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How to set up your taxes in Portugal

Table of Contents
I.How to set up your taxes in Portugal?
1. 1.How it works
1. 1. 1.How much will I be paying for taxes?
1. 1. 2.Big potential for foreign business owners
1. 1. 3.Social Security Contribution
1. 1. 4.Example of how this taxation works
1. 1. 5.High-Income Earners
1. 2.Pros & Cons
1. 3.How to qualify for the NHR Visa?
1. 3. 1.Step 1: Providing proof of Residency
1. 3. 2.Step 2: Getting a NIF Number (Portuguese Tax Identity Number)
1. 3. 3.Step 3: Registering as a Tax Resident in Portugal
1. 3. 4.Step 4: Applying for NHR Status
1. 3. 5.Fees
1. 4.How does Portugal benefit from this system?
1. 5.What the nomads say
Who will this be the most beneficial for? Fully Nomadic, Location Independent & Remote Workers that have the right to live and work in the Schengen Area. The program may also be useful for Non-EU Remote workers who have managed to obtain a long term residency within Portugal.
Difficulty of applying from 1-5: 3
Are there any citizens of specific countries that can’t apply? There are no restrictions on who can apply to this program, however, it is targeted more towards the EU/EEA/Swiss citizens and those able to obtain the ‘Golden Visa’. Anyone who cannot live and work within the Schengen area may find the process significantly harder.
What % of the process can be done online? 70% - 80%

How to set up your taxes in Portugal?

The Non-Habitual Resident visa/NHR can allow you to be a tax resident of Portugal and benefit from their unique tax regime for ten years. Essentially, with the NHR, all Portuguese sourced income made by:
  • working at a Portuguese company
  • providing services within Portugal as an employee of a foreign company or as a self-employed individual
is taxed at a flat rate of 20%, with a social security contribution placed on top (see technicalities below). You will be taxed within normal progressive tax bands if your work is not categorized under one of these professions.

How it works

How much will I be paying for taxes?

As mentioned, you will be taxed at a flat rate of 20% unless you don't qualify for the preferential tax regime (depending on the categories you fit listed above). Luckily, most remote workers should qualify and are generally placed into the brackets of a computer programmer, consultant, designer, manager or a provider of other information and service activities. The latter term is extremely broad and can be made to include almost any remote profession.
So, we’ve looked at tax regulations for earnings generated within Portugal, but what about foreign-sourced revenue? The good news is that a lot of income generated abroad is generally tax-free; however, there are a few caveats to this that are important to understand:
  • If the income you’ve generated from a foreign company as an employee or by working remotely is liable to Personal Income Tax (PIT) in your country of origin, this income will likely be tax-exempt in Portugal through the NHR program as it has already been taxed (possibly through a Pay As You Earn system (PAYE) if you are not paying taxes yourself in the country of origin).
  • Suppose no Personal Income Tax (PIT) has been applied to the income you’ve generated in foreign countries through employment or self-employment. It will be taxed at 20% as long as it falls into the categories of work mentioned above whilst you are a tax resident of Portugal.
  • If your generated external income has not been taxed abroad and does not fall into the listed categories of work, then it will likely be taxed under the normal tax brackets (see below).
Other relevant sources of foreign income include dividends, rental income, capital gains and other sources of wealth generated outside of Portugal. These will be tax-exempt if the country where the revenue is produced has a double tax agreement (DTA) with Portugal or adheres to the Organisation for Economic Co-operation and Development (OECD) model. The OECD is an agreement making cross-border trade easier by removing tax-related barriers. Many countries adopt this model to encourage foreign exchange.

Big potential for foreign business owners

An important technicality that potential/existing foreign business owners should be aware of is the chance of benefiting from a 0% tax rate on dividends. Suppose you already have or have decided to set up a limited company within a country that has a low rate of Corporate Income Tax (CIT) or Personal Income Tax (PIT) on dividends. In this case, you could still reap the benefits of Portugal's 0% tax rate through the NHR program. People earning foreign dividends do not pay social security contributions.

Social Security Contribution

A social security contribution is also applied to the NHR and is placed on top of the 20% flat tax described above. This social security contribution is payable by employees at a rate of 11%. Employers are expected to make a 23.75% contribution on top of this. This social security amount is retained monthly if your company is in Portugal; otherwise, the monthly repayments will need to be made personally. If you work for a company in a foreign country that already imposes a social security tax on your salary, you can claim an exemption on this.
Self-employed workers/nomads will be expected to contribute 21.4% if they reach a monthly income of over 443,20 Euros per month. This contribution lies outside the NHR, which is still payable monthly and applies to 70% of your monthly income. These contributions are paid retroactively, so you may not have to pay anything within your first year as an NHR; however, you may be liable, say, a year after you leave the scheme.

Example of how this taxation works

If you are paid 1000 Euros a month, the NHR applies to 70% of that, totaling 700 Euros. This amount would then be taxable at a rate of 21.4%, making the taxable amount 149.8 Euros.

High-Income Earners

High-income earners may find this contribution particularly interesting as there’s a cap to the amount of social security taxation they’re liable to pay, limited to 12 times the minimum threshold. This threshold currently sits at 5318.40 Euros (2022), so a monthly contribution would be fixed at 1,138.14 Euros.

Pros & Cons

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  • The NHR allows you to obtain special individual tax treatment on income for 10 years.
  • You are liable for tax exemption on almost all foreign sources of income.
  • Compared to other Portuguese income tax rates up to 48%, this program offers a 20% flat rate on Portuguese-sourced incomes (from specific professions and self-employment).
  • If you earn foreign dividends you do not pay social security contributions, truly allowing you to pay 0% tax in Portugal.
  • You have the opportunity to gain tax residency within the EU in a white-listed country.
  • There is an exemption of tax on gifts or inheritance to family members.
  • This program does not apply a wealth tax.
  • There is free cash remittance to Portugal.
  • Once your Visa conditions have been satisfied, you will be free to move into the Schengen area.
  • After 5 years of tax residency in Portugal, you can become a permanent tax resident and claim citizenship.
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  • Anyone who can’t work in the Schengen area easily will find the process a lot more difficult.
  • All applicants will need to go to Portugal to register physically.
  • If the income you earn doesn’t fall into the specific categories of work, you may not be able to take advantage of the special tax rate.
  • It’s a fairly complex process. Many people utilize lawyers or agencies to smooth the process out, creating a considerable extra cost.

How to qualify for the NHR Visa?

To qualify for the Non-Habitual-Resident program, you have to:
  • Not have been a Portuguese tax resident for the past 5 years.
  • Have the right to reside in Portugal by being either: a European Union, European Economic Area or Swiss citizen.
  • A Golden Visa holder (Essentially a Passive Income Visa for non-EU).
  • A successful migration application for non-EU citizens.
  • Have an address in Portugal.
  • Ideally, you would reside in Portugal for more than 183 days a year. If you don’t, that is still acceptable as long as you have the right to live there permanently. EU/EEA, Swiss Citizens, and Golden Visa holders have this right. You will need to prove your intent to reside within Portugal by having a fixed address.
  • The exception to this rule is for Non-Eu citizens who have applied through the typical immigration process and need to stay in the country for six consecutive months per year for the first two years or eight consecutive months per year.
Important Although you are not obliged to stay in Portugal for 183 days as a permanent resident, it’s important that you do not remain for 183 or more days in any other country within a year. This is because by doing so, your tax residency would change to the country where you have spent all that time and either your NHR would be canceled, or you would be liable for double taxation.

Step 1: Providing proof of Residency

The first step you’ll be expected to complete involves proof of residency. You will need to offer evidence that you have the legal right to reside within Portugal. Citizens of the EU, EEA or Switzerland can register without a visa. They can register for the program in their region's city hall or appropriate government office. You will be expected to bring your passport and European Health Insurance Card (EHIC) card to complete the procedure. You will also be asked for your current address but shouldn’t have to provide evidence, although having it on hand might not be a bad idea. Non-Eu citizens will first have to receive a residence permit allowing them to settle in Portugal. Once that has been done, they can obtain the permit in various ways, the most popular being via the Golden Visa Program or by proving their passive income. These processes can be done either online via the SEF website here or in their country's Portuguese embassy.

Step 2: Getting a NIF Number (Portuguese Tax Identity Number)

Once that has been done, you will need to get yourself a Número de Identificação Fiscal or NIF number. This is a nine-digit tax identification number. You will need it to do business and manage any other official or legal activities within Portugal. While non-residents can obtain this number through a representative, agency or lawyer within Portugal, residents who are based within the country can get it directly from the finanças or local tax office. If you’re going in person, make sure you bring your proof of residency and official identification documents.

Step 3: Registering as a Tax Resident in Portugal

Once you’ve obtained your Portuguese Tax Identification Number, you need to register as a tax resident in the finanças/tax office in person.

Step 4: Applying for NHR Status

Finally, you will need to register on this government website. You’ll be expected to provide your NIF number, email address, phone number and a fiscal address. Once done, you will get a password by post in around two weeks. Once the letter has been received, you can complete the application here. Make sure, when applying, you have the following documents on hand: - A document that states you were not a tax resident in Portugal for the preceding five years. - The past five years’ tax returns. - A rental agreement or a deed for a property in Portugal.

Fees

Although there are no specific costs involved in applying for the programme, you will likely need to hire someone to help you through the process, as it can sometimes be fairly convoluted. The cost for assistance with the application process is around 200 EUR+ and could rise dramatically for Non-EU nationals. An accountant will set you back around 200 EUR a year for simple bookkeeping to keep your finances in order.

How does Portugal benefit from this system?

Portugal has managed to draw a significant amount of business its way by employing this program. Although there have been a few tweaks to the program over the past ten years or so, the program has still been hailed as a great success for drawing in considerable investment. It’s a fairly robust, established program and shows no signs of being disbanded anytime soon as it continues to garner significant support from the government.
Many NHRs eventually purchase property and bring a considerable amount of money into local economies.

What the nomads say

“Applying for the Non-Habitual Residency was very easy and fast as I did everything online through the E-residence website. The best part of NHR for me is that if you are a citizen of the European community and have an address in Portugal where you can be registered, you do not have to comply with a minimum stay regime.
I was drawn to the program because of the ten year fixed tax rate, but what I found that no one told you is that from the second year of NHR ‘residence’ you are obliged to pay the monthly social security fee, this is something to keep in mind as it’s really expensive.” Abril Carli - Graphic Designer

About the author

Luke Poulson

Researcher & Writer
Luke has been traveling around the globe for the last decade and is currently based in Chiang Mai, Thailand. He's been working remotely on everything from directing music festivals, to online ESL coaching, to writing and contributing as a researcher for Borderless. He is a passionate advocate for the modern nomadic way of life and enjoys getting others started on their journey towards remote living.

Nick Georgilopoulos

Founder | Business Strategy Consultant
The Consulting Company & Pnyca
Nick is a business strategy consultant, currently based in London but traveling the world. He is the founder of The Consulting Company, which specializes in startup and SME growth, finance, operations and tax optimization. Coming from a Mechanical Engineering background but with extensive knowledge in finance, tax law and project management, Nick is a problem solver at heart. He is also building Pnyca - an app reinventing democracy and citizen engagement.