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If you are considering a possible relocation or are in the process of moving it will be helpful to know what to expect when it comes to finance and tax in Portugal.
Portugal has long been a popular relocation destination for expats who are looking for a new life in sunnier climbs. With a Mediterranean climate, it has much to offer.
When it comes to finance and tax in Portugal the system is fairly straight forward. There isn’t too much to consider that you won’t already be used to in the country you currently call home. Income tax, social security contributions, corporation and VAT are all regulated on a national level.
There aren’t any additional regional, or municipal taxes levied on earnings.
Let’s take a look in further detail at what you can expect from your new country of residence and how finance and tax in Portugal apply to you.
Tax obligations when moving to a new country
First of all, you need to understand the tax period of the country you are moving to. In some countries, it runs as per the calendar year. In other countries, like the UK, it runs from April to March. If you are moving from a country with the same tax year, then it makes it easier.
You will need to ensure that you pay any taxes owned in your country of origin for any partial or previous tax period.
If you have been employed and paying as you earn, then you may be entitled to a refund. All of these things can be resolved at the end of the tax year.
Make sure you file a tax return though and inform them that you are moving abroad. You don’t want to leave any outstanding tax bills. They will soon catch up with you.
Then you need to consider the tax and contributions you will need to make in Portugal. What taxes apply to you and how much are you expected to pay? What are the differences for those that are employed and those that are self-employed?
If you are unsure as to how finance and tax in Portugal works then it is advisable to seek professional advice from an accountant.
Income tax rates in Portugal
Income tax in Portugal is charged at a progressive rate ranging from 14.5% on earnings up to €7,091 through to 48% on earnings over €80,640. There is a splitting service that is applied to married couples.
All expats arriving in Portugal must register as a taxpayer before undertaking any paid for activities. You must fill in a “fische de inscricao” and submit it to the local tax office.
The tax year runs from Jan 1st – Dec 31st and everyone needs to file an annual tax return. Tax returns must be submitted either by the 15th March or 30th April in the following tax year.
If you are a resident of Portugal, then you must pay income tax on your worldwide earnings.
You are classed as a resident if you are living in Portugal for more than 183 days in the year. Failure to submit or submitting a late return is subject to fines of between €200 and €2,500.
Social security contributions in Portugal
The public social security system in Portugal is provided by the Portuguese state. It is made up of different subsystems which include the Previdencial (Welfare System), Solidareidade (Solidarity System) and the Protecção Familiar (Family Support System).
The Welfare System, which is a contributory scheme, covers most employees and the self-employed. The self-employed are subject to conditions, however.
The objective of the Welfare System is to support those that lose their job due to sickness, maternity, unemployment, etc.
All of the various subsystems are designed to ensure that everyone gets a good quality of life and special protection where necessary.
Once you are enrolled in the Portuguese social security system, you are enrolled for life.
If you are employed, then it is up to your employer to register you and ensure they make contributions of 23.75% while employees make an 11% contribution.
The self-employed are expected to make contributions of between 25.4% and 32% depending on which scheme they choose to join.
Corporate tax in Portugal
CIT in Portugal is 21%
The rate of corporation tax in Portugal is governed by the federal government and fluctuates. Currently, in 2017 the CIT in Portugal is 21% which is the lowest it has ever been. The highs have seen it increase to over 50%. Corporate enterprises are expected to pay CIT on the profits they make not only in Portugal but also worldwide.
Non-resident companies that trade in Portugal are only expected to make payments based on their Portuguese profits.
VAT in Portugal
VAT is a tax that is payable on goods and services. The recommended rate is set by the EU, but countries are allowed to set their own rate as long as it exceeds 15%.
VAT rate in Portugal is 23%
The VAT rate in Portugal is 23% with an intermediate rate of 13%.
There is then a reduced rate of 6% for some goods and services and VAT exemptions on certain things.
The Azores and Madeira actually have different VAT rates. Known as the ‘Imposto sobre o Valor Acrescentado’, returns must be submitted either monthly or quarterly.
This depends on a company’s turnover. €650,000 or more and they must be submitted monthly, less than this and it is quarterly. The threshold for VAT registration is €12,500 with distance sellers required to register at €35,000.
Other Portuguese taxes
Recently a wealth tax was introduced in Portugal as an extension of the Portuguese property tax. There is also capital gains tax to consider.
If you are confused or unsure as for the regulations surrounding finance and tax in Portugal, you may want to enlist the help of a professional.
With many expats moving to Portugal there will be accountants that are experienced in this area.
An expat forum may help you to establish more information, or you can find plenty of resources online.
It is advisable to carry out all of your research before you run to ensure that you have everything in order when you start your new life in your new home.