Portugal taxes for UK citizens
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The Tax System in Portugal for UK citizens
Considering a relocation to Portugal and in need of information about its tax system? Your search ends here. This comprehensive guide is tailored to assist you in understanding and maneuvering through Portugal’s tax framework. Portugal is renowned for its exceptional quality of life and mild climate, and it boasts a tax system that is notably advantageous. This favorable tax environment has attracted a substantial number of expatriates to the country.
If you are contemplating a move to Portugal or are already a resident and earn income, it’s essential to be aware that you may be subject to taxation. If you establish residency in Portugal for 183 days or more per year, you are obliged to pay income tax on your global earnings.
Who has to pay taxes in Portugal?
In Portugal, tax filing is mandatory for all residents, irrespective of the source or level of their income. Non-residents, on the other hand, are solely subject to taxation on income earned within Portugal’s borders. Nevertheless, both residents and non-residents are obligated to comply with the tax filing requirements in Portugal. Generally, you are expected to file taxes if:
- You are employed and earn an annual income exceeding €7,112.
- You are self-employed.
- You generate income from dividends, interest, or capital gains.
- You derive income from rental properties.
- You receive pension payments.
You are recognized as a resident of Portugal if:
- You spend a total of 183 days or more in Portugal within a single tax year, and these days need not be consecutive as long as they fall within the same 12-month period.
- You either rent or own a property in Portugal with the intention of making it your regular place of residence during the tax year you are filing for.
- You are a member of a crew on a boat or aircraft providing services to Portugal or are based in the country.
- You undertake official commissions or public duties in other nations on behalf of the Portuguese state.
- You are a Portuguese national but have established tax residency in another country.
If any of the above criteria apply to your situation, it is likely that you qualify as a resident of Portugal. Similar to the tax system in the United States, residents in Portugal are subject to a progressive tax rate structure.
However, if you are a british living abroad in Portugal, it’s advisable to investigate whether you meet the eligibility requirements for non-habitual residency status first.
What is the NHR Program and its benefits?
The Non-Habitual Resident (NHR) program was created by the Portuguese government to assist foreign people who intend to settle in Portugal or purchase real estate there.
The program enables them to pay 20% less tax on income obtained in Portugal and 0% less tax on income earned outside. For investors, retirees, and those with large foreign incomes, the NHR status is extremely beneficial.
The NHR program, created in 2009, aims to attract qualified workers, retirees, and foreign residents with stable incomes. One must not have been a tax resident of Portugal for five years before applying for the NHR status.
The program can last up to 10 years and will grant you tax residency in Portugal and pay less taxes on income and capital gains.
What are the requirements?
In order to qualify and register for NHR in Portugal, you need the following requirements:
- You must qualify as a Portuguese tax resident: A person becomes a Portuguese tax resident after spending more than 183 days in the country during a 12-month period or tax year. If you are there for a shorter period of time and have a home in the country, you can also become a Portuguese tax resident.
- Not been a Portugal Tax Resident in 5 years: You cannot have been a Portuguese tax resident in the previous five years.
- Legally Reside in Portugal: Applicants need to reside in Portugal. If you are not EU citizen, you will need a visa like theD7 Visa or the Digital Nomad Visa.
If you meet the criterias, the main way to obtain this special tax status is to file an online application with the Portuguese tax authorities, known as the Portal das Finanças. This must be completed after the person becomes a tax resident, and until March 31st of the year after your move.
What are the benefits?
If you have NHR status, your foreign-earned passive income can be tax exempt in Portugal for ten years. It also means that your foreign income isn’t subject to double taxation. This covers income from dividends, interests, royalties, rents, and some capital gains.
Also, employment and self-employment income in Portugal is taxed at a flat rate of 20% if derived from a high added value activity. This is much lower than the progressive tax rate that some in Portugal pay, going from 14.5% up to 48%.
For more info about the NHR, visit this page or contact our expert lawyers to explore your situation for free.
Tax Rates When Living Abroad in Portugal
Non-residents in Portugal are subject to a fixed tax rate of 25%, whereas residents are taxed using a progressive scale ranging from 14.5% to 48%.
Similar to the United States, the tax year in Portugal follows the calendar year. Tax returns must be submitted by March 31st, and any outstanding tax liabilities must be settled by that deadline.
There are six categories of income that are subject to taxation in Portugal:
- Income
- Business and professional income
- Investment income
- Real estate income
- Increases in net worth
- Pensions
To begin, let’s explore the income tax rates you can anticipate in Portugal based on your residency status.
- 0 – €7,112: Tax rate of 14.5% with base tax amount of €0. This means a 14.5% on all income earned up to €7,112.
- €7,113 – €10,732: Tax rate of 23% with base tax amount of €604.54 + 23% of the amount over €7,1112
- €10,733 – €20,322: Tax rate of 28.5% with base tax amount of €1,194.8 + 28.5% of the amount over €10,732
- €20,323 – 25,075: Tax rate of 35% with base tax amount of €2,515.63 + 35% of the amount over €20,322
- €25,076 – 36,967: Tax rate of 37% with base tax amount of €3,107.27 + 37% of the amount over €25,075
- €36,968 – 80,882: Tax rate of 45% with base tax amount of €5,974.54 + 45% of the amount over €36,976
- €80,883 and over: Tax rate of 48% with base tax amount of €8,401.21 + 48% of the amount over €80,882
Important to remember: Your income tax in Portugal is not computed by merely multiplying your total income by the tax rate associated with your income bracket. Each tax bracket includes a predetermined base tax amount that must be paid, in addition to a percentage applied to the portion of your income exceeding the minimum for that bracket.
For example, if you earned €50,000 in 2022, your tax liability in 2023 would amount to €5,974.54 (the base tax) plus 45% of €13,003 (the amount exceeding the minimum threshold). This calculation would result in a total income tax of €11,839.39.
Self-Employment Tax: If you earn income through self-employment, it is subject to a contribution tax rate of 21.4%. You are required to report your income quarterly, with filing deadlines in April, July, October, and January.
Corporate Tax: Businesses operating in Portugal are subject to a fixed tax rate of 21% on all taxable corporate profits.
Value-Added Tax (VAT): VAT is a tax paid by consumers in Portugal when they purchase goods or services. The merchant then forwards the collected VAT to the Tax and Customs Authority (AT).
Portugal’s value-added tax system comprises three tiers, each with varying rates based on the type of goods or services being acquired.
- Reduced rate: 6% in mainland Portugal, 5% in the autonomous region of Maderia and 4% in the Autonomous Region of the Azores.
- Intermediate rate: 13% in mainland Portugal, 9% in the autonomous region of Maderia and 12% in the Autonomous Region of the Azores.
- Standard rate: 23% in mainland Portugal, 22% in the autonomous region of Maderia and 18% in the Autonomous Region of the Azores.
Wealth Tax: Portugal does not impose a wealth tax.
Inheritance Tax: For gifts and inheritances, there is a tax rate of 10%, with an additional 0.8% applied if the gift consists of real estate. Inheritances transferred directly to spouses and immediate family members are typically exempt from this tax.
Property Tax: Property tax rates in Portugal vary by municipality. Property owners can expect to pay property taxes ranging from 0.3% to 0.45%. However, properties in rural areas are taxed at a lower rate of 0.8%. Some properties may enjoy a tax exemption for up to three years if they are used as a primary residence or rented out to tenants. After three years, property taxes will be applicable again.
If you own a property and rent it out, a flat rate of 15% is applied to any rental income.
Social Security: In Portugal, employees are required to contribute 11% of their gross monthly salary to the Social Security system, while employers contribute 23.75%.
Ready to begin your Adventure in Portugal as an american? Our team of experienced tax lawyers is here to help. Don’t navigate the complex application process alone. Contact us today to receive personalized guidance, ensure your documents are in order, and increase your chances of a successful outcome. Let us handle the legal aspects while you focus on your plans for Portugal. Reach out now to schedule a consultation with our dedicated team.
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To request a free consultation case, please provide us with your contact details below and we will contact you via email or phone.
How can a lawyer help me with the Taxes in Portugal being american?
A lawyer can be a valuable asset when dealing with tax matters in Portugal as american. Here are some ways in which a lawyer can assist you:
Eligibility Assessment: A lawyer can review your financial and personal circumstances to determine if you meet the eligibility criteria for the NHR program, ensuring that you qualify for the program before you proceed.
Application Process: A lawyer can guide you through the entire application process, helping you complete the necessary forms and gather the required documentation to ensure a smooth and accurate submission.
Tax Planning: A lawyer can develop a comprehensive tax planning strategy tailored to your situation, maximizing the benefits of the NHR program and optimizing your tax situation both in Portugal and potentially in your home country.
Income Tax Optimization: NHR offers exemptions or reduced rates on various types of income. A lawyer can help structure your income sources to take full advantage of these benefits while complying with Portuguese tax laws.
International Tax Implications: If you have income or assets in other countries, a lawyer with expertise in international taxation can help you understand how the NHR program interacts with the tax laws of those countries and avoid potential pitfalls like double taxation.
Real Estate and Property Tax: If you’re planning to buy property in Portugal, a lawyer can advise you on how the NHR program affects property-related taxes and help you make informed decisions.
Legal Compliance: NHR program rules can change, and staying compliant is crucial to maintain your NHR status. A lawyer can keep you updated on any changes and ensure you continue to meet the requirements.
Representation: In case of any inquiries or audits by Portuguese tax authorities, a lawyer can represent you, respond to queries, and handle any necessary communication on your behalf.
Exiting the Program: When your NHR status ends after ten years, a lawyer can assist you in smoothly transitioning to the regular tax regime or exploring other options based on your circumstances.
Appeals and Disputes: If you encounter any challenges with your NHR application or status, a lawyer can assist in appealing decisions or resolving disputes, ensuring your rights are protected.
Peace of Mind: With a lawyer’s expertise, you can have confidence that your NHR application and tax matters are being handled correctly, allowing you to focus on your transition to Portugal.
When seeking a lawyer’s assistance with tax matters in Portugal, it’s important to choose one with expertise in tax law and a strong understanding of international taxation, especially if you have income or assets in multiple countries. They can provide personalized guidance tailored to your specific tax situation and help you navigate the complexities of the Portuguese tax system as a foreigner.
At Lexidy, we can help you understand your tax situation and what taxes will you have to pay if you are planning to move to Portugal. Contact us for a free consultation.
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Frequently Asked Questions
In Portugal, residents are generally taxed on their worldwide income. UK citizens living in Portugal may need to report and pay taxes on income generated both in the UK and in Portugal.
Portugal has a progressive tax rate system, with rates ranging from 14.5% to 48%. The specific rate you’ll pay depends on your total income, including any income from the UK.
Yes, there is a tax treaty between the UK and Portugal that helps prevent double taxation. This treaty can provide relief to UK citizens who may otherwise be taxed on the same income by both countries.
Portugal offers a special tax regime for non-habitual residents (NHR), which can provide certain tax exemptions or reductions for foreign-sourced income. UK citizens may qualify for NHR status under specific conditions.
UK citizens living in Portugal generally need to file tax returns in both countries. The UK requires its citizens to report worldwide income, while Portugal requires residents to report all of their income.
Portugal offers various deductions and credits that may be applicable to UK citizens, such as deductions for medical expenses and certain types of income. Consult with a tax advisor to explore potential tax benefits.
The tax year in Portugal coincides with the calendar year, running from January 1st to December 31st. Income tax returns are typically due by the end of April following the tax year, but this deadline may vary.
To become a tax resident in Portugal, you should spend more than 183 days per year in the country or have a residence in Portugal that suggests an intention to establish permanent residence. Consult with a tax advisor for detailed guidance on tax residency.
To optimize your tax situation, consider consulting with a tax professional who specializes in international taxation. They can help you navigate tax treaties, exemptions, and deductions to minimize your tax liability legally.
UK state pension and certain other UK benefits can generally be received while living in Portugal. Ensure you inform the relevant UK authorities of your change in residence and consult with them to ensure continued eligibility and proper reporting.
Please keep in mind that tax laws can be complex and subject to change. It’s essential to consult with a qualified tax advisor or attorney who specializes in international tax matters to address your specific situation accurately.
Frequently Asked Questions
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For us, Lexidy is a way of life and what excites us the most is to be able to deliver the happiness and satisfaction of tax related processes. We want to help you achieve your goals and dreams of relocating to Portugal.