Portugal has always been a hot spot for digital nomads in Europe. Cities like Lisbon and Porto attract many nomads, just like Ericeira. And then I’m not mentioning Madeira yet.
If you consider spending time in Portugal you also want to understand any tax consequences and how Portugal tax residency works.
Key Takeaways on Portugal Tax Residency for Expats and Digital Nomads
- Become a tax resident by spending 183 days or having your habitual residence in the country
- Portugal has rather high income tax rate and social contributions
- The popular NHR regime has been amended and can only apply in very limited cases
- There is also a simplified regime for freelancers which gives you some tax benefits
- Portugal offers a great lifestyle but for most people it won’t be the best place from a tax perspective
- In order to obtain Portugal tax residency you need to arrange some paperwork
Portugal Tax Residency Rules
Portugal applies two tests in order to determine you qualify as a Portuguese tax resident or not.
The first one is the most well known. If you spend more than 183 days in Portugal during a twelve month period, they will consider you a tax resident. You don’t need to spend these days consecutively in Portugal.
You will qualify as a tax resident for both the year during which you started your 183 days and in which they ended.
Nevertheless, even if you spend less than 183 days in Portugal, you could still become a Portuguese tax resident.
This will be the case if you maintain your habitual residence in Portugal with the intent of it being your primary residence.
Unlike the 183 days rule, this criteria isn’t always as clear how you should interpret it. Yet, having a place available, owned or rented, for the long term could be sufficient to meet this criteria.
You become a tax resident from the day you arrived in Portugal till the day you became a non-resident by leaving permanently.
You should proactively inform the Portuguese tax authorities about any change in your tax status within 60 days. If you don’t comply with this requirement you might end up getting a fine.
If you would qualify as a tax resident under any of the aforementioned tests while still being a tax resident of another country, the applicable double tax treaty can grant tax relief.
The Tax System in Portugal
Now you know how you can become a tax resident of Portugal. The next step is to have a look what this actually means. Which taxes will you have to pay and which rates apply to you.
Personal Income Tax
If you receive any professional income (e.g. wage, self-employment income) in your personal name, you will have to pay personal income tax on this income.
You’ll have to declare your worldwide income. So, it doesn’t matter if you get your income from a local job or client or from abroad.
Yet, if you do have income from abroad and there is a double tax treaty in place, the double tax treaty will determine where you will need to pay taxes on this income. Nevertheless, you’ll still have to inform Portugal about this foreign income.
The tax rates in Portugal are progressive. This means that the more you make, the higher the tax rate. The tax rates start at 13,25% and go up to 48%. You will end up in the highest bracket if your income surpasses around €81.000.
Social Contributions
If you receive professional income, you’ll also have to pay social contributions.
The rates and amounts depend on your personal situation.
We first need to distinguish between employees and self-employed individuals.
As an employee, both your employer and yourself need to contribute to the social system.
Your company will need to pay a 23,75% in social contributions and will also need to withhold from your gross salary 11% which is the part of the employee of the contributions.
If you are self-employed, you need to pay a rate of 21,4%. This amount will be due on the profit you made during the preceding year.
Therefore, you don’t have to pay any social contributions during the first twelve months after starting your business.
Furthermore, you have the option as a self-employed individual to increase or decrease your payments. You can do this up to 25% with intervals of 5%. The more contributions you pay, the more social rights you get.
Yet, some minimum and maximum amounts apply. The minimum amount of monthly contributions for 2024 is €20 and the maximum is around €1.250. This maximum amount is adjusted based on the minimum wage.
Corporate Income Tax
If you plan to set up a company in Portugal you need to take into account corporate income tax.
Your company will pay corporate tax on its profit.
The tax rate depends on where you register and run your business from. Portugal makes a distinction between companies on the mainland on the one hand and on Madeira and the Azores on the other hand.
On the mainland the standard corporate tax rate is set at 21%. For Madeira and the Azores the rate is 14,70%.
However, small and medium sized companies on the mainland pay 17% on the first €50.000 in profit and the standard tax rate on the excess. For Madeira and the Azores this lower rate is set at 11,90%.
Yet, if you work with a company, you will also need to consider that you have to pay personal income tax on any dividend you payout.
Investment Income
The basic tax rate for dividends and capital gains from investment income is 28%.
However, in some cases, exemptions or lower tax rates can apply.
Portugal’s Non-Habitual Residence (NHR) Program
I dedicated a specific article to Portugal’s non-habitual residence program. You can read all the details in the article.
However, I can give you a brief summary.
Basically, the NHR regime was a tax regime that offered tax incentives for foreigners to move to Portugal. Yet, starting from 2024 the Portuguese government decided to narrow down the scope of the NHR regime.
Therefore, it doesn’t apply anymore to most digital nomads.
Yet, currently the new Portuguese government is discussing to introduce a new NHR regime that would also offer some opportunities for digital nomads. However, as it is uncertain where this will lead we won’t go into this and we’ll wait for more clarity in this regard.
Special Regime for Freelancers
Although the NHR doesn’t (really) exist anymore, you can still benefit from the simplified tax regime for freelancers in Portugal. You can read all the details in the article I linked to but I’ll give you the headlines here.
First of all, the simplified regime only applies if you your turnover doesn’t exceed €200.000.
You’ll be subject to the normal tax rates but only on a percentage of your revenue. Most freelancers will have to pay tax on 75% of their turnover. What is also interesting is that during the first two tax years you get an additional tax cut of respectively 50% and 25%.
Under the simplified regime, you’ll also have to pay social contributions. However, here your social contributions are calculated on a percentage of your revenue.
For service providers a percentage of 70% is taken into account of the revenue of the three preceding months.
The same option right to lower or increase your social contribution payments as described above also applies in this case.
How to Become Tax Resident in Portugal
In order to comply with the necessary paperwork when having Portugal tax residency you’ll need to take some steps.
Residence Permit
The first step before becoming a tax resident anywhere is to obtain a residence permit.
This residence permit allows you to stay long term in the country.
If you have a passport from a country part of the European Union or European Economic Area or Switzerland this is relatively easy as you won’t need a visa. If you’re from a third country, you will first need to asses for which long term visa you can qualify.
Tax Identification Number (NIF)
After obtaining your residence permit, you will also have to apply for your Numero de Identificacao Fiscal (NIF), your tax identification number.
You will need this number to open a bank account, signing contracts and… pay your taxes.
People from EU country can apply for the NIF with their national passport or ID card by making an appointment with the tax office.
If you come from a third country, you will need your passport and your Portuguese residence permit. Furthermore, you’re obliged to appoint a local tax representative.
Requesting the tax identification number (NIF) as such is free of charge. However, if you need professional help they will probably charge you for their services.
Having a NIF alone is not sufficient fr having Portugal tax residency. You will need to meet one of the criteria set out above.
Yet, having a NIF does put you on the radar of the Portuguese tax authorities. This is important to know if you actually try to avoid becoming a tax resident there.
Link Your Address and Your NIF
Next you will need to link your address with your tax identification number (NIF). In principle, the Portuguese tax authorities will deem you as a tax resident from the day you arrange this. However, exemptions can apply.
You should know that if you switch your address, you should notify the municipality and the Portuguese tax authorities. Failing to do so can result in penalties.
Social Security Identification Number (NISS)
Apart from the tax identification number, you will also need a social security identification number or Numero de Identificacao de Seguranca Social (NISS).
You can apply for the Social Security Identification Number online. After completing your application, you will get a confirmation and you can pick up your NISS at the social security office.
Is Establishing Tax Residency in Portugal a Good Idea? (My Unbiased Opinion)
I totally understand why so many people reach out to me in order to assist them with their tax setup in Portugal. It’s a beautiful country which can offer you a great lifestyle.
However, if we look at Portugal purely from a tax point of view, I wouldn’t recommend moving there.
Portugal is one of the founding members of the OECD and one of their main focus areas is enforcing (high) taxation. Therefore, it is no surprise that Portugal’s tax rates are so high.
Although, there are some ways to improve your tax liability, they are definitely no magic solutions. So, in the end you’ll still end up paying a good amount in taxes.
Let Me Help You With Your Tax Setup
Over the past years I have assisted many digital nomads with their tax setup, in Portugal and in other countries.
You can only do so much research yourself if you’re not a professional in the field of international taxation. Furthermore, much of the information out there is outdated or not complete. This makes it even harder to assess your options.
As a digital nomad tax advisor, I have saved many of my clients thousands and thousands because of the tax strategies I proposed to them. Not to speak about the penalties they have avoided in case they would have followed up on wrong information.
Furthermore, you can spend your time what you do best while I dedicate my time to your situation doing what I do best.
Reach out if you have any questions or want to work together.
