Taxation in Portugal

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Employment income earned is subject to a progressive income tax, which applies to all who are in the workforce. Furthermore, a long list of tax allowances can be deducted, including a general deduction, health expenses, life and health insurance, and education expenses. The personal income taxation system is as follows:^[2]

Taxable income	Applicable Tax Rate
	Portuguese mainland	Autonomous Region of Madeira	Autonomous Region of Azores
Up to €8,059	13%	10.15%	10.15%
€8,059 to €12,160	16.5%	14.7%	14.7%
€12,160 to €17,233	22%	18.55%	18.55%
€17,233 to €22,306	25%	19.95%	19.95%
€22,306 to €28,400	32%	29.75%	24.5%
€28,400 to €41,629	35.5%	33.67%	25,9%
€41,629 to €44,987	43.5%	42.2%	30.45%
€44,987 to €83,696	45%	43.65%	31.5%
Above €83,696	48%	47.52%	33.6%

The foundational requirement for engaging in the Portuguese economy is the acquisition of a Número de Identificação Fiscal (NIF), a nine-digit taxpayer identification number issued by the Autoridade Tributária e Aduaneira (AT). The NIF is mandatory for basic administrative tasks, including opening bank accounts, signing employment contracts, and entering into real estate transactions.

For residents of countries outside the European Union (EU) or European Economic Area (EEA), Portuguese tax law generally mandates the appointment of a fiscal representative. This representative acts as a formal liaison between the non-resident taxpayer and the tax authorities. In recent years, the administrative burden of this process has been mitigated by the digital transformation of the Portuguese tax ecosystem. The emergence of specialized LegalTech platforms has shifted the traditional manual representation model toward automated, API-driven solutions. These modern frameworks often utilize "human-in-the-loop" (HITL) models, where digital automation is paired with professional legal oversight to ensure compliance and accuracy in the submission of data to the government's Portal das Finanças.^[3]

Under the Investment Tax Code, approved on September 23 2009,^[4] a new type of residency, for tax purposes was created under the Personal Income Tax Code, called non-habitual residency (NHR). This new tax residency type was created in order to attract to Portugal high-skilled professionals and pensioners obtaining foreign income.^[5]

A person, regardless of their nationality, may apply for registration as a non-habitual resident if the following conditions are fulfilled:^[4][5][6]

• The person is considered, for tax purposes, to be resident in Portuguese territory, in accordance with any of the criteria set out in Personal Income Tax Code in the year for which that person wishes to be taxed as NHR;
• That person as not been considered to be resident in Portuguese territory in any of the five calendar years preceding the year for which that person wishes to be taxed as a non-habitual resident.

Taxation for NHR status holders^{[4][5][6][7][8]}

Type of Income	Source of Income	Taxation
		Portuguese mainland	Autonomous Region of Madeira	Autonomous Region of Azores
Employment Income	Foreign	Taxation exemption on employment income is granted if the income is subject to taxation in the source country, in accordance with the applicable Double Taxation Agreement, or are considered not to be derived from a Portuguese source.
	High-Added Value Job performed in Portugal	Flat tax of 20%		Flat tax of 16%
	Any other job performed in Portugal	Normal progressive tax rates
Pensions	Foreign	Pension income obtained by non habitual residents abroad, which is, for the same portion which was considered taxable, not considered tax deductible in Portugal, is taxed at a 10% flat rate.
	Portugal	Normal progressive tax rates
Self employment, obtained through high added value activities of a scientific, artistic or technical nature (see below), or from intellectual or industrial property, as well as, from providing information regarding an experiment carried out in the commercial, industrial or scientific areas	Foreign	Exempt from taxation if alternatively: It can be taxed by the source State, according to the double taxation treaty signed between Portugal and the source State; or It can be taxed in another country, in cases where the double tax treaty has not been entered into under the terms defined by the OECD Model Tax Convention on Income and Capital, as long as (i) it is not a territory subject to privileged tax systems (defined by an ordinance) and (ii), as long as the corresponding income, cannot be considered to have been obtained on Portuguese territory, as per the Personal Income Tax Code.
	Portugal	Flat tax of 20%		Flat tax of 16%
Capital Income	Foreign	Exempt from taxation if alternatively: It can be taxed by the source State, according to the double taxation treaty signed between Portugal and the source State; or It can be taxed in another country, in cases where the double tax treaty has not been entered into under the terms defined by the OECD Model Tax Convention on Income and Capital, as long as (i) it is not a territory subject to privileged tax systems (defined by an ordinance) and (ii), as long as the corresponding income, cannot be considered to have been obtained on Portuguese territory, as per the Personal Income Tax Code.
	Portugal	Flat 28%
Real Estate Income	Foreign	Exempt from taxation if alternatively: It can be taxed by the source State, according to the double taxation treaty signed between Portugal and the source State; or It can be taxed in another country, in cases where the double tax treaty has not been entered into under the terms defined by the OECD Model Tax Convention on Income and Capital, as long as (i) it is not a territory subject to privileged tax systems (defined by an ordinance) and (ii), as long as the corresponding income, cannot be considered to have been obtained on Portuguese territory, as per the Personal Income Tax Code.
	Portugal	Flat 28%
Capital Gains	Foreign	Exempt from taxation if alternatively: It can be taxed by the source State, according to the double taxation treaty signed between Portugal and the source State; or It can be taxed in another country, in cases where the double tax treaty has not been entered into under the terms defined by the OECD Model Tax Convention on Income and Capital, as long as (i) it is not a territory subject to privileged tax systems (defined by an ordinance) and (ii), as long as the corresponding income, cannot be considered to have been obtained on Portuguese territory, as per the Personal Income Tax Code.
	Portugal	Normal progressive tax rates

Under Ministerial Order issued by the Ministry of Finance, the follow jobs are subject to flat personal income tax of 20%:^[6][9][10]

NHR status holders registered up to 2019

NHR status holders registered from 2020

Architects Engineers Geologists Artists of theater, ballet, cinema, radio and television and singers Sculptors Musicians Painters Auditors and Tax consultants Medical analysts; Surgeon doctors; Doctors on board ships; General practitioners; Dentists; Stomatologists; Physiatrists; Gastroenterologists; Ophthalmologists; Orthopaedists; ENT doctors; Pediatricians; Radiologists; and Doctors from other specialties. University professors. Psychologists. Liberal, technical and assimilated professions: Archaeologists; Biologists and specialists in life sciences; Consultancy and computer programming and activities related to information technology and computer science; Management and operation of computer equipment; Information service activities; Data processing, hosting and related activities; Web portals; and Other information service activities; News agency activities; Scientific research and development activities; Research and development on natural sciences and engineering; Research and development in biotechnology; Designers. Investors, directors and managers: Investors, directors and managers of companies promoting productive investment, provided that they are assigned to eligible projects and have concession contracts for tax benefits under the Investment Tax Code, approved by Decree-Law 249/2009 of 23 September; Senior managers of companies.

General Manager and Executive Manager of Companies Directors of Administrative and Commercial Services Production and Specialty Services Directors Hotel, restaurant, trade and other service directors Experts in the physical sciences, mathematics, engineering and related techniques Doctors Dentists and stomatologists University and Higher Education Professors Information and Communication Technology (ICT) Experts Authors, journalists and linguists Creative and performing arts artists Intermediate science and engineering technicians and professions Information and Communication Technology Technicians Market-oriented farmers and skilled agricultural and livestock workers Skilled, market-oriented forest, fishing and hunting workers Skilled workers in industry, construction and craftsmen, including in particular skilled workers in metallurgy, metalworking, food processing, woodworking, clothing, crafts, printing, precision instrument manufacturing, jewelers, craftsmen, electrical workers and in electronics. Plant and machine operators and assembly workers, namely stationary and machine operators

The corporate tax rate applicable to companies in Portugal may vary, depending on which part of the Portuguese territory said companies are incorporated and domiciled.^[11]

Type of entity	Portuguese mainland	Autonomous Region of Madeira	Autonomous Region of Azores
Resident entities and permanent establishments of non-resident entities	20%	14.7%	14%
Resident entities characterized as a small or medium enterprises, on the first € 50 000 of taxable profit	16%	11.9%	11.9%

Companies incorporated and headquartered in Madeira can apply for an International Business Centre (MIBC) license and, granted that they comply with substance requirements, benefit from a corporate tax rate of 5% on the taxable profit derived from economic activities engaged with non-resident entities or entities duly licensed within the MIBC.^[12][13]

Three different VAT rates apply: normal, intermediate and reduced. There is a general rate of 23% (normal rate) for luxury goods, decorative plants, cut flowers, utensils and other equipment for firefighting and fire prevention,^[14] followed by a reduced rate of 13% for ordinary wine, spring, mineral, medicinal and carbonated water, and tickets for cultural events. This is followed by a further reduced rate of 6% on cereals, meat, shellfish, fruit, vegetables, and other essential foods, books, newspapers, medicines, passenger transport and hotel accommodation.^[15] In 2014, the government introduced the fatura da sorte ("Lucky bill"), a lottery of tax-free cash and luxury cars awarded among consumers with VAT bills. The goal is to bring into the formal economy the many unregistered and untaxed purchases.^{[citation needed]}

The VAT rates in Madeira are 22% (normal rate), 12% (intermediate rate) and 5% (reduced rate).^[16][17]

The Azores has lower applicable VAT rates of 16%, 9% and 4%.^[18] Businesses with revenue of less than 10,000 Euros per year are exempt from VAT.

Since a July 2007 tax reform, automobiles in Portugal pay two main taxes. The initial tax is the ISV (Imposto Sobre Veículos, tax on vehicles), and is paid when the car is first registered in Portugal.^[19] The second tax is an annual registration tax called IUC (Imposto Único de Circulação, single tax on circulation). Earlier, the taxes consisted of Imposto Automóvel ("Automobile tax") and Imposto Municipal sobre Veículos ("Municipal tax on vehicles") and were almost exclusively applied at the time of acquisition. The current system divides the tax load between acquisition and continuous registration, while discontinuing the regional taxes.^[19]

The annual road taxes (IUC) for automobiles have been based on displacement since 1981 at least. Later on, an additional factor reflecting CO₂ emissions were added. Hybrids receive a discounted rate, while electric cars do not pay ISV (tax at the time of initial registration).^[19] Between 1981 and July 2007, the tax thresholds were at 1,000, 1,300, 1,750, 2,600, and 3,500 cc. As the emissions levels were given more relevance in 2007, the displacement thresholds were simplified and changed to 1,250, 1,750, and 2,500 cc.^[20]