Planning for a Tax-Efficient Life in Portugal

Portugal is regarded as a tax-friendly location for expats, but taking full advantage of lower tax rates, allowances, and exemptions is reliant on having the right plans and strategies in place to keep your tax obligations to a minimum.

For example, professionals who are eligible for the revised NHR 2.0 tax treatment can benefit from considerable tax advantages. Still, those who fail to apply, or are unaware of the special tax status, would continue to pay taxation at the prevailing rates.

Our Portuguese wealth managers have compiled tips and guidance on some of the many tax categories and regimes that expats may need to be conscious of, including information about the foreign income and assets that may be taxable in Portugal if you become a tax resident – something that is frequently overlooked in tax planning.

The Portuguese Tax Residency Rules and Criteria

The best place to start when reviewing your obligations and tax position is to evaluate whether you are likely to become a Portugal tax resident or will be living part of the year in Portugal as a non-resident.

This is important because tax residents pay Portuguese taxes on all their earnings and assets worldwide, while local taxes only apply to incomes or assets held in the country for non-residents.

While tax residency can be complex, the general rule of thumb is that:

• Expats who spend 183+ days in Portugal each tax year are categorised as tax residents.
• Those with a habitual residence, or main home, on 31^st December each year are normally also treated as tax residents, even if they spend a little less than six months in the country.
• Foreign nationals who share a home with a Portuguese tax resident who is the main visa holder are typically classified as tax residents.

If you’re unsure of your tax status or are one of the many expats who qualify for tax residency taxation in two locations, it’s advisable you contact the Chase Buchanan team as soon as possible to ensure you clarify your position and apply the relevant double tax treaties to avoid a duplicate tax burden.

Income Tax Brackets and Rates for Expats in Portugal

Income tax in Portugal is called the Imposto sobre o Rendimento das Pessoas Singulares (IRS) and works on progressive scales, similarly to the UK, and covers a range of income sources, including:

• Employment and self-employment earnings
• Returns on investments
• Rental incomes
• Capital gains
• Pension benefits

In addition to IRS rates, as shown in the following table, residents also pay a solidarity surcharge of 2.5% on incomes above €80,000 and 5% on incomes exceeding €250,000.

Paying Tax on Foreign Income and Earnings as a Portuguese Resident

Tax residents apply the same progressive tax rates to their incomes and assets arising in any country. However, US expats can claim the Foreign Earned Income Exclusion (FEIE) and exclude up to $130,000 from their foreign taxable income for 2025.

Some foreign nationals may also be eligible for the Non-Habitual Residence Programme, which was updated recently and is now referred to as the NHR 2.0. Designed for expats who work in specific professions, including academia and science, the tax incentives are compelling:

• Exemption against Portuguese taxation on most foreign source incomes, including interest, capital gains, rental income and dividends.
• Flat rate 20% tax rate payable against employment or self-employment income in Portugal.

One aspect to note is that the new NHR scheme does not provide a tax exemption against pension incomes, which means any benefits drawn while living in Portugal will be subject to the full tax rates on the scales we’ve shared above.

Pre-existing residents who had already successfully applied under the original NHR regime can continue claiming special tax treatment for the full ten years from the start date.

Understanding Which Assets and Incomes Will Be Taxable in Portugal

Foreign national tax residents are subject to tax in Portugal on all assets and incomes, as we’ve explained, but this differs slightly for non-residents. Only income that arises within Portugal is exposed to local taxation, with a standard flat-rate tax of 25%.

This can vary between income categories as follows:

• Rental incomes from property assets are applied at rates of between 10% and 28%
• Dividends and interest income are taxable at a 28% flat rate
• Capital gains tax on the sale of shares, property, cryptocurrencies and other movable assets is applied at 28%

Exemptions apply, such as against capital gains tax on the profits arising from property sales, if the real estate was purchased before 1989, and in some cases where the individual is reinvesting the proceeds in another EU-based property.

Rental income for non-residents varies because the tax liability depends on the lease terms. Short-term rental contracts, for example, attract a full 28% tax rate, whereas long-term leases for residential homes can be taxed from 5% on a sliding scale, with the lowest rates for leases that exceed 20 years.

The Portuguese Withholding Tax System

Expats relocating to Portugal with business interests, or those intending to set up their own business in the country, may need to incorporate withholding tax into their budgets. This tax applies to payments made by companies to other organisations and individuals, such as:

• Dividend payments
• Interest transactions
• Royalties

Foreign national tax residents planning to run a business and factoring dividend disbursements into their budgets should account for the 25% withholding tax rate, payable against transactions made to residents and non-residents at the same rate for most types of payments.

Expert Guidance to Maximise Your Tax Efficiency as an Expat in Portugal

We’ve touched on just a few of the primary queries and stumbling blocks expats experience when they relocate to Portugal, and it remains wise to seek independent, personalised advice to ensure your tax affairs are in order and that you’re utilising all available tax efficiency measures.

For further details about the Portuguese tax system, you are welcome to download our free Guide to Portuguese Taxes or to get in touch with the team at Chase Buchanan Private Wealth Management.

All investments carry risk, including the potential loss of capital. You should carefully consider whether investing is suitable for you, taking into account your personal circumstances, financial situation, and risk tolerance.

*Information correct as at August 2025