Portugal taxes for expats: Important rules and updates

Over the last few years, Portugal has updated its tax rules, making it essential for expats to stay informed. This article breaks down everything you need to know about taxes in Portugal for expats, giving you clarity on what applies to you whether you’re retiring, working remotely, or relocating with your family.

Key takeaways: Portugal taxes for expats

• Residency defines taxation – Residents pay tax on worldwide income, while non-residents are taxed only on Portuguese-source earnings.
• Income is taxed differently – Employment, pensions, rental income, and investments each follow specific tax rules with rates from 13% to 48%.
• Social Security is taxable – U.S. Social Security benefits are taxed in Portugal, though the treaty allows credits to avoid double taxation.
• Other taxes apply – Expats may face capital gains, property tax (IMI, AIMI, IMT), and VAT, with deductions available for certain expenses.

Tax residency in Portugal for expats

For expats in Portugal, the key factor in understanding your tax obligations is whether you’re classed as a resident or a non-resident. Your residency status determines if you’ll be taxed only on Portuguese-source income or on your worldwide earnings.

Taxes in Portugal for foreigners

You’re considered a tax resident in Portugal if you:

• Spend 183 or more days in the country within a 12-month period (days don’t need to be consecutive).
• Maintain a home in Portugal that suggests you intend to live here as your permanent residence.
• Work on ships or aircraft operated by Portuguese entities, or carry out public functions for Portugal abroad.

Many expats first enter Portugal through visas like the D7 or D8. These visas often lead to tax residency once you spend more than 183 days in the country, which means you’ll need to declare worldwide income.

To manage your taxes, open a bank account, or sign a rental contract in Portugal, you’ll need a NIF. This is your tax identification number and is essential for filing returns and accessing many financial services. Without it, you can’t fully participate in Portugal’s tax system.

Residents vs. non-residents

• Residents: Taxed on worldwide income under Portugal’s progressive tax brackets (with rates up to 48%). They may also be eligible for regimes like the new NHR 2.0 (IFICI) regime if they work in certain sectors.
• Non-residents: Taxed only on Portuguese-source income, usually at a flat 25% rate.

Portugal taxes for expats: Overview

Portugal taxes for expats cover a range of obligations, which depend primarily on your residency status and the source of your income.

Here’s a breakdown of the main taxes to be aware of:

Personal income tax (IRS)

Residents pay progressive income tax ranging from around 12,5% to 48%, plus a solidarity surcharge on higher earnings. Non-residents are usually taxed at a flat 25% on Portuguese-source income such as employment or rental income.

Inheritance and gift tax

Portugal does not impose inheritance or gift tax on transfers between close family members (spouse, children, parents). However, stamp duty of 10% applies on transfers to other beneficiaries.

Other taxes in Portugal for expats

• Vehicle tax if you register a car in Portugal.
• Tourist/municipal taxes on short-term stays, usually paid by visitors.
• Regional tax incentives in Madeira and the Azores that can lower overall liability for qualifying businesses and residents.

Categories of income and how they are taxed

Portugal’s tax system treats different types of income in different ways. For expats, it’s essential to understand how each category is taxed, as this determines your overall liability and how you should plan ahead.

Employment income

If you work for a Portuguese employer, your salary is taxed under Portugal’s progressive income tax rates, ranging from about 12.5% to 48%. Employers also withhold social security contributions: 11% from the employee and 23.75% from the employer. Non-residents working in Portugal pay a flat 25% on local employment income.

Self-employment and business income

Freelancers and independent contractors are taxed on their declared profits. Under the simplified regime, a percentage of gross receipts is assumed to be profit, while the remainder is considered expenses. 

Social security contributions apply at around 21.4% of 70% of your income. If you set up a company in Portugal, profits are taxed at the standard corporate rate of 20%, with possible reductions for SMEs.

Investment income (dividends and interest)

Dividends, interest, and royalties are usually taxed at a flat 28% for residents. However, residents can opt to include this income in their total income and be taxed at progressive rates if that results in a lower liability. 

Non-residents generally face a 28% withholding tax on dividends and interest paid from Portuguese sources.

Capital gains

Capital gains tax applies to the sale of real estate, shares, and other investments. For Portuguese residents, 50% of gains from selling real estate are added to taxable income and taxed at progressive rates. 

Non-residents face a 28% flat tax on the full gain. Exemptions may apply if you reinvest the proceeds in another primary residence in Portugal or the EU/EEA.

Rental income

Rental income from Portuguese properties is taxed at a flat 28% for residents, though they can opt into progressive rates. Deductible expenses include maintenance, repairs, and municipal property taxes (IMI). Non-residents are also taxed at 28% on rental income earned in Portugal, with limited deductions.

Pension and retirement income

Foreign pensions received by residents are taxed according to Portugal’s standard progressive income tax rates under the current NHR 2.0 regime.

Other income (royalties, crypto, and miscellaneous)

• Royalties are taxed at 28% or progressive rates, depending on your residenc
• Cryptocurrency gains are taxed if the assets are held for less than 12 months; the standard rate is 28%. Long-term holdings may be exempt if they are not tied to professional trading.
• Miscellaneous income, such as prizes or compensation, is generally included in taxable income and subject to standard rates.

Who needs to file a tax return in Portugal?

Whether you’re a long-term resident or someone with occasional Portuguese income, you may be required to submit an annual tax return. The rules apply broadly to both residents and non-residents, with different obligations depending on your income sources.

Residents

Most residents must file a tax return each year, even if part of their income is earned abroad. You’ll need to submit a return if you fall into any of these categories:

• Retirees under the NHR/IFICI scheme (e.g., British or American pensioners claiming special tax treatment).
• Employees working for a Portuguese company or receiving employment income in Portugal.
• Self-employed professionals or business owners operating in Portugal.
• Property owners earning rental income from Portuguese real estate.
• Investors with capital gains, dividends, or interest to report.
• Anyone with global income that may be taxable under international treaties.

Non-residents

Even if you live outside Portugal, you must still file a return if you have Portuguese-source income. Common examples include:

• Rental income from property located in Portugal.
• Proceeds from the sale of Portuguese real estate.
• Dividends or interest paid by Portuguese companies.

Filing steps for expats

1. Obtain a NIF: Your tax ID is essential for filing and all financial transactions.
2. Register with Portal das Finanças: The online platform of the Portuguese tax authority, where you file your return.
3. Gather documentation: Employment statements, pension records, bank statements, rental contracts, and expense receipts.
4. Complete Modelo 3: The standard annual return form, with annexes for each income type.
5. Submit between April 1 and June 30: Returns are filed online for the previous calendar year.
6. Pay any tax due by August 31: Late payments can incur penalties and interest.

Failing to file, even as a non-resident, can lead to penalties and complications with the Portuguese tax office. Filing also ensures you can claim deductions, tax credits, or relief under double taxation treaties.

How Touchdown makes your move to Portugal stress-free

Touchdown is Portugal’s premier relocation platform, built to take the complexity out of moving abroad. With an expert team of Portuguese lawyers at its core, we bring together everything you need to establish your new life through one streamlined platform.

Every expat story is unique, and we make sure your plan reflects that. Whether you’re retiring, relocating with family, or starting a new chapter as a remote worker, Touchdown creates a personalized path around your goals and lifestyle. 

Our free Eligibility Checker gives you instant clarity on which options fit best, while our platform and in-house experts provide full guidance at every step.

From securing your NIF and opening a local bank account to reviewing rental contracts and structuring your taxes, our legal team handles the details so you don’t have to. We also offer dedicated tax consultations, ensuring you understand Portugal taxes for expats, from pension and expat taxes to crypto rules, so you can set yourself up with confidence.

For deeper support, you can book a 1:1 consultation with our specialists. We’ll create a relocation strategy tailored to your situation, so you can focus less on paperwork and more on enjoying life in Portugal.

FAQs about Portugal taxes for expats

Is Portugal still tax free for expats?

Portugal used to offer broad tax breaks under the NHR program, which allowed many expats to enjoy reduced or zero tax for 10 years. That program ended in 2024 and was replaced by the NHR 2.0 (IFICI regime), which applies mainly to professionals in innovation and research. Today, most expats pay Portugal’s standard progressive income tax rates, though some may still benefit from reduced rates.

Do US citizens pay tax in Portugal?

Yes. If you are a US citizen and a Portuguese tax resident, you must declare your worldwide income in Portugal. Non-residents only report Portuguese-source income. The Portugal–US tax treaty allows you to claim credits or exemptions so you are not taxed twice.

Do retirees pay tax in Portugal?

Yes. Retirees living in Portugal are taxed on pensions and retirement income. Under current rules, most foreign pensions are taxed at progressive rates. The exact amount depends on the source of income and treaty provisions.

Does Portugal tax US Social Security benefits?

Yes. Portugal taxes US Social Security benefits for residents. While the Portugal–US tax treaty prevents double taxation, it does not exempt Social Security from Portuguese tax. This means American retirees living in Portugal should plan to declare their Social Security payments and pay tax on them in Portugal, though they can usually offset this by claiming foreign tax credits on their US return.

Will Portugal tax my US Social Security?

Yes. Residents must declare US Social Security payments as taxable income in Portugal. While some government pensions (like US federal or military pensions) may be exempt, Social Security benefits are generally taxed under Portugal’s normal rules.