Taxation of international executives
All income tax information is summarized by KPMG & Associados – SROC, SA, based on the Portuguese Personal Income Tax Code, enacted in 1989, updated as of January 2015 according to the Portuguese Personal Income Tax Reform as well as the 2018 State Budget Law, which updates the additional surcharge up to 3,21 percent.
The Portuguese annual personal income tax return should be filed with the tax authorities, through the Internet, within 1 April to 31 May – regardless of the type of income received in the previous year.
In the situations where the taxpayer is entitled to a tax credit in Portugal (to eliminate international double taxation) on the foreign source income received, and the information on the final tax due is not available within the previous deadline, the tax return may be filed up to 31 December. In order to apply for this extension, the taxpayer must file a specific form with the tax authorities until May 31st.
The Portuguese fiscal year for individuals is the calendar year. Portuguese residents - either for the full year or part-year residents - are required to file an annual tax return between 1 April and 31 May each year.
As of 1 January 2015, the general rule is that married couples are taxed separately, and the personal income tax due will be assessed individually. However, both married couples and living together couples have the option to be taxed jointly. In this last case, if one spouse is resident only for part of the year, he/she must report the income received until the last day of staying in Portugal, whereas the resident spouse may file a tax return (only including his/her personal income received) separately, regarding the whole year.
Withholding tax levied on most income is deemed as payment on account of year-end’s tax liability and taken into consideration in the annual assessment.
The final tax assessment has to be issued up to 31 July.
Non-resident taxpayers are only required to file tax returns when earning Portuguese-sourced income not subject to withholding tax at the applicable flat rates.
Income tax table for 2018
|Taxable income bracket||Total tax on income below bracket||Tax rate on income in bracket|
|From EUR||To EUR||EUR||Percent|
|Income (Portuguese source)||Tax rate (percent)|
|Business and professional income||25|
|Capital gains on sale of shares||Tax exempt or 28*|
|Capital gains on sale of real estate||28*|
Non habitual residents
|Income (Portuguese source)||Tax rate (percent)|
|Business and professional income**||20.0|
|Capital gains on sale of shares||28|
|Capital gains on sale of real estate||marginal rates up to 48|
|Pension income||marginal rates up to 48|
* Taxpayer is required to file a tax return.
**If derived from a “high-value-added” activity (otherwise, marginal rates up to 48% apply).
when the taxpayers opt for joint taxation, the general and solidarity tax rates apply to the taxable income, by splitting for 2 (1 per taxpayer).
Additional Solidarity Surcharge
An additional 2.5 percent surcharge will be levied on taxable income between EUR 80,000 and EUR 250,000 and 5 percent on the taxable income exceeding EUR 250,000.
The recently approved rules foresee that an individual qualifies as resident for tax purposes in Portugal provided that one of the following conditions is met:
In case the above criteria are met, an individual will be regarded as resident since the first day of his presence in Portugal until his/her departure. There are, however, some situations foreseen where the tax residency status applies for the entire tax year.
It is also foreseen that any day – complete or part-day – that includes sleeping in Portugal shall be considered as a day of presence in the Portuguese territory.
Furthermore, during 2009 the government created a tax regime for non-habitual tax residents who would normally qualify as tax residents in Portugal under the domestic rules. The regime would resemble the one foreseen for nonresident individuals in Portugal (such as, taxation on employment Portuguese-source income at a special 20 percent rate).
The aim of this regime is to attract specialized foreign professionals. Certain conditions, as follows, would have to be met in order to apply for it:
The individual will be required to qualify – under the domestic rules – as a resident in Portugal for tax purposes in every year of the above referred 10-year period in order to benefit from the taxation applicable to non-habitual tax residents. In case the activity performed by the individual is considered to be high-value added (defined by a Ministerial Order no. 12/2010, of 7 January), the income derived from this activity will be taxed at a special rate of 20%.
This regime also allows that a tax exemption apply to the foreign-source income received by the individual, if certain conditions are met (namely, if the referred income is subject or if it could be subject (depending on the type of income) to tax in the country of the source, according to the rules of the applicable DTT).
The request for registration as a non-habitual resident must be made up to 31 March of the year following the one that the taxpayer became a tax resident in Portugal.
Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.
If the assignee enters the country before the assignment begins, no tax implications arise from this situation. The assignee should register himself/herself and his/her family (if the family accompanies the individual on his/her assignment) with the Portuguese tax authorities (in accordance to the tax residency), in order to obtain a taxpayer identification number.
Individuals who do not meet any of the above residence criteria should qualify as a non-resident for tax purposes in Portugal and must change their tax registry to non residents and, whenever their new country of residency is outside the EU or the EEA, they are required to appoint a tax representative, which can either be a Portuguese tax resident individual or a company. In case the new residency country is within EU or EEA they are only required to provide their new tax address therein.
The tax registry should be updated within 60 days as of the change of the individual’s situation.
No tax implications should arise.
Do the immigration authorities in Portugal provide information to the local taxation authorities regarding when a person enters or leaves Portugal?
According to our experience, the immigration authorities do not inform the local tax authorities when a person enters or leaves Portugal.
Will an assignee have a filing requirement in the host country after they leave the country and repatriate?
No, provided that no Portuguese-sourced income was received in the relevant year or if the Portuguese-sourced income received was taxed at the applicable withholding flat rates.
Do the taxation authorities in Portugal adopt the economic employer approach3 to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Portugal considering the adoption of this interpretation of economic employer in the future?
Are there a de minimus number of days4 before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?
According to the Portuguese tax rules, there are six types of categories of personal income subject to PIT.
Are there any areas of income that are exempt from taxation in Portugal? If so, please provide a general definition of these areas. Please note that the amounts below refer to the 2018 limits.
Meal allowance up to EUR4,77 per day if paid in cash, or EUR7,63 if paid by lunch tickets.
Daily allowance for business travel
Daily allowance for business travel in Portugal up to EUR 50.20 [EUR 69.19 for Members of the Board] or up to EUR 89.35 [EUR 100.24 for Members of the Board] for business travel abroad.
Documented travel expenses or allowance for business travel when reimbursed by the company (range between EUR0.11/kilometer up to EUR0.36/kilometer, depending on the mean of transportation (public or particular) and on the number of employees, if it is a rented vehicle).
The Portuguese Personal Income Tax Reform introduced an exemption applicable to Portuguese tax resident individuals temporarily assigned to a foreign country (outbound assignees) on the employment income received, up to a limit of € 10.000, per year provided that:
Non resident individuals may also opt to benefit from this exemption under certain conditions (namely in case of option to be taxed as resident).
However, this does not cumulate with the non habitual resident regime nor with any other tax benefit.
Additionally, the government implemented an optional tax regime for nonresident taxpayers, who may choose to be taxed under the same rules applicable to Portuguese-resident taxpayers, whenever 90 percent of their total income received is employment income, self-employment income, and pension income obtained in the Portuguese territory.
This optional regime will only apply, however, to resident taxpayers in another country within the European Union (EU) or within the European Economic Area (EEA) – in this last case, provided that tax information is shared between countries.
The Personal Income Tax Code also provides tax credits for foreign taxes.
As Portuguese residents are subject to PIT on their worldwide income, income earned from a foreign employment is also subject to tax. Relief for foreign taxes is available. Non-residents will only be subject to PIT on their Portuguese employment income (that corresponds to income paid by a Portuguese entity or derived from the work performed in Portugal).
Txation of investment income
Portuguese residents are subject to PIT on all their investment income.
Investment income includes all profits and other economic advantages, regardless of its nature, paid in-cash or in-kind, arising directly or indirectly from patrimonial elements, assets or rights of a movable nature, as well as arising from their modification, transmission or termination.
With certain types of Portuguese or foreign-sourced investment income, residents may choose between either being taxed at the special tax rate or adding the income to the overall income and be taxed according to the general rules (progressive tax rates). Among investment income that may be excluded from overall income and taxed at reduced special rates, are the following:
Non-residents are subject to PIT on their Portuguese-sourced investment income through withholding at the same withholding flat rates.
Investment income paid by non-resident entities without a permanent establishment in Portugal, domiciled in jurisdictions with more favorable tax regimes, is liable to an autonomous tax rate of 35 percent.
Capital gains arising from the sale of shares or other moveable items are determined after taking into account the difference between capital gains and losses at the year-end. Capital gains and losses result from the difference between an asset’s sale value and the corresponding acquisition cost.
Capital gains relating to immovable property acquired after 1 January 1989 are assessed to tax at progressive rates on 50 percent of their value (for non-resident tax is assessed on 100 percent of the capital gain at a 28% autonomous rate). As to land for construction, it is subject to tax irrespective of the date of acquisition.
Capital gains arising from sale of shares are fully taxed at a 28 percent special rate. There is a possibility to adjust the shares’ acquisition value, by applying monetary coefficients set by the government, when the sale of the shares occurs at least 24 months after its acquisition date (in order to calculate the correspondent capital gain/loss).
Capital gains on the sale of unquoted equity of micro and small companies are only taxable in 50 percent.
Non-resident individuals are usually tax exempt but some anti avoidance rules may apply.
Portuguese residents are subject to PIT on the capital gains relating to Portuguese and/or foreign assets. Non-residents are only subject to PIT on their Portuguese-sourced capital gains relating to immovable property.
Rental income obtained both by resident and non-resident individuals is subject to tax at a 28 percent special rate. However, tax resident individuals are given the option to disclose such income with the overall income and to be taxed at the progressive tax rates up to 48 percent.
As of 2015 it is also possible to choose being taxed on the rents received under the rules applicable to business income.
Dividends and interest
Dividends and interest obtained both by resident and non-resident individuals are subject to a flat rate of 28 percent. However, tax resident individuals are given the option to disclose the dividends and interest with the overall income and to be taxed at the progressive tax rates up to 48 percent.
Dividends paid to Portuguese tax residents by Portuguese companies and EU companies that fall under the definition of article second of the2011/96/UE, 30 November, are only taxed on 50 percent of its amount.
|Residency status||Taxable at:|
According to the Portuguese applicable tax rules, losses arising from rental income and capital gains can be offset against profits of the same category. The period for the use of losses may vary between 5 and 6 years, respectively for capital gains and rental income.
Portuguese residents with employment income may deduct an amount corresponding to the greater of the following amounts:
In addition each taxpayer can also deduct:
Non-residents are not entitled to any deductions against employment compensation.
Portuguese residents may credit the following expenses incurred against their tax liability:
Limits to deductions
Besides the limits foreseen for each one of the deductions above, a global limit is introduced for deductions with expenses incurred in with health and health insurance premiums, education and training, rents or interest from housing loans, elderly homes, alimony pensions, VAT incurred and supported by invoices, as well as the deductions that are foreseen on the Tax Benefits Statute, as follows:
|Income brackets (EUR)||Limit (EUR)|
|Up to 7,035||No limit|
|From 77,035.01 up to 80,000.00||
Results from the application of the
€ 1.000+[(€ 2.500-€ 1.000)* ⌊(€ 80.000 - Taxable income)/(€ 80.000-€ 7.091)⌋]
|Over 80,000.01||EUR 1.000|
For families with 3 or more dependents
The limits referred to above will be increased by 5 percent for each dependent (or godchild) who does not qualify as a taxpayer.
In cases of divorce or legal separation of people and goods in which the parental authority is shared, the deductions for dependent will be considered in 50 percent of the respective value for each parent.
Resident and non-resident taxpayers are also entitled to deduct property municipal tax relating to a relevant property for personal income tax purposes. However, this tax amount is only deductible from gross rental income when declaring this type of income.
No information available.
How are estimates/prepayments/withholding of tax handled in Portugal? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.
Pay-as-you-go (PAYG) withholding
When are estimates/prepayments/withholding of tax due in Portugal? For example: monthly, annually, both, and so on.
Withholding tax is due on a monthly basis.
Is there any Relief for Foreign Taxes in Portugal? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?
In the case of Portuguese tax residents, the double tax treaties provide the credit system in order to avoid double taxation. Usually, the taxpayers earning income abroad are entitled to a tax credit on international double taxation, which is the lower of the following: income tax paid abroad or the taxes correspondent to the proportional part of income that is taxed abroad.
Portugal has a network of tax treaties covering taxes on income and taxes on capital (when applicable in the other countries) with most countries in Europe. When such a treaty exists, the tax credit may not exceed the tax paid abroad according to the terms of the treaty.
A tax exemption (with progression6) is applicable for non-habitual tax residents over their foreign-source income provided that such income is liable to tax on the country where it is obtained.
Under the foreign tax credit method, foreign tax paid may be claimed as a tax credit in Portugal up to the limit of the Portuguese tax that would be due over that foreign income.
Sample tax calculation7 assumes a married taxpayer resident in Portugal with two children whose three-year assignment begins 1 January 2013 and ends 31 December 2016. The taxpayer’s base salary is USD100,000 and the calculation covers three years. For 2018 we considered the above information – married taxpayer with two children, aged of 3yeard old
|Moving expense reimbursement||20,000||20,000||20,000||20,000|
|Interest income from non-local sources||6,000||6,000||6,000||6,000|
Exchange rate used for calculation: USD1.00 = EUR0.92
Calculation of taxable income
|Days in Portugal during year||365||365||366||365|
|Earned income subject to income tax|
|Total earned income||161.625||160.174||159.760||159.319|
|Deductions (Social Security):||14.385||14.385||14.385||14.385|
|Total taxable income||137.680||136.230||135.815||135.399|
|Other taxable income: interest*||5.526||5.526||5.526||5.526|
* 28% special rate.
Calculation of tax liability
|Taxable income as above||121.845||121.430||121.014||121.014|
|Portuguese tax thereon||45%||45%||45%||45%|
|Autonomous taxation on the interest||1.547||1.547||1.547||1.547|
|Domestic tax rebates (taxpayer, spouse and dependents)||-650||-650||-1200||-1200|
|Total tax due||43.367||43.806||43.985||42.890|
|Additional surcharge of 3,5%
Foreign tax credits
|Total Portuguese tax||47.112||47.510||46.694||42.890|
1Taxpayers required to file a tax return.
3Certain tax authorities adopt an "economic employer" approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but the employee's salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the "economic employer" and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country.
4For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the ‘economic employer’ approach.
5The reference remuneration for 2018 is the IAS (Indexante dos Apoios Sociais). However, the NMS in force in 2018 (EUR 580) continues to be used as the reference value, until the IAS (currently corresponding to EUR428.904) reaches that figure.
6Tax exemption with progression means that although the income will not be taxed, it will be added to any other income received for purposes of determining the applicable marginal tax rates.
7Sample calculation generated by KPMG & Associados – SROC, SA based on the Portuguese Personal Income Tax Code, enacted in 1989, updated as of January 2018, according to the Portuguese Personal Income Tax Reform as well as the 2018 State Budget Law .The amounts calculated for 2015, 2016 and 2017 are also based on the law in force in the respective year.