It’s time to submit your income tax return in Portugal

Lisbon: The deadline for submitting income tax returns in Portugal is approaching on June 30. This marks the final date for declaring all income from the 2023 tax year, including pensions, capital gains and rental income.

Portuguese tax residents must include all worldwide income in their annual tax declarations. With today’s global tax scrutiny and enhanced transparency measures in Portuguese legislation regarding high-value accounts, ensure that you declare all your income correctly.

An additional ‘solidarity tax’ of 2.5% applies to income between €80,000 and €250,000, and 5% on income over €250,000.

Investment income, including interest, shares, securities, and bonds, is taxed at a flat rate of 28%, though residents have the option to be taxed at the standard scale rates. Income derived from ‘tax havens’ such as Jersey, Gibraltar, and the Isle of Man, is taxed at a fixed rate of 35%.

Capital gains on property are taxed at the standard income tax rates. However, residents may qualify for exemptions and receive a 50% relief on capital gains after owning the property for two years.

As a Portuguese tax resident, you are required to declare all UK and other foreign income in Portugal, regardless of whether tax is paid in the source country or no tax is due under the non-habitual residence (NHR) regime.

UK government service pensions do not attract Portuguese taxation, but still need to be declared on your tax return. Gains and rental income from UK real estate are liable to tax in both countries. The UK/Portugal tax treaty provides tax credits in this situation, though you pay whichever amount is higher.

UK pensions and investment income such as bank interest, dividends, ISAs, and Premium Bond winnings are taxable solely in Portugal for residents here.

All worldwide income is considered when calculating your total tax liability in Portugal, whether it is taxed in Portugal or not, which may place you in a higher income tax bracket.

By default, taxpayers in Portugal are assessed individually. However, married couples or those living together for two years can opt to file a joint tax return if you are both tax resident here. The combined income is divided by two, the relevant tax rate applied to each half-share and the resulting tax liability doubled to determine the total taxable income. This approach can be tax-efficient, particularly when one partner earns significantly more than the other.

Individuals with non-habitual residence status are taxed at a flat rate of 20% on employment income. They also benefit from tax exemptions on most foreign-source income, including pensions, rental income, interest, dividends, and capital gains on real estate.

While this regime has now closed to new applicants on December 31, 2023, individuals already holding NHR status continue to benefit from the regime until their 10 years comes to an end.

The final payment of your Portuguese tax bill is due within 30 days of the assessment date issued by the tax office. However, if your income is taxable in both Portugal and another country and qualifies for double taxation relief (such as gains on UK real estate), the deadline may be extended.

Under the Common Reporting Standard (CRS), numerous countries are sharing taxpayer information, allowing Portuguese tax authorities to automatically receive data on taxpayers’ overseas assets and income. Portugal has also enacted a tax avoidance bill requiring banks to inform the tax office of any accounts valued over €50,000, increasing transparency significantly. Failure to submit accurate and timely returns can result in severe penalties.

Cross-border taxation is highly complex. It is advisable to seek specialist advice to avoid errors or excessive tax payments. For assistance with completing your tax return, consult a tax accountant. For guidance on effective tax planning in Portugal, consult a cross-border tax and wealth management specialist. They can help you achieve favourable tax treatment while ensuring you meet your tax obligations both in Portugal and the UK.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.