Portugal Taxes for Expats: How to File US Taxes Abroad

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 16th to 19th-century architecture, Portugal is home to over 10 million people and has become a more popular destination for Americans and global travelers alike. And Portugal’s taxes for US expats are important to understand when living in this vibrant country. 

Figuring out how much you owe in taxes can be complicated — not only do you have to pay Portugal taxes, but you also have to pay US taxes, as well.  

Taxes in Portugal at a Glance

  • Primary Tax Forms: PIT (Portuguese Income Tax)
  • Tax Deadline: August 31
  • Currency: Euro (EUR)
  • Population: 10 million
  • Number of US Expats in Portugal: 555,299
  • 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. 

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

Who has to file taxes in Portugal? 

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 grouping that many US citizens living in Portugal may fall into: non-habitual residents. 

Pro Tip: 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 are 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-habitual residency qualifications in Portugal 

Introduced in 2009, the country offers non-habitual residency to foreigners who intend to live and work 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. 

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 with a flat rate, rather than a sliding scale. 

Tax Rates When Living Abroad in Portugal 

For non-residents, you’ll pay a flat tax rate of 25%, while residents are taxed on a progressive scale from 14.5% to 48%. 

Like the US, the Portugal tax year is the calendar year. Returns must be filed by March 31st and you are required to pay any additional tax owed by that date, as well. 

There are 6 categories of income that are taxable: 

  1. Income
  2. Business and professional income
  3. Investment income
  4. Real estateincome
  5. Increases in net worth
  6. Pensions

To start, here’s 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 Taxes owed 
€0.00 – €7,112 14.5% 14.5% on all income earned up to €7,112 
€7,113 – €10,732 23% €604.54 plus 23% of the amount over €7,112 
€10,733 – €20,322 28.5% €1,194.80 plus 28.5 percent of the amount over €10,732 
€20,323 – €25,075 35% €2,515.63  plus 35 percent of the amount over €10,732 
€25,076 – €36,967 37% €3,017.27 plus 37 percent of the amount over €25,075 
€36,968 – €80,882 45% €5,974.54 plus 45 percent of the amount over €36,967 
€80,883 and over 48% €8,401.21 plus 48 percent of the amount over €80,882 

So, for instance, if you earn €50,000 in 2022, then in 2023, you would owe €5,974.54 plus 45% of €13,003. This would add up to $11,839.39 in income tax. 

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 in 2022, 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% to 28% in income tax. 

Non-resident income tax rate in Portugal 

The tax rate for foreigners in Portugal who are considered non-residents is 25% on all income earned. So, if you made €50,000 in Portugal in 2022, you would owe $12,500. 

While you’ll also pay a flat 28% rate on income earned from interest or dividends,  capital gains from selling shares may be exempt for taxes. Otherwise the 28% rate applies. Pension income is taxed at 25%, capital gains earned from real estate sales is taxed at 28%, and rental income is taxed at between 10% to 28%. 

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. VAT is then passed on by the merchant 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% 

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 municipal 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 plat 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%.  

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. 

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. 

What tax forms do US expats in Portugal need to file? 

Americans living abroad in Portugal need to file both your 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 simply verify the information is correct and you won’t need to file your own return. 

The Portuguese tax year is the same as the US (January 1 – December 31) and income taxes must be filed by August 31 of the proceeding tax year. 

US Tax Forms for Expats in Portugal 

IRS Form 1040: Individual Income Tax Return 

The standard individual US income tax form is IRS form 1040. All US citizens and resident aliens must file this form annually, regardless of whether you’re living in the country or abroad. 

Form 1040 is due on April 15 for most filers, but Americans working in Portugal have until June 15 to file their US taxes.  

Pro Tip: Need more time to file? You can also request an additional extension of October 15 to file this form. 

IRS Form 8938: Statement of Specified Foreign Financial Assets (FATCA) 

You may need to file a FACTA if the value of your foreign financial assets is above a certain threshold (typically $200,000 for US expats filing singly, and $400,000 for those married, filing jointly).  

If you are required to file a FATCA report, you’ll fill out Form 8938 and attach it to Form 1040. Submit both at the same time.. 

FinCEN Form 114: Report of Foreign Bank and Financial Accounts (FBAR) 

If you had $10,000 or more combined across any of your foreign bank accounts at any time during the year, you need to fill out FinCEN Form 114, known as the FBAR.  

This form should be submitted online using the FinCEN BSA e-fling system. If you want to file by mail, you must call FinCEN’s resource center and request an exemption from e-filing. If approved, FinCEN will mail you a physical form to fill out and submit. You cannot print the online form and submit it. 

Your FBAR is due on April 15, but if you need more time, the deadline automatically extends to October 15, without penalty. 

What US tax deductions are available to Americans? 

Although you’re already exempt from double taxation by living abroad in Portugal, there are a few IRS tax credits and deductions that could lower your tax liability even more.  

Foreign Earned Income Exclusion 

The Foreign Earned Income Exclusion (FEIE) is a tax credit that allows US expats to exclude all or a portion of their foreign income from taxation. The amount you can exclude changes each year. For 2022 taxes, it’s up to $112,000. This means if you made less than this amount in foreign income this year, you may end up with no tax liability. 

You can claim the Foreign Earned Income Exclusion by filing IRS Form 2555. 

Foreign Tax Credit 

If you’re not eligible for the FEIE, the Foreign Tax Credit (FTC) is another tax break you can consider. This credit allows you to deduct income taxes already paid to Portugal from your US tax bill, dollar for dollar.  

So, if you’re eligible for the FTC and you paid Portugal $11,000 in taxes in 2022, you could deduct $11,000 from your US taxes. 

You can claim the Foreign Tax Credit by filing IRS Form 1116. 

Foreign Housing Exclusion 

The Foreign Housing Exclusion lets you deduct certain housing-related expenses from your US tax bill. 

In order to claim the Foreign Housing Exclusion, you must also claim the Foreign Earned Income Exclusion. You can file both with Form 2555. 

Does Portugal offer tax deductions to US expats? 

You may be eligible for additional deductions in Portugal, including: 

  • Health expenses 
  • Education Expenses 
  • Health and life insurance premiums 
  • Pension contributions 

Get help with your expat taxes 

We hope this guide helped you gain a better understanding of tax requirements for US expats living in Portugal. But if you’re scratching your head or trying to determine if you’re technically a Portuguese resident or not, we can help. 

Greenback Expat Tax Services specializes in simplifying expat taxes. We can answer your questions about Portugal taxes for US expats or streamline the process even more by filing on your behalf. 

Connect with a tax specialist now to get started.