Taxation in Portugal

Portugal has a lenient tax regime on non-resident income and newly arrived residents who may also qualify as Non-Habitual Residents (NHRs), although the standard regime imposes income tax at higher and progressive rates on the income of other residents.

Non residents are taxed at 25 percent on Portuguese source employment and self employed income, and at 28 percent on capital gains, rental income and various forms of investment income.

The NHR regime is designed to attract talented individuals in high value added activities and high net worth individuals. The incentives include a reduced tax rate of 20 percent on Portuguese source income from designated professional activities and a tax exemption on a wide variety of foreign source income, including pensions, interest, dividends, royalties, as well as income from overseas professional activities, subject to certain conditions.

The employment areas which qualify for NHR status are: technical professions (architect, engineer, geologist etc); artists, actors and musicians; doctors and dentists; medical and educational professionals; IT; scientific; business investors and managerial talent. A comprehensive list can be obtained from Henley in Portugal.

The NHR scheme is available for individuals not treated as tax residents in Portugal at any time in the immediately preceding five years. Engagement in a high value activity is not a requirement for tax-exemption of other sources of income. The entitlement is granted for a period of 10 years from the year in which the applicant becomes tax resident in Portugal. To be tax resident, the individual has to remain in Portugal for 183 days in the tax year, or alternatively, on or by 31st December of the tax year, they must hold a dwelling with the intent to use it as a permanent residence.

Residents of Portugal who do not qualify as NHR are subject to a progressive personal income tax rate up to 48%, although additional surcharges for 2014 apply, dependent upon income levels. Currently, a 3.5% surcharge is levied, plus an additional 2.5% solidarity surcharge on income above Eur 80,000 rising to 5% on income above the Eur 250,000 level. Note that these surcharges also apply to non-exempt income of a NHR.

The standard rate of corporate income tax is levied at 25% and the standard rate of VAT currently being applied is 23%.

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