Portugal Taxes for Expats: How to File US Taxes Abroad
- Living as an Expat in Portugal
- Portugal at a Glance
- US Expat Taxes in Portugal
- Who Has to File Taxes in Portugal?
- How to Determine if You’re a Resident of Portugal
- Tax Rates When Living Abroad in Portugal
- Tax Deadlines and Tax Year in Portugal
- Other Tax Situations in Portugal
- What Tax Forms do US Expats in Portugal Need to File?
- Essential Tax Forms for US Expats in Portugal
- Do the US and Portugal Have a Tax Treaty?
- Does Portugal Have a Totalization Agreement with the US?
- Navigating Tax Compliance for US Expats in Portugal
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
- Primary Tax Form for Residents: Modelo 3
- Tax Year: Calendar year (January 1st to December 31st)
- Tax Deadline: April 30th
- Currency: Euro (EUR)
- Population: Approximately 10 million
- Number of US Expats: Estimated at around 12,000
- Capital City: Lisbon
- Primary Language: Portuguese
- Tax Treaty: Yes
- Totalization Agreement: Yes
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.
Many US expats may qualify for reduced income tax rates if they meet the criteria for non-habitual residency status.
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 a 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
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
|Income tax bracket||Tax rate||Base Tax amount||Taxes owed|
|€0.00 – €7,112||14.5%||€0||14.5% on all income earned up to €7,112|
|€7,113 – €10,732||23%||€604.54||Base Tax amount + 23% of the amount over €7,112|
|€10,733 – €20,322||28.5%||€1,194.80||Base Tax amount + 28.5% of the amount over €10,732|
|€20,323 – €25,075||35%||€2,515.63||Base Tax amount + 35% of the amount over €20,322|
|€25,076 – €36,967||37%||€3,017.27||Base Tax amount + 37% of the amount over €25,075|
|€36,968 – €80,882||45%||€5,974.54||Base Tax amount + 45% of the amount over €36,967|
|€80,883 and over||48%||€8,401.21||Base Tax amount + 48% of the amount over €80,882|
For example, if you earned €50,000, you would owe €5,974.54 plus 45% of €13,003. This would add up to €11,839.39 in income tax.
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 28% 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
If you qualify as a non-habitual resident, you would owe a flat income tax rate of 20% on all income earned from qualifying high-value jobs. So, if you made €50,000, you would owe €10,000 in income tax.
Non-habitual residents also pay a flat 28% rate on income earned from interest, dividends, or capital gains from selling shares. Rates up to 48% (similar to the income tax rates for residents) apply for capital gains earned from real estate sales or pension income.
Any rental income earned as a non-habitual resident is subject to between 10% and 28% in income tax.
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
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.
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.
|Good or Service Type||VAT rate in mainland Portugal||VAT rate in the Autonomous Region of Madeira||VAT rate in the Autonomous Region of the Azores|
|Reduced rate for list I goods/services||6%||5%||4%|
|Intermediate rate for list II goods/services||13%||9%||12%|
|Standard rate for all remaining goods/services||23%||22%||18%|
There is no wealth tax in Portugal.
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.
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.
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.
Does Portugal offer tax deductions to US expats? Yes! As a foreigner living in Portugal, you may be able to claim a variety of tax deductions. This can include:
- Health expenses
- Education expenses
- Health and life insurance premiums
- Pension contributions
Essential Tax Forms for US Expats in Portugal
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.