Portugal remains a popular destination for international residents, but its tax system has evolved following the closure of the Non-Habitual Resident (NHR) regime at the end of 2024. This guide explains Portuguese tax residency rules, income tax rates, capital gains tax, foreign income treatment and how double taxation treaties may affect expats living in Portugal.
Portugal has long been one of the most popular destinations for people relocating from the UK, the US and across Europe. A warm climate, strong healthcare system and relatively relaxed pace of life make it attractive for retirees, remote workers and internationally mobile professionals.
For many years Portugal also gained a reputation as a tax-friendly destination, largely due to the Non-Habitual Resident (NHR) regime. However, Portugal’s tax landscape has evolved. The NHR regime closed to new applicants in 2024 and the rules around foreign income, pensions and employment income depend heavily on residency status and international tax treaties.
If you are considering relocating to Portugal or already live there, it is important to understand how Portuguese tax residency works, what income may be taxed locally and how international tax rules apply.
Tax rules can change and the way they apply to your situation will depend on your residency status, income sources and the interaction between tax systems in different countries. This article is for general information only and should not be considered tax advice.
Key features of the Portuguese tax system include:
Portugal’s tax year follows the calendar year, running from 1 January to 31 December.
Income earned during this period is reported in the annual Portuguese personal income tax return, known as IRS (Imposto sobre o Rendimento das Pessoas Singulares).
Tax returns are normally filed between April and June of the following year, depending on the reporting method and the taxpayer’s circumstances. The return includes all taxable income earned during the previous calendar year, including employment income, pensions, investment income and foreign income where applicable.
Because Portugal uses a calendar tax year, individuals moving to or leaving the country part way through the year may need to consider partial-year tax residency and reporting obligations. This can affect how income is declared and which country has primary taxing rights under relevant double taxation treaties.
Portugal determines tax residency primarily through physical presence and living arrangements.
You will normally be treated as a Portuguese tax resident if you:
Once you become tax resident, Portugal generally taxes your worldwide income, regardless of where it arises.
If you are not resident, you are usually taxed only on income that arises in Portugal.
Residency status is therefore one of the most important factors in determining how much tax you pay.
Portugal operates a progressive personal income tax system.
While the exact thresholds are adjusted periodically, income tax rates typically start at around 14.5% and rise through several bands to a top rate of approximately 48%.
Higher earners may also face an additional solidarity surcharge.
Tax is calculated on taxable income after allowable deductions and allowances. The effective tax rate therefore depends on the structure of your income and available reliefs.
|
Taxable income (€) |
Income tax rate |
|
Up to 7,703 |
13.25% |
|
7,703 – 11,623 |
18.00% |
|
11,623 – 16,472 |
23.00% |
|
16,472 – 21,321 |
26.00% |
|
21,321 – 27,146 |
32.75% |
|
27,146 – 39,791 |
37.00% |
|
39,791 – 51,997 |
43.50% |
|
51,997 – 81,199 |
45.00% |
|
Over 81,199 |
48.00% |
|
Taxable income (€) |
Additional tax |
|
50,000 – 80,000 |
2.5% |
|
Over 80,000 |
5% |
Employment income earned in Portugal is normally subject to Portuguese income tax and social security contributions.
Employers typically deduct tax through a withholding system during the year, with a final tax return filed annually.
If you work remotely for a foreign employer while living in Portugal, the income may still be taxable in Portugal if you are considered tax resident.
The precise treatment may also depend on whether your employer has a permanent presence in Portugal and the provisions of any applicable tax treaty.
If you are resident in Portugal, foreign income can potentially be taxed locally.
Common examples include:
However, Portugal has double taxation treaties with many countries, including the UK and the United States. These treaties determine which country has taxing rights over different types of income and help prevent income being taxed twice.
Depending on the treaty provisions, Portugal may either:
Because treaty wording varies, professional advice is often needed to understand how cross-border income will be treated.
For many years Portugal’s Non-Habitual Resident (NHR) regime played a major role in attracting foreign residents.
The programme offered favourable tax treatment for up to 10 years, including reduced tax on certain Portuguese employment income and exemptions on some foreign income.
However, the original NHR regime closed to new applicants in 2024, although individuals who were already approved can continue using it until their ten-year eligibility period ends.
This means that many new arrivals in Portugal will now fall under the standard Portuguese tax system, rather than the historic NHR rules.
Portugal’s popular Non-Habitual Resident (NHR) tax regime closed to new applicants in 2024. Individuals who already qualified can continue to benefit from the regime for the remainder of their ten-year eligibility period, but most new arrivals will now fall under Portugal’s standard tax system.
To maintain some international competitiveness, Portugal introduced a new incentive framework designed primarily for highly skilled professionals working in areas such as scientific research, technology and innovation.
The regime is formally known as the Tax Incentive for Scientific Research and Innovation, although it is often referred to informally as “NHR 2.0”.
While it shares some similarities with the original NHR programme, the new system is much more targeted and restrictive.
The new regime aims to attract professionals working in sectors considered strategically important to Portugal’s economy.
Key characteristics may include:
The regime is primarily aimed at professionals involved in areas such as:
Because of these restrictions, many retirees and passive investors who previously benefited from the NHR programme may no longer qualify for preferential treatment under the new framework.
The replacement incentive is most relevant for internationally mobile professionals relocating to Portugal for employment in specialised sectors.
For example, it may apply to individuals who:
Eligibility depends on both the nature of the activity and the structure of the employment or business arrangement, so careful planning is important before relocation.
The closure of the original NHR programme means that Portugal is no longer automatically a low-tax destination for many new residents.
For some internationally mobile professionals the new regime may still provide attractive tax incentives. However, retirees and individuals living primarily on pension income or investment income may face standard Portuguese income tax rates instead of the historic NHR treatment.
Anyone considering relocating to Portugal should therefore review their expected income sources and residency position before making a move.
The taxation of pensions in Portugal depends on several factors, including residency status and the terms of any tax treaty.
If you are resident in Portugal, foreign pensions may be taxable there unless a treaty assigns taxation rights to the country where the pension originates.
Under the previous NHR regime, pension income could receive preferential tax treatment. With the closure of that regime to new applicants, many new residents now face standard Portuguese income tax rates on pension income.
This change has made pension planning an important consideration for retirees relocating to Portugal.
Capital gains tax in Portugal depends on the type of asset being sold, whether the taxpayer is resident in Portugal and how the gain is calculated under Portuguese tax rules.
For individuals who are tax resident in Portugal, capital gains are generally treated as part of overall taxable income rather than being taxed at a separate flat rate. This means that gains may be subject to Portugal’s progressive income tax system.
When a Portuguese tax resident sells property, the gain is usually calculated as the difference between the sale price and the original acquisition value, adjusted for certain allowable costs such as purchase expenses, improvements and transaction fees.
Only 50% of the capital gain is normally included in taxable income, which is then taxed at the individual’s marginal income tax rate.
Portugal also allows some reliefs in specific situations. For example, if a primary residence is sold and the proceeds are reinvested into another qualifying property within the required timeframe, some or all of the gain may be exempt from taxation.
These rules can be complex and depend on the circumstances of the transaction.
Capital gains from financial investments such as shares, bonds or investment funds are typically taxed differently from property gains.
Investment gains are usually taxed at a flat rate of 28%, although taxpayers may have the option to include them within their general taxable income instead. If this option is chosen, the gains are taxed according to the progressive income tax scale.
Dividends and interest income may also fall under similar rules.
Individuals who are not tax resident in Portugal are generally taxed only on gains arising from Portuguese assets.
For property located in Portugal, non-residents are usually taxed on the full capital gain at a flat rate, rather than benefiting from the 50% inclusion rule applied to residents.
Because non-residents may still have tax obligations in their country of residence, the interaction between Portugal’s capital gains rules and international tax treaties should always be considered.
Capital gains from property sales must normally be declared through the annual Portuguese tax return.
The tax authorities may require detailed documentation relating to the acquisition price, selling price and any deductible expenses. Maintaining accurate records of property transactions and investment purchases can therefore be important when calculating gains.
Portuguese tax residents normally file an annual tax return, which reports income from both Portuguese and foreign sources.
The filing process includes declaring:
Failure to file correctly can result in penalties, so maintaining accurate records of foreign income and tax payments is important.
Becoming tax resident in Portugal does not automatically remove your tax obligations elsewhere. Many people assume that once they relocate and begin paying tax in Portugal, their previous country of residence will no longer require reporting. In practice, international tax rules are rarely that simple.
Most countries operate their own tax systems independently of where you live, and some continue to require reporting or taxation based on citizenship, domicile or the source of income. As a result, moving to Portugal may create tax obligations in more than one country at the same time.
Portugal has signed double taxation treaties with many countries, including the United Kingdom and the United States. These agreements are designed to prevent the same income from being taxed twice. They do this by determining which country has the primary right to tax different types of income and by allowing tax credits or exemptions in certain situations.
However, a double tax treaty does not eliminate reporting obligations. In many cases you may still need to declare income in both jurisdictions, even if the tax ultimately paid is offset by credits.
For British citizens, becoming tax resident in Portugal will usually mean that Portugal taxes their worldwide income. However, the UK may still retain taxing rights over certain income sources.
For example, income from UK property is typically taxable in the UK even if the owner lives abroad. In many cases the income will also need to be declared in Portugal, with the UK tax paid taken into account when calculating the Portuguese tax position.
British nationals may also need to consider their UK tax residency status, which is determined under the UK’s Statutory Residence Test. Even after moving abroad, some individuals remain UK tax resident depending on their ties to the UK and the number of days they spend there.
The situation can be more complex for US citizens. The United States taxes individuals based on citizenship rather than residency, which means Americans generally continue to file US tax returns even while living abroad.
An American living in Portugal will normally report their worldwide income to the US Internal Revenue Service each year. Various provisions such as the Foreign Earned Income Exclusion or foreign tax credits may reduce the amount of US tax payable, but the reporting requirement usually remains.
In addition, Americans may have further obligations such as reporting foreign bank accounts or financial assets under separate disclosure rules.
The interaction between Portuguese tax rules, foreign tax systems and international tax treaties can be complicated. Income such as pensions, rental income, employment income and investment returns may all be treated differently depending on the countries involved.
Anyone moving to Portugal should therefore avoid assuming that local tax residency automatically resolves their tax position elsewhere. Reviewing your cross-border tax exposure before relocating can help avoid unexpected reporting obligations or tax liabilities later on.
If you move to Portugal, some of the key steps to stay compliant include:
Understanding the basic principles of Portugal’s tax system can help you plan a move, but cross-border taxation can quickly become complex when income, assets and reporting obligations span more than one country.
Professional advice is often helpful where international tax systems interact. A qualified adviser can help clarify residency status, explain how double taxation treaties apply and ensure reporting obligations are met in each jurisdiction.
You may want to seek professional advice if you:
Speaking with an adviser who understands cross-border taxation can help ensure your tax affairs remain compliant and reduce the risk of unexpected tax liabilities when living internationally.
