relocates to Portugal and lives there for a period exceeding 183 days during a period of 12 months will be considered a tax resident in Portugal and will be liable to tax there on all his profits worldwide by Portuguese law regarding new immigrants to Portugal as stated above. According to the Portuguese tax law in force from January 2015, an individual is considered a resident of Portugal for tax purposes if he meets one of the following conditions:

Resides for more than 183 days, consecutive or not, in Portugal in any 12-month period beginning or ending in the relevant financial year.

He stays less than 183 days in Portugal, but maintains a residence in Portugal during each day of the period mentioned above.

As a rule, the taxpayer will become a resident of Portugal from the first day of his stay in Portuguese territory until his last day of stay in Portugal, with a few exceptions. If the individual is classified as a tax resident in Portugal, he will be taxed in the country on all his income, both in Portugal and outside Portugal – all unless there is a tax exemption as part of the exemption granted to new immigrants in the NHR track.If the individual is classified as a foreign resident (and not as a resident of Portugal), he will be taxable only on his profits produced in Portugal.

NHR - What is a Non-Habitual Residents tax regime?

It appears that the Portuguese government is considering not extending tax benefits for immigrants starting in 2024. However, it appears that the legislative change will only apply to immigrants starting in 2024. Over the past few weeks, there has been widespread debate over the proposal to end the tax regime for non-ordinary residents ("NHR") set out in the proposed budget bill for 2024. Apparently, the NHR as we've known it for several years is indeed going to end on December 31, 2023, With a new regime that erases most of its benefits (except those related to pension income) from January 1, 2024 ("NHR 2.0"), but to a different extent intended for different beneficiaries. Beneficiaries should, among other things, be employed in start-ups, companies engaged in research and development or be engaged in certification of jobs recognized by the Portuguese government. For the avoidance of doubt, current NHR beneficiaries and taxpayers, who on December 31, 2023, are registered as NHR, will be able to benefit from the regime until the end of the 10-year period.

In general, residents who fall under the aforementioned tax regime are taxed at a flat rate of 20% on income from work (category A) and income from independent business (category B) generated within the borders of Portugal and deriving from activities of high value to the Portuguese economy (engineering, technology, science, art, medicine, etc.) instead of the progressive tax rates listed above. The tax regime may not benefit low-income earners in the first tax bracket who are entitled to choose to tax on income at a rate of 14.5%. The tax regime grants tax exemption applies to passive income from an external source (e.g. income from property, interest and dividends), provided that certain conditions are met. Please note that although the tax regime grants an exemption on passive income in the country of residence, it is possible that you will be taxed in the country of origin.

In most cases, capital gains from the sale of securities are taxable at a flat rate of 28%. In addition, a uniform tax rate of 10% applies to pensions of foreign origin as well as other payments from pension funds and similar retirement plans. This regimen can be enjoyed during a period of 10 years. An application for an NHR tax regime must be submitted online by March 31, of the year following the year in which the taxpayer changes status to a tax resident in Portugal. Also, A condition for receiving tax benefits according to the NHR track is that the individual owns a permanent residence in Portugal (an apartment owned or rented by him) at the end of the year in which eligibility for the special tax regime is required.

Social Security Contributions in Portugal

Payment of social security contributions on income from wages – applies at the rate of 34.75% of wages (consisting of an employee share of 11% and 23.75% is imposed on the employer). These deposits cover family benefits, pensions and unemployment benefits. In addition to social security contributions at a general rate of 23.75%, employers must buy an insurance premium to cover work accidents. The premium varies depending on the job and risk classification.

Digital Nomad Visa in Portugal

There are three categories of Portuguese visas:

Portugal Temporary Stay Visas, also known as Schengen Visas, are designed to stay in Portugal for up to a maximum of 90 days in any 180-day period. The visa can be obtained for tourism purposes, family visits, business, temporary work, moving to the airport or other stay in Portugal of a temporary nature. Also suitable for digital nomads who wish to stay in Portugal temporarily.

Temporary residence visas for a period of more than 90 days.

Long-stay visas, designed for stays longer than one year. This category includes several visas.

D7 Passive Income Visa.The D7 visa is also known as a pension or passive income visa but is also suitable for barymouth workers and digital nomads. This visa is ideal for retirees or entrepreneurs who want to live in Portugal without the need for a large financial investment. The visa is available to those who can provide proof of passive income such as: real estate, retirement annuity, salary, etc.

TheD2 entrepreneur visa is intended for entrepreneurs, freelancers or self-employed persons outside the EU, who wish to reside in Portugal and establish a business or start-up in Portugal or invest in a business in Portugal. This visa is intended for small and medium-sized businesses interested in raising foreign investments for the development of the Portuguese economy. To apply, you must submit a business plan that reflects economic, technological, and cultural return.

With the D7visa and the D2 visa, you can benefit from the incentives under the NHR and benefit from the incentives of this fiscal regime as detailed above.

The purpose of obtaining tax advice in the process of relocation to Portugal

Residents in Portugal for tax purposes are taxed on their worldwide income at progressive rates varying from 13.25% to 48% for 2024.

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 paid/borne by a Portuguese company or permanent establishment (PE).

Non-residents are taxed at a flat rate of 25% on their taxable remuneration (e.g. employment, self-employment, and pension income) in 2024.

Resident income tax rates for 2024 is from 13.25% to 48%

For the purpose of applying the tax rate, the taxable income is divided by two if the taxpayers are married and not judicially separated, as well as in the case of de facto marriages, whatever the circumstances, should they opt for joint taxation.

Special rates apply to capital gains and investment income.

Additional solidarity rate

In 2024, an additional solidarity rate, which varies between 2.5% and 5%, applies to taxpayers with a taxable income exceeding EUR 80,000 and EUR 250,000, respectively.

Employees

Social security contributions are shared by the employee and the employer. In general terms, the contributions are due on the employee’s gross remuneration at rates of 11% and 23.75% by the employee and the employer, respectively. These contributions cover family, pension, and unemployment benefits.

In addition to social security contributions at a general rate of 23.75%, employers must buy an insurance premium to cover occupational accidents. The premium varies according to work and risk classification.

Members of the board

Regarding members of the board, the social security rates correspond to 9.3% with respect to the individual contributions and 20.3% for employer contributions. However, the contribution rate applicable to members of statutory boards who are considered as managers or administrators is set at rates of 23.75% and 11% to employers and members of statutory boards, respectively. The contributions of members of statutory boards are based on their effective remuneration but subject to a monthly minimum income level of EUR 509.26.

Members of statutory boards who are considered as managers or administrators, and some types of self-employees, become entitled to protection in the event of unemployment.

Self-employees

The contributions rate applicable to self-employees corresponds to 21.4%. For self-employees under the simplified tax regime, the monthly contribution basis corresponds to 1/3 of the relevant remuneration determined in each reporting period and produces effects in that month and in the following two months. For the determination of the relevant remuneration of the self-employee, it is considered the income received in the three months previously to the reporting month. The relevant remuneration corresponds to 70% of the income from services rendered and to 20% of the income related to the production and sales of products.

A 10% contribution rate is due by employers if 80% or more of the fees earned by the self-employee come from services for the same company, for the same person with a business activity, or to the same group. A 7% contribution rate is due by employers when the economic dependence of the self-employee varies between 50% and 80%. The contribution is payable upon the issue of a tax assessment by the social security authorities.

In 2024, the Portuguese monthly minimum wage is EUR 820.

Consumption taxes

Value-added tax (VAT)

There are three VAT rates: the standard rate of 23% (22% in the Autonomous Region of Madeira; 16% in the Autonomous Region of the Azores), the intermediate rate of 13% (12% in Madeira; 9% in the Azores), and the reduced rate of 6% (5% in Madeira; 4% in the Azores). See the Other taxes section in the Corporate tax summary for more information.

Net wealth/worth taxes

There are no net wealth/worth taxes in Portugal.

Inheritance and gift taxes

Free acquisition of goods by individuals (inheritance and gifts) is taxed under the stamp tax at 10%.

Donation of property is subject to an additional rate of 0.8%.

Property taxes

Municipal property tax is charged on the registered value of real estate. As a rule, rental income earned by tax residents and non-tax residents is liable to a special tax rate of 28%. Rental income from residential rentals is taxed at 25% for contracts signed/renewed from October 2023 onwards (some exceptions may apply, determining the date as from which this rate starts to be applicable). The taxpayers have the option for the inclusion of such income in the total aggregated income in some situations. Special reductions or exemptions may apply, provided certain conditions are met.

Our firm is an expert in the field ofinternational taxation and voluntary disclosure

he author and/or the accountant's office bear no responsibility whatsoever towards the readers, and they are required to obtain professional advice before any action relying on the aforesaid. Only the provisions of the law, case law or the directives of the treating institution are binding and determining. Anyone who makes any use of the aforementioned information does so at his sole discretion and responsibility. In any case where the masculine is written, it also refers to the feminine, and vice versa, unless explicitly stated otherwise.