Do digital nomads pay taxes in Portugal? Portugal is an all time favourite for digital nomads. This could be expected: sunny weather, nice cities and nature and all of this at an affordable cost of living. No surprise the capital, Lisbon, is part of almost every list of best digital nomad destinations.
However, also other places are definitely worth visiting. The other big city in Portugal is Porto but you also have the Algarve in the south if you’re more into nature. Furthermore, there are the Azores and Madeira if you want to experience the island life. Plenty of choice and something for everyone!
A question that pops up a lot once people established they want to move to Portugal: do digital nomads pay taxes in Portugal?
Nevertheless, before answering this question, you should now if you even have the possibility to move there.
Visa for Portugal
Citizens of European member states
If you are a citizen of one of the 27 European member states (Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Lithuania, Luxemburg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain & Sweden) you can in principle move around freely within Europe. The same more or less applies to citizens of Iceland, Norway, Liechtenstein and Switzerland (all together the European Free Trade Association).
Although you can freely roam around, you’ll need to register yourself with the authorities if you stay there for a longer period. In general this period is set at three months in most countries. In any case, you can find more detailed information on the website of the European Union by putting in some details in the interactive module they developed.
Citizens of other countries
If you’re not a EU/EEA/Swiss-citizen, you could probably visit Portugal for a limited time on a tourist visa (or even without a visa). How much time this will give you in Portugal / Europe and how easy you’ll be able to obtain a visa will depend on your country of citizenship.
Nevertheless, if you would like to stay for a longer period of time, you’ll need a visa that provides you the opportunity to stay for a prolonged time. At the timing of writing (October 2022), Portugal just announced they are launching a new digital nomad visa as from the end of October 2022. Apart from that, we’ll also discuss the two types of visas that are applied most by digital nomads up till today.
New digital nomad visa
In order to become even more attractive to digital nomads, Portugal launched a new visa specifically dedicated to digital nomads.
In order to qualify you should meet some criteria. The first being that you are not a citizen of an European member state or Iceland, Liechtenstein and Norway. The reason is simply that citizens of these countries can already easily access Portugal without the need for a visa.
The second is to be self-employed or to be employed by a company outside of Portugal.
The third and most important condition is that you should earn at least four times the minimal wage or around €2.800 per month. As you’ll notice later on, the income you need to apply for this visa is much higher than for the other visas.
When applying you should file documents confirming your tax residency, proof of income for the past three months and proof of (self-)employment.
The Portuguese digital nomad visa is valid for one year and would also provide you the option to travel around Europe. The tax treatment of income generated while working from Portugal under this visa isn’t yet clear though. However, it should be expected a tax holiday is granted for the duration of the visa.
Passive income visa
The second visa that is often used by digital nomads is the passive income or D7 visa. As the name already indicates, this means that you should show you have sufficient passive income (investment, rent, pension, etc.) to cover your living expenses. In practice, this means your income should be at least equal to the minimum wage or around €8.500 (October 2022). What is considered to be ‘passive’ income is up for discussion and in the past there were visas issued to people with remote jobs. It should be seen, though, if this will continue to happen now that the new visa specifically for digital nomads is coming into play.
The initial visa is valid for 120 days and is prolonged to two years upon registration with the local authorities. After five years, it even grants you the possibility to apply for permanent residence.
The visa will also enable you to roam freely through the other European member states. However, the visa comes with a catch as you should spend sixteen months of your first two years in Portugal so you ‘only’ have eight months left to explore other countries.
Independent professional visa
The independent professional or D2 visa is another visa that digital nomads can apply for in order to be able to stay in Portugal. The independent professional visa targets entrepreneurs and independent service providers.
For the first category, these are people who are looking to start a local business in Portugal. In this case you’ll need to submit a business plan, incorporate a business in Portugal and go through all other kind of paperwork. Given the nature of digital nomads, this is probably a route less travelled.
Digital nomads will rather qualify as independent service providers and could apply on this basis. You should be able to show you have sufficient income; again equal to the minimum wage level. Compared to the entrepreneurial path, here you don’t need to set up a company in Portugal. Which is probably better suited for digital nomads.
Just as the passive income visa, the initial visa is valid for 120 days and is prolonged to two years upon registration with the local authorities. After five years, it also grants you the possibility to apply for permanent residence. Also, the same restrictions apply regarding spending time outside of Portugal.
This concludes the visa part of our article, let’s now jump to the key question: do digital nomads pay taxes in Portugal?
Do digital nomads pay taxes in Portugal?
You are captured by the Portuguese tax framework if you spend there at least 183 days per year there or if you have your habitual residence in the country. While the days test is rather easy to apply, whether or not you have your habitual residence in Portugal might be up for discussion.
These are the general rules, again we should apply them to the different options we have.
Digital nomad visa
As mentioned before, the tax treatment of people residing in Portugal based upon the new digital nomad visa is still unclear. However, it is expected to exempt you from taxes in Portugal.
Passive income visa & independent professional visa
These two visas are aimed at people who want (and must) spend a prolonged amount of time in Portugal. Therefore, there is no question that you will become a tax resident in Portugal. Nonetheless, this doesn’t necessarily mean you’ll be subject to the general tax rules: enter the non-habitual residence (NHR) tax regime.
Non-habitual residence tax regime
If you are a resident or citizen of Portugal, you can apply for the non-habitual residence tax regime. The main condition is that you haven’t been a tax resident in the country during the five preceding years.
Basically put, the NHR regime is a preferential tax regime.
Foreign sourced income will mostly be excluded from your tax base in Portugal. Portuguese sourced income will be taxed at a 20% rate. Still a significant improvement compared to a lot of other countries or the general Portuguese tax rates.
Under pressure of other European member states – who saw a lot of pensioners flee to Portugal to redeem there pensions -, pensions are taxed at a fixed rate of 10%. Again, more beneficial than the normal progressive tax rates.
Whether or not the NHR regime is something for you will depend on your sources and level of income: an individual assessment should be made for each an everyone. Anyhow, if you are planning to relocate to Portugal, you’ll probably be better off with the NHR regime than when falling withing the normal Portuguese tax rules.
Finally, you should know that you can apply the NHR regime for a maximum of ten year.
If you want to learn more about the NRH regime, you can read my dedicated article.
Do digital nomads pay taxes in Portugal: conclusion
If you think Portugal is the right fit for you – and there are many reasons why it could be -, there are multiple things to take into account.
The first question is always how to make sure you are able to enter Portugal. As explained, this differs depending on which country you hold a passport from. If you need a visa, there are various visas and Portugal now even created a dedicated digital nomads visa.
From a taxation point of view, you should know that if you become a tax resident in Portugal if you spend more than 183 days there or if you have your habitual residence in the country. Nevertheless, Portugal has some different schemes going on by which you can limit your tax liability. The most known is the NHR regime. In addition, it is expected that the digital nomad visa comes with a tax holiday.