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Living in Portugal is a great experience for many reasons. The climate, the beaches, the quality of life, the people… the list goes on! Thanks to some recently-launched visa options, it’s easier to move there than ever. Moving there as an American, of course, does carry some tax implications.
For one, Americans living in Portugal still have to file a US tax return and possibly pay US taxes. Any US citizen or Green Card holder who meets the minimum reporting thresholds must file a federal US tax return. This is true regardless of where in the world they live or where their income originates. And depending on how long you stay in Portugal1 and the visa you have, you may need to pay taxes to the Portuguese government as well.
The good news? We know the ins and outs of taxes for US expats in Portugal. This includes what you’re on the hook for, who you’ll be dealing with, and how to minimize your bill as much as possible. Continue reading for the full scoop.
Snapshot of taxes in Portugal
Here are some of the main details of Portuguese taxes at a glance:
- Primary tax form: Model 3
- Tax deadline: Forms must be submitted by June 30; any additional payments necessary must be paid by August 31
- Reporting website: Portuguese Tax Authority’s online portal2
- Administrative language(s): Portuguese
- Tax treaty with the US: Yes
- Totalization agreement with the US: Yes
How do Portuguese taxes work for Americans living there?
Under the Schengen agreement, US passport holders can stay in Portugal for up to 90 days in a 180-day period with no need for an additional visa. Visitors like this are typically not subject to taxation. However, those living in Portugal on a long-term basis are typically considered tax residents (with a few exceptions, such as for students and volunteers), and must therefore pay taxes to the Portuguese government.
Who qualifies as a tax resident in Portugal?
You will be considered a tax resident by the Portuguese government if you either:
- Spend over 183 days in the country in a 12-month period (regardless of whether those days were consecutive or not)
OR
- Maintain a residence in Portugal at any time in a 12-month period
What’s the tax-governing authority in Portugal?
Portugal’s governing tax body is the Autoridade Tributária e Aduaneira, or Portuguese Tributary & Customs Authority. They are responsible for:
- Informing & assisting taxpayers with their obligations
- Assessing & collecting taxes
- Inspecting, preventing, and combating tax fraud & evasion
- Enforcing tax law & defending the interests of the Public Treasury in court
Tax rates in Portugal
Portugal has a progressive tax system in which the more someone earns, the higher their tax rate is. These rates vary from 14.5% for the lowest earners to 48% for top earners:
Portuguese Tax Rates for 2022
| Income Range | Tax Rate |
|---|---|
| Up to €7,116 | 14.50% |
| €7,117–€10,736 | 23% |
| €10,737-€15,216 | 26.50% |
| €15,217-€19,696 | 28.50% |
| €19,676-€25,076 | 35% |
| €25,076-€36,757 | 37% |
| €36,758-€48,033 | 43.50% |
| €48,034-€75,009 | 45% |
| €75,010+ | 48% |
Property taxes in Portugal
Expats who own property in Portugal at any point in the year do have to pay Portugal’s property tax, which is referred to as the IMI (Imposto Municipal Sobre Imóveis). Portuguese property tax rates vary from municipality to municipality.3 However, urban properties are usually taxed at a rate between .3% and .45% while rural properties tend to be taxed at .8%. If you live in an urban property worth no more than 125,000€, however, you can get a three-year exemption from the IMI.
Capital gains tax in Portugal
Profit from the sale of real estate or investments is subject to capital gains tax in Portugal, although the exact tax rate depends on the asset type and value.
For example, the full profit of shares, securities, and bonds are subject to taxation at a flat rate of 28% (35% for assets based in “tax havens” like Gibraltar).
On the other hand, only 50% of the profit from real estate taxes is subject to taxation. This tax rate falls between 14.5% and 48% depending on the value (using the same bracket as the one for income tax). And if you’re moving from one primary home to another, you may qualify for an exemption.
Depending on the value of the asset, the Portuguese government may levy a solidarity tax ranging from 2.5% to 5% as well.
Payroll tax in Portugal
If you’re employed by a Portuguese employer, your income tax (again, between 14.5% and 48% depending on your salary) will automatically be withheld from the paycheck they give you. Independent contractors, however, do not have taxes withheld from their earnings and therefore must make separate tax payments.
Do I have to pay social security in Portugal?
The social security tax rate in Portugal is 34.75%. If you are employed by a Portuguese employer, you will only have 11% withheld from your check, with the other 23.75% coming from your employer.
Independent contractors will not have social security contributions withheld from their earnings either, so they must make this payment separately as well. However, their social security tax is at a rate of 29.6%.
If you work as both an employee and a contractor for separate Portuguese companies, you may not have to pay social security taxes on contractor earnings if the withholdings from your work as an employee cover it.
Value Added Tax (VAT) in Portugal
The VAT is the tax levied on goods and services. In Portugal, there are three different VAT rates:
- Standard (23%): Levied on all goods and services that don’t fall under the reduced or super-reduced rate
- Reduced (13%): Levied on some food products, food/beverage services, and musical instruments (among others)
- Super Reduced (6%): Levied on some essential food products, pharmaceutical items, books, hotel stays, and passenger transport, among others
What are the filing deadlines in Portugal?
Portuguese tax returns can be submitted starting on April 1st, but must be in no later than June 30th. Tax payments, on the other hand, must be made no later than August 31st.
Non-Habitual Residence (NHR) status
The Non-Habitual Residence4 tax regime grants new Portuguese tax residents 10 years of lower taxes (talk about a nice housewarming gift!).
In order to qualify, US expats moving to Portugal must:
a) have already been granted a visa that allows them to meet the tax resident requirements
b) not have resided in Portugal within the last five years.
In turn, they receive the following benefits:
- No taxes on global income
- A flat 20% tax on income originating from Portugal
- No taxes on dividends, interest, or royalties
- No taxes on capital gains
- No taxes on rental income from properties outside of Portugal
After 10 years, these benefits expire, and you will go back to being taxed under the standard rates.
How do I file Portugal taxes?
At Bright!Tax, we specialize in filing US taxes for expats, but our clients also get access to a network of vetted foreign filing partners in other countries (including Portugal)! If you’re living in Portugal, contact us today to request additional information on filing Portuguese and US taxes.
Do US expats living in Portugal also have to file US taxes?
Yes, any expat who is a US citizen or US permanent resident must file a federal tax return with the IRS. The only way to opt out of this obligation is to formally renounce your citizenship or formally abandon your status as a long-term US Permanent Resident (Green Card holder). However, doing so can trigger expensive exit taxes and significantly complicate your ability to travel to or reside in the US in the future.
Does Portugal have a tax treaty with the US?
Portugal has a tax treaty with the US5 that helps expats living in Portugal avoid double taxation in theory. Unfortunately, there’s a clause that authorizes the US to act as if that treaty doesn’t exist. It’s called the Savings Clause (but doesn’t do much saving!). The best bet for US expats to avoid double taxation is to take advantage of a tax break (more on that later).
US tax deductions available for expats in Portugal
Three of the most common tax breaks for US expats in Portugal include the:
Foreign Tax Credit (FTC)
The Foreign Tax Credit allows US expats to deduct what they have paid the Portuguese government in income taxes from what they owe the US government in income taxes on foreign-source income. And because income is taxed at a higher rate in Portugal, expats who make use of the FTC typically end up with either no US income tax bill at all, or surplus credits that can be applied toward future US income tax bills. To qualify for the FTC, the foreign taxes you have paid must be:
- Based on income
- Legal
- Levied by your country of residence
- Charged to you specifically
Foreign Earned Income Exclusion (FEIE)
Another popular tax break for US expats is the FEIE. This provision allows expats to exclude a certain amount of their earned income (up to $112,000 for the 2022 tax year) from taxation. In order to qualify for the FEIE, expats must meet one of the two following tests.
Physical Presence Test
The Physical Presence Test requires expats to prove that they were physically present in another country than the US for at least 330 of 365 days.
Bona Fide Residence Test
The Bona Fide Residence Test requires expats to provide official documentation that demonstrates their status as a foreign resident, such as a residence card, foreign income tax records, or a housing contract in the US expat’s name.
Child Tax Credit (CTC)
With the CTC, any US taxpayer — including expats — can claim a credit of as much as $2,000 for each of their qualifying children/dependents (as of the 2022 tax year).
Read our complete guide for expats on the Child Tax Credit
Tax implications of renting out your US residence while in Portugal
Many expats who own property in the US choose to rent it out while living in another country. If you choose to do so, be aware that you’ll need to report any income and expenses associated with it to the IRS on Schedule E and Part I of Form 1040.
Rental income while living in Portugal
Rental income is considered unearned income. So, it won’t be subject to Social Security or Medicare taxes, but you also won’t be able to exclude it using the FEIE.
If I own a rental property in the US or outside of Portugal, do I have to report it to Portugal?
Yes. You will need to report the income you receive on a rental property to the Portuguese government, even if it’s not actually located in Portugal.
Which country do I pay taxes to on my rental property income?
Technically, any rental income a US expat receives is subject to taxation by both the US and Portugal. However, if you play your cards right, you’ll rarely end up owing taxes on the same income to both governments. For as long as you’re granted NHR status in Portugal, you won’t have to pay any taxes on rental income originating from foreign properties.
Even after your NHR status expires, you can use the FTC to subtract any rental income taxes you’ve paid to the Portuguese government from what you owe in rental income taxes to the US government.
US expats living in Portugal may need to file an FBAR
If you have $10,000 or more in foreign financial accounts — even if it’s spread across multiple accounts — you’ll be required to file a Foreign Bank Account Report (FBAR) using FinCEN Form 114.
Getting caught up on your US taxes with the Streamlined Procedures
If you unintentionally fell behind on your US tax returns while abroad, don’t panic. The IRS offers an amnesty program called the Streamlined Procedures which allows expats to catch up penalty-free. Under this program, you’ll have to:
- file your last three tax returns and six FBARs (if/as required)
- pay any back taxes you owe
- declare that your previous failure to file taxes was due to a lack of awareness.
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