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All About Portugal's Tax System

February 17, 2021
For a variety of reasons, taxes are the worst! They're a hassle to manage, you'll always have to deal with them, and if you don't, you're in big trouble! But what can you do? Taxes are what help pay to make this world go round, after all. There's no escaping them, no matter where you are. Even in Portugal! When you're living here, you'll have to face all sorts of taxes in order to live a comfortable life. But which ones should you pay most attention to? Are you even required to pay them at all? Here's what you need to know about Portugal's tax system.
All About Portugal's Tax System


Who's Required To Pay Taxes in Portugal?

Here in Portugal, you're required to pay taxes if you're a tax resident. But what constitutes being one? For one thing, being a legal resident of the country makes you automatically obliged to contribute your fair share of taxes. But even if you're not an official resident, as long as you spend 183 days (approximately 6 months) here every year, that also automatically makes you a tax resident. And if you're staying here in someone's home who is a tax resident, but association, that also makes you a tax resident. Either way, choosing to stay here for a long time will make you a tax resident in general.


Portugal's Tax Income

Perhaps the most basic type of tax you'll definitely have to pay for—even whether you're a tax resident or not—is your income tax. It's important to note that any or all of your income from any Portuguese entity are liable for taxes. And the rate you pay varies just like in other countries such as France or Italy. It depends on how much you earn every year. World Tax Summaries recently laid out the different rates that correspond to certain salaries as of 2020. The lowest, as of the moment, is 14.5% for those who earn less than €7,112.00 a year.

All About Portugal's Tax System



Dates To Remember

As with any other country, it's important that you know certain dates to ensure you're paying and filing your taxes on time. Always remember that the Portuguese tax calendar follows the standard Gregorian calendar. This means that every tax year spans from January 1 to December 31. As for the deadline for filing them, it varies from year to year. However, the date is often set between April 1 to June 30. It's important that you note when it is every year unless you want to file late and face all sorts of penalty fees or possibly even legal trouble!


Tax for Non-Habitual Tax Residents

Back in 2009, the Portuguese government established the Non-Habitual Residence (NHR) Tax Regime in order to invite more people to relocate to the country. Particularly, the wealthy ones. In essence, it's a whole program that provides all sorts of tax benefits to new residents that will only last within the first ten years of their residence. This includes, among other things, a flat income tax rate of 20% regardless of annual salary. People under this regime won't have to face any inheritance, gift, and wealth taxes within the ten-year period as well.

All About Portugal's Tax System



VAT Rates in Portugal

Now, if there's one tax that even non-tax residents can't escape from, it's the value-added tax (VAT). This applied to all goods and services offered within the country. Currently, the standard rate is at 23% but, of course, some necessities are taxed at much lower rates. Food, water, diesel, and the like are only at 13%, for instance, which is 10% lower than the standard VAT. Meanwhile, medicine, medical equipment, certain foods, and even newspapers are only taxes at 6%. And those traveling abroad won't have any VAT on their airfare as well!


Penalty Fees to Expect

As with any other country, Portugal is strict when it comes to taxes. So much so that they've established penalty fees that can rise up really high if you're not careful! For instance, failure to file your taxes on time can require you to pay a penalty fee at a minimum of €200.00 and a maximum of €2,500.00. Late payment of taxes, on the other hand, has a starting penalty fee of an additional 10% amounts owed. This can go up to a whopping €55,000.00 if you're not careful!

All About Portugal's Tax System


Knowing about Portugal's tax system is a must if you have plans of staying there or even relocating there! You'll find that, though it bears many similarities with other countries, some parts are just too different! You really have to pay attention to it!

Properly managing your taxes makes it easier for you to go for luxury homes in Portugal. That alone is a great incentive!




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