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
- Other Tax Situations in Portugal
- What Tax Forms do US Expats in Portugal Need to File?
- 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 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.
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.
Here’s everything you need to know about taxes for foreigners in Portugal.
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 grouping that many US citizens living in Portugal may fall into i.e., non-habitual residents.
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-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.
6 categories of income are taxable:
- Business and professional income
- Investment Income
- Real estate Income
- Increases in net worth
To start, here’s what you can expect to pay in income tax in Portugal based on your residency status.
|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 earned €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 from taxes. Otherwise, the 28% rate applies. Pension income is taxed at 25%, capital gains earned from real estate sales are taxed at 28%, and rental income is taxed between 10% to 28%.
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.
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. 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
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. This treaty benefits not only US expats living in Portugal but also 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. The totalization agreement is a beneficial agreement that helps protect US expats’ social security rights while living in Portugal.
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.