PERSONAL INCOME TAX (IRS) IN PORTUGAL

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PERSONAL INCOME TAX (IRS) IN PORTUGAL

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PERSONAL INCOME TAX (IRS) | PORTUGAL

Personal income tax (IRS) applies to the income of citizens resident in Portuguese territory and non-residents who earn income in Portugal.

The tax is determined with reference to the income earned, the corresponding rate being applied according to the relevant band and taking the deductions laid down by law into account (e.g. education or health expenditure).

IRS is calculated individually, but couples and civil partnerships can opt to file jointly. In this case, tax is charged on the total revenue of the persons in the household.

The information in this section is organized as follows:

  • IRS and tax address
  • tax residents
  • non-habitual resident (special status)
  • filing the IRS return
  • payment of taxes
  • cross-border workers
  • pensioners
  • conventions to avoid double taxation

IRS AND TAX ADDRESS

Before filing your tax return, ensure that all information relating to your current situation is correctly entered on the website of Tax and Customs Authority (Autoridade Tributária e Aduaneira, AT), the body responsible for finance and for processing IRS.

This applies in particular to reporting your tax address, the address considered to be your official residence. Keeping your tax address up-to-date is not only a statutory requirement but is also very important: to obtain tax advantages (e.g. exemption from municipal real estate tax (Imposto Municipal Sobre Imóveis)) and to avoid possible penalties (fines of up to EUR 375).

If you move house on a temporary or permanent basis, you must change your address on your Citizen’s Card, since by changing the address on this card you are changing your tax address. Changing your tax address is a statutory requirement that can be completed online on the AT portal.

TAX RESIDENTS

If you are thinking of living or working in Portugal you must fulfil one of the following conditions to obtain a tax address in Portuguese territory:

  • remain for over 183 days, whether consecutive or not, within a 12-month period, beginning or ending in the year in which you request a tax address
  • have accommodation (your own or rented) that you intend to maintain and occupy as your habitual residence, on any day in the
  • period referred to in the preceding point
  • be a member of the crew of a vessel or aircraft providing a service to bodies domiciled or based in or actually managed from Portugal
  • perform public functions or commissions abroad, at the service of the Portuguese State, including functions of a Member of the European Parliament
  • have Portuguese nationality but a tax residence in another country, territory or region, subject to a tax regime which is appreciably more advantageous, and which is on the list approved by the Portuguese tax authorities.

NON-HABITUAL RESIDENT (SPECIAL STATUS)

There is a special income tax scheme for foreign citizens who intend to come to live in Portugal or for nationals who are living outside the country and wish to return: non-habitual resident status.

This special status applies to non-residents in Portugal who have not been taxed as tax residents in the 5 years prior to the application for the status, and it includes certain tax advantages, such as a lower rate of IRS, if the activity is considered to be high value added (list of activities in these circumstances).

To apply for this status, citizens must register as resident in Portugal. See the Tax and Customs Authority portal for further information on the conditions required to obtain this status and the registration procedures for paying taxes.

The AT site also provides a tax guide for Portuguese communities resident abroad, which also includes relevant information on the international taxation of income.

FILING THE IRS RETURN

Who is required to submit the IRS return

People who receive income from employment, business, professional work, capital, property, assets and pensions in Portugal are required to declare such income. In certain situations, however, citizens are exempted from filing the IRS return.

The IRS return must be submitted by:

  • citizens resident in Portuguese territory – the income of all members of the household is taken into consideration, including income obtained outside Portuguese territory
  • non-resident citizens – only for income obtained in Portuguese territory which has not been subject to deduction at source.

Who is exempted from submitting the IRS return

In the year to which the tax relates, citizens who have only received the following, whether separately or concurrently, are exempted from submitting the IRS return:

income taxed by withholding taxes

  • employment income or pensions (total value up to EUR 8 500; for maintenance allowances, the limit is EUR 4 104)
  • subsidies or grants under the Common Agricultural Policy (annual value of EUR 1 743.04, corresponding to four times the value of the social support index (Indexante de Apoios Sociais, IAS) for earnings from employment or pensions, the amount may not exceed EUR 4 104)
  • ‘isolated act’ (ato isolado) (annual value of EUR 1 743.04, corresponding to four times the value of the IAS).

Exemption from filing the IRS return does not include citizens who opt for joint taxation, who receive temporary and lifelong annuities which are not intended for paying pensions, who receive income in kind and who receive maintenance allowances of a value in excess of EUR 4 104.

Confirmation of invoices

By 25 February each year, check that your invoices and receipts have been duly submitted by economic agents, record or supplement the invoices and ensure that invoices are entered in the appropriate expenditure section on the Tax Portal.

A password may also be requested from the Tax Portal, via the ‘Register’ option, by completing the application form with your personal data. It will subsequently be sent by post to your tax address, within an estimated period of 5 working days.

Deadline for filing the return

Citizens must submit an annual return relating to income for the preceding year and other information relevant to their tax situation.

The deadline for submission of the IRS return is from 1 April to 30 June, irrespective of whether the latter is a working day or not. It is obligatory to file the return online via the Tax Portal.

Taxation of taxpayers who are married or in civil partnerships

As a general rule, taxpayers who are married or in civil partnerships file an individual tax return in which they must include 50% of the income of dependents who form part of the household.

As already stated, however, a couple may opt for joint taxation, submitting a single IRS return which includes all income obtained by all members of the household. This option is valid only for the year concerned, i.e., in each year they may choose whether to file their tax return individually or jointly.

Automatic tax return

On the Tax Portal, the Tax and Customs Authority provides a provisional tax return and the corresponding provisional assessment, i.e., the estimated amount to be paid or received. The user must verify whether the provisional return corresponds to their tax situation and to their household.

The automatic tax return is available for taxpayers who meet the following conditions:

  • they are resident in Portugal throughout the whole year
  • they do not have non-habitual resident status
  • they receive income only in Portugal
  • they receive income only from categories A (employment) and/or H (pensions)
  • they have not paid maintenance allowances
  • they are not entitled to deductions for paying maintenance allowances, for people with disabilities, for international double taxation, for other tax benefits and in addition to municipal real estate tax
  • they do not receive tax benefits except for pension savings schemes and sponsorship (provided they do not have as yet unpaid debts)
  • they do not have additions to income through failure to comply with conditions for tax advantages.

Tax return (model 3)

To file your tax return you must:

  • bring all the relevant documents together
  • log in to the Tax Portal
  • for authentication purposes, insert your NIF (tax identification number) and password for access to the tax portal, or authenticate yourself with your Citizen’s Card or the Digital Mobile Key
  • select File Return > IRS > Complete
  • obtain a pre-filled statement, check whether all the data are correct and correct them if necessary
  • use the ‘Validate’ button to see whether the statement has errors and correct them
  • use the ‘Simulate’ button to obtain the provisional calculation of the tax to be paid (to receive: rebate; to pay: payment statement; or nil)
    retain, if you wish, the information completed under ‘Record’
  • submit the statement using the ‘File’ button
  • take note of alerts, if any (they do not prevent submission of the return)
  • you can check the progress of the return under the ‘Consult return’ option, when you receive an e-mail from the AT stating that the return has been validated
  • correct the return using the ‘Correct’ option, if it contains central validation errors; the time-limit for correcting such errors is 30 days; if the corrections are not made within the time-limit indicated, the statement is regarded as void.

PAYMENT OF TAXES

Tax must be paid by 31 August of the year in which you filed your tax return, if the amount to be paid or received, i.e. the assessment, has been made by 31 July, or by 31 December, when the assessment is made by 30 November.

There are various ways to pay taxes if you are in Portugal, but they can also be paid if you are abroad.

If you have a tax payment statement and are not financially able to pay within the time period established, you can apply to pay by instalments in simplified form, provided you meet the conditions and fulfil the necessary requirements.

Debts of a value equal to or below EUR 5 000 can be paid in a maximum of 12 instalments, without providing a guarantee, provided you do not have other debts with the Tax Authority.

You must submit the application for payment by instalments electronically, via the Tax Portal, within 15 days of the time-limit for payment on the payment statement.

Complaints and appeals in the tax assessment procedure
In the event of an error in paying (assessing) individual income tax, you can apply for total or partial annulment within 120 days by means of an administrative appeal on the Tax and Customs Authority portal.

You can consult the legislation with the applicable articles of the tax procedure code regarding the legal forms available for submitting an administrative appeal.

CROSS-BORDER WORKERS

A cross-border worker differs from a migrant worker in that they live in one country and work in another, having a dual national relationship, i.e. a tax relationship with both countries.

Avoiding dual taxation

If you have settled in Portugal, the Tax and Customs Authority may regard you as a tax resident and tax you on all your earnings, irrespective of where they have been obtained.

However, if you have not updated your tax address to Portugal your country’s Tax Authority will continue to consider you to be a tax resident, requiring you to declare all your income, irrespective of the country in which it was obtained.

You are therefore in a situation of double taxation of income which may only be corrected after the fact.

To correct your tax residence in this situation you must apply for a tax residence certificate from the Tax and Customs Authority portal (Your Services / Obtain / Certificates / Apply / Tax Domicile), and it may be necessary to present additional supporting information, since the Tax Authority’s records are not amended automatically.

You can consult the list of countries with which Portugal has conventions to avoid double taxation on the AT portal.

On the AT portal you will also find the convention to avoid double taxation entered into with Spain, which is the only convention that has a specific regulation for cross-border workers [Article 15(4)], and the forms applicable to that convention.

Filing the IRS return

Submission of the IRS return and procedures for making complaints and appeals against the tax procedure (IRS) are the same for cross-border workers as for national residents.

PENSIONERS

Tax residence

The indications for updating the tax residence of pensioners who come to Portugal to live are the same as those for national residents.

Non-habitual resident

If you are a non-habitual resident, a status which includes pensioners, see the Tax and Customs Authority portal for further information on the conditions required to obtain such status and the registration procedures associated to payment of taxes.

The AT site also provides a tax guide for Portuguese communities resident abroad, which also includes relevant information on the international taxation of income.

IRS bands

The tax rates applicable to pensioners correspond to the same bands as those for national tax residents.

Submission of the IRS return and complaints
For pensioners, the filing of the IRS return and procedures for bringing complaints and appeals against the IRS payment procedure are the same as those for national residents.

CONVENTIONS TO AVOID DOUBLE TAXATION

You can consult the list of countries with which Portugal has conventions to avoid double taxation on the AT portal.

Each convention has its own article that deals with the income of artists and sports people and income arising from the exercise of public functions and from pensions, obtained in a State different from the State of residence.

On the AT portal you will also find the convention to avoid double taxation entered into with Spain, which as previously mentioned is the only convention with a specific rule for cross-border workers [Article 15(4)], and the forms applicable to that convention.

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