Portugal Taxes for Expats: How to File US Taxes Abroad

Living as an Expat in Portugal 

With warm, temperate weather from spring to fall and a prime position along the Atlantic Ocean, it’s no wonder many US expats find themselves settling down in Portugal. Known for its inventive seafood dishes and stunning architecture, Portugal is home to over  10 million people and has become a popular destination for Americans and global travelers alike. 

But when living overseas, your expat taxes can get complicated. 

If you’re living abroad in Portugal, you’ll likely need to file both US and Portuguese tax returns. Fortunately, the tax system in Portugal operates similarly to the US. And since there is a tax treaty with Portugal, you won’t have to worry about double taxation on your income. 

Here’s everything you need to know about taxes for foreigners living in Portugal. 

Portugal at a Glance

US Expat Taxes in Portugal 

If you’re living abroad in Portugal, you’ll need to file both US taxes and Portugal taxes. While figuring out the paperwork and reporting requirements will require some time and effort, the tax system in Portugal operates similarly to the US. And, since there is a tax treaty with Portugal, you won’t have to worry about double taxation on your income. 

Who Has to File Taxes in Portugal? 

All residents in Portugal who have income, regardless of its source or amount, must file taxes. Non-residents are only taxed on income earned in Portugal. But, both residents and non-residents must file taxes in Portugal. Typically, you’re required to file taxes if: 

• You are employed and make more than € 7,112 per year 
• You are self-employed 
• You earn money in dividends, interest, or capital gains 
• You earn rental income 
• You receive money from a pension 

How to Determine if You’re a Resident of Portugal 

You’re taxed differently depending on if you’re a non-resident or resident in most countries. The same is true for Portugal, although there’s another category that many US citizens living in Portugal may fall into: non-habitual residents. 

Here’s an overview of all three categories. 

Portugal resident qualifications 

You’re considered a resident of Portugal if: 

• You reside in Portugal for 183 days within a given tax year; these days do not have to be consecutive as long as they fall in the same 12-month period. 
• You rent or own a property in Portugal that you intend to make your habitual residence at any time during the tax year you’re filing for. 
• You are a member of the crew of a boat or aircraft providing service to Portugal or based in the country. 
• You perform commissions or public functions in other countries on behalf of the Portuguese state. 
• You are a Portuguese national but have tax residency in another country. 

If any of the above is true, you likely qualify as a Portuguese resident. Like in the US, residents are taxed using a banded system.  

However, if you’re an American living abroad in Portugal, find out if you’re eligible for non-habitual residency first. 

Non-resident qualifications in Portugal 

If you’ve lived in Portugal for 183 days or less, you’re likely considered a non-resident and will only owe taxes on Portugal-sourced income. Non-residents are taxed at a flat rate rather than a progressive scale. 

Non-habitual residency qualifications in Portugal 

In Portugal, there is a third category between residents and non-residents: non-habitual residents. 

Introduced in 2009, the country offers non-habitual residency to foreigners living in Portugal or to former Portugal nationals currently outside of the country who wish to return. This residency status offers tax advantages for expats who work in  high-value fields. 

To qualify for this special status, you must not have been taxed as a Portugal resident in the past five years. You’ll need to then register as a Portugal resident and have a property you rent or own in the country by the end of the tax year. 

Tax Rates When Living Abroad in Portugal 

Under Portuguese tax law, residents are taxed on their worldwide income at progressive rates ranging from 14.5% to 48%. Non-residents are taxed only on Portugal-source income at a flat rate of 25%. 

In both cases, six categories of income are taxable: 

• Employment income 
• Self-employment income 
• Investment income 
• Real estate income 
• Capital gains 
• Pensions 

Let’s look at what you can expect to pay in income tax in Portugal based on your residency status. 

Resident Income Tax Rate in Portugal 

Non-resident income tax rate in Portugal 

The tax rate for non-resident foreigners in Portugal is 25%. This applies to all income derived from a Portuguese source. 

Non-residents must also pay a flat 25% rate on income earned from interest or dividends. (Capital gains from selling shares may be exempt from this rate.) Pension income is taxed at 25%, capital gains earned from real estate sales are taxed at 28%, and rental income is taxed between 10% and 28%. 

Non-habitual resident income tax rate in Portugal 

The Non-Habitual Resident (NHR) program in Portugal offers advantageous tax treatment for qualifying expatriates during their first ten years in the country. This regime is designed to attract skilled professionals and retirees through favorable tax rates.

1. Income from High-Value Jobs:
   • A flat tax rate of 20% applies to Portuguese-source income from specific high-value-added activities of a scientific, artistic, or technical nature.
   • This flat rate is significantly lower than the standard progressive tax rates, which can go up to 48%.
2. Foreign Pension Income:
   • In Portugal, pension income taxation depends on the residency status and the nature of the pension—public or private. Under the Non-Habitual Resident (NHR) regime, which was updated in April 2020, foreign pension income is taxed at a flat rate of 10%. This applies to new registrants post-April 2020.
   • Prior to this change, individuals registered as NHR before March 31, 2020, enjoyed a tax exemption on their foreign pension income​ For regular residents, pension income is subject to progressive tax rates ranging from 13.25% to 48% in 2024​ ​.
   • Notably, US public service pensions, such as those from federal civil services or armed forces, are only taxable in the US and are not subject to taxation in Portugal​. This distinction between public and private pensions highlights the varying tax treatments depending on the source of the pension and agreements between countries, like the tax treaty between Portugal and the US.
3. Investment Income Taxation:
   • Interest, dividends, and capital gains from selling shares are generally taxed at a flat rate of 28%.
   • It’s important to note the source and nature of the income, as they can affect the applicable rate.
4. Capital Gains from Real Estate:
   • Capital gains on the sale of real estate are taxed at up to 28%, with the rate depending on various factors, including the property’s location.
5. Rental Income Tax:
   • Rental income earned by non-habitual residents is subject to progressive tax rates, ranging from 14.5% to 48%.

Tax Deadlines and Tax Year in Portugal 

The Portuguese tax year is the same as the US (January 1 – December 31), and income taxes must be filed by April 30 of the following tax year. If taxes are owed, payment must be made by August 31. 

Other Tax Situations in Portugal 

Self-employment Tax 

If you earn self-employment income, it’s subject to a contribution tax rate of 21.4%. You should report quarterly income in April, July, October, and January. 

Corporate Tax 

Businesses in Portugal pay a flat tax rate of 21% on all taxable corporate profits. 

Value-added Tax (VAT) 

This tax is paid by consumers in Portugal when buying goods or services. The merchant then passes on VAT to the Tax and Customs Authority (AT).  

There are three tiers of value-added taxes in Portugal, depending on the type of good or service you’re purchasing. 

Wealth Tax 

There is no wealth tax in Portugal. 

Inheritance Tax 

Gifts and inheritances tax of 10% (plus an additional .8% if the gift is real estate). Inheritances passed directly to spouses and direct family members are typically exempt from this tax. 

Property Tax 

Each municipality in Portugal has its own tax rate. If you own property in Portugal, you’ll pay between 0.3% and 0.45% in property taxes. Property in rural areas, however, is only taxed at 0.8%.  

Some properties may be exempt from tax for up to three years when used as a primary residence or rented out to tenants. After three years, you’ll be required to pay property taxes again.  

If you own a property and rent it out, you’ll pay a flat rate of 15% on any rental income. 

Social Security 

Portugal requires employees to contribute 11% of their gross monthly salary to Social Security. Employers contribute 23.75%.  

What Tax Forms Do US Expats in Portugal Need to File? 

Americans living abroad in Portugal need to file both their Portuguese taxes and US taxes. 

Portugal requires you to submit your PIT (Portuguese tax return) online via their finance portal, and the website is only available in Portuguese. You can also file via paper form. To file via paper, you’ll need to visit one of the below offices offering tax filing services: 

• Finances reception desks  
• Citizen spaces  
• Parish councils 

If you were a Portuguese resident all year, an automatic tax return or provisional PIT may be provided to you to approve. In this case, you’ll verify the information is correct, and you won’t need to file your own return.  

Essential Tax Forms for US Expats in Portugal 

The primary tax forms that US expats in Portugal will need to complete are Form 1040 and Form 1116. (Among other forms) 

Form 1040 is the standard tax form for US citizens and residents and must be filed by US expats regardless of where they live. Form 1116, on the other hand, is used to claim the foreign tax credit, which allows expats to offset taxes paid to Portugal against their US tax liability. 

It’s worth noting that US expats in Portugal may also be eligible for certain tax benefits and deductions, such as the foreign-earned income exclusion, which allows expats to exclude a portion of their foreign-earned income from US taxes. Other potential deductions may include expenses related to self-employment, moving expenses, and charitable donations. 

Do the US and Portugal Have a Tax Treaty? 

Yes, Portugal has a tax treaty with the United States. This treaty helps protect US expats from double taxation. The tax treaty between the US and Portugal is aimed at avoiding double taxation on the same income in both countries. The benefits of the US-Portugal tax treaty apply to both US expats living in Portugal and Portuguese citizens who are living and working in the US. 

The treaty covers different aspects of taxation, including income tax, social security taxes, and estate taxes. It also defines the criteria for tax residency and how to determine which country has the right to tax a specific income source. US expats in Portugal can benefit from this tax treaty by claiming certain tax credits and deductions that help reduce their overall tax burden. 

Does Portugal Have a Totalization Agreement with the US? 

Yes. The US-Portugal  totalization agreement is in place to clarify a US expat’s Social Security obligations. Like the tax treaty, this agreement helps prevent expats from paying duplicate social security contributions to both countries.  

This agreement ensures that US expats working in Portugal will not be subject to dual social security taxes. Instead, expats will only have to pay into the social security system of their home country. The totalization agreement also guarantees that expats will be eligible for social security benefits from both countries, provided they meet the eligibility criteria. 

This means that US expats in Portugal who have paid into the US Social Security system can still receive social security benefits when they retire or become disabled, even if they have not lived in the US for a significant period of time. 

Navigating Tax Compliance for US Expats in Portugal

We trust that this guide has provided you with a clearer understanding of the tax requirements for US expats residing in Portugal. However, if you find yourself confused or uncertain about your status as a Portuguese resident, we are here to offer assistance. 

Contact us, and one of our customer champions will gladly help. If you need very specific advice on your specific tax situation, you can also click below to get a consultation with one of our expat tax experts.